Abc Corporation Case

Its 9 AM on a Tuesday morning. You are in a meeting at ABC Corporation giving your best pitch to win all their future tax work. As the meeting is winding down, the CFO asks you what can he do with all the carried over Net Operating Losses (NOLs) for his company. You are not an expert in the field, but in theory, you tell him he can use them to offset all his companies’ gains for the current year and end up paying no taxes.. The CFO says great and lets you know that your group should be expecting a call in the near future for work. A few months down the road, you get a call from ABC Corporation, but it’s from their lawyers. You are being sued for having given negligent advice. You never considered the AMT tax, and ABC Corporation, while able to use their NOLs to offset their income; they had to make adjustments that led to some AMT tax owed. You gave incorrect advice without having a signed engagement letter or statement of work agreement in place and because of such; you will have to go to court to defend your company.

It’s becoming the norm now to see on almost every written document “Pursuant to US Treasury Department Circular 230, we inform you that, unless expressly stated otherwise in the text, if any tax advice is contained in this email and/or its attachment(s), it is not intended or written to be used, and cannot be used, by you or any other person for the purpose(s) of avoiding tax penalties or promoting, marketing or recommending any transaction or matter to any other person.” The U.S. Treasury and the Internal Revenue Service published regulations governing practice before the Internal Revenue Service, which became effective for written U.S. federal tax advice June 20th, 2005. These regulations are termed “Circular 230,” which have since been updated. To understand the importance of the disclaimer paragraph in emails, like the one above, and why it is essential for attorneys, Certified Public Accountants (CPAs), and Enrolled Agents (EAs) and other tax practitioners to capture this message, we need to look at where Circular 230 and its updates came from, what it is, its importance, and who it impacts.

What makes tax practitioners so valuable is their ability to understand the complexities of the United States tax system and distribute that information on to their clients. Clients put a premium on tax savings and will pay top dollar to a licensed tax practitioner who can help