Key Takeaways
- Section 10.37 establishes single standard for all written tax advice.
- Advice must be based on reasonable factual and legal assumptions.
- Must consider all relevant facts known or reasonably ascertainable.
- Cannot assume return won't be audited or issue won't be raised.
- No special disclaimers required (eliminated the old "covered opinion" rules).
- Cannot rely on representations known to be incorrect.
Written Advice (Section 10.37)
Why This Matters for the Exam
Written advice standards were simplified in 2014, but the exam still tests the core requirements. You must understand what "reasonable assumptions" means and what assumptions are prohibited.
Expect at least 2-3 questions on written advice requirements.
The Single Standard (Since 2014)
All written tax advice is now subject to the same standard—there is no longer a distinction between "covered opinions" and other advice.
Old Rule (Pre-2014): Different standards for "covered opinions" vs. other advice, with extensive disclaimer requirements.
Current Rule: One standard for all written advice, no special disclaimers required.
Requirements for Written Advice
| Requirement | Description |
|---|---|
| Reasonable factual assumptions | Base advice on facts that a reasonable person would assume |
| Reasonable legal assumptions | Apply law correctly to the assumed facts |
| Consider all relevant facts | Include facts known or reasonably ascertainable |
| Reasonable reliance | Can rely on others' work if reasonable to do so |
Prohibited Assumptions
Practitioners cannot assume:
| Prohibited Assumption | Why Prohibited |
|---|---|
| Return won't be audited | "Audit lottery" thinking |
| Issue won't be raised on audit | Can't assume IRS will miss it |
| IRS will settle favorably | Can't assume favorable resolution |
| Client representations are true when known to be false | Can't ignore known falsehoods |
The "Audit Lottery" Prohibition: You cannot give advice based on the assumption that the IRS won't catch a questionable position. Every position must stand on its merits.
Fact-Finding Duties
Practitioners must:
- Ask questions to understand the client's situation.
- Consider all facts known to the practitioner.
- Make reasonable inquiries about facts that should be known.
- Not ignore facts that are reasonably ascertainable.
Reliance on Others
Practitioners can rely on:
| Can Rely On | Limitation |
|---|---|
| Information from the client | Unless known to be incorrect |
| Work of other professionals | If reliance is reasonable |
| Appraisals and valuations | From qualified appraisers |
| Legal conclusions from attorneys | If within attorney's expertise |
No Disclaimer Requirements
The old Circular 230 disclaimer requirements ("This advice is not intended...") have been eliminated.
- No need to include disclaimers on emails.
- No special format requirements.
- Just meet the substantive standards.
Real-World Scenario
Scenario: A client asks for written advice on whether a transaction qualifies as a like-kind exchange under §1031. You provide a memo concluding it qualifies.
- Required: Base the memo on reasonable factual and legal assumptions. Consider all relevant facts you know or should know.
- Prohibited: Cannot assume "the IRS probably won't audit this" as a basis for the advice.
- If facts change: Update the advice if new facts emerge that affect the conclusion.
On the Exam
Expect 2-3 questions on written advice, typically:
- Assumption Questions: "What must written advice be based on?"
- Prohibition Questions: "Can practitioners assume a return won't be audited?"
- Disclaimer Questions: "Are Circular 230 disclaimers still required?"
The key is to remember: Reasonable factual and legal assumptions. Cannot assume no audit. No special disclaimers required.
What must written tax advice be based on?
Can practitioners assume a return won't be audited when giving written advice?
Are Circular 230 disclaimers still required on tax advice emails?