Tax Disclosure Legend
Memorandum To: Clients and Other Interested Persons
The purpose of this memorandum is to explain the recent appearance of a tax disclosure "legend" on certain written communications, including emails, from our firm.
The United States Treasury Department issued regulations that govern how attorneys provide certain written tax advice to clients that became effective on June 21, 2005. Although ostensibly aimed at advice concerning tax shelters, the language of the regulations is broad, and the precise scope of the regulations is unclear. The regulations generally require that written tax advice concerning a transaction be comprehensive, addressing all factual and legal issues in considerable detail. The regulations, however, contain numerous exceptions designed to accommodate situations in which such detailed advice is unwarranted. In order to satisfy several of these exceptions, the written advice must contain certain disclosure statements. To ensure compliance with the regulations, major law firms, including ours, are including disclosure legends routinely on correspondence from practice groups that may be providing United States federal tax advice.
In many instances, if we were not to include the legend in our correspondence, the regulations would require us to provide a lengthy formal opinion. Of course, we would consider providing such an opinion if a client were to ask specifically that we do so. It is often the case, however, that clients do not require such opinions. The legend enables us to provide written advice in numerous circumstances in which limited advice is appropriate and sanctioned by the regulations.
The legend is attached to all outbound e-mails from the firm above the confidentiality footer and to other written correspondence from the firm that that may bear on United States federal tax issues. The legend reads as follows:
This communication is not intended to be used, and cannot be used, by the recipient or any other person for the purpose of avoiding United States federal tax penalties that may be imposed on the recipient or such other person. In addition, if any United States federal tax advice contained in this communication is used or referred to in promoting, marketing or recommending any corporation, partnership or other entity, investment plan, concept, structure or arrangement (which should be assumed to be the case by a recipient or other person who is not our client with respect to the subject matter of the communication), then (i) such tax advice should be construed as written to support the promotion or marketing of the transactions or matters addressed by the advice and (ii) the recipient or other person should seek advice based on the recipient or other person's particular circumstances from an independent tax advisor.
Although the legend states that certain advice may not be relied on to avoid penalties, it does not go to the strengths or weaknesses of the taxpayer's position in a particular situation. The preparation of an opinion that satisfies the regulation's requirements involves a detailed review of the law and facts pertaining to a client's federal tax situation. If the client believes that it may have potential exposure to penalties (e.g., by reason of a possible substantial understatement of tax), we recommend that the client engage this firm or other qualified tax advisors to undertake that process and prepare such an opinion.
If you have any questions regarding the legend or the regulations in general, please do not hesitate to contact John A. Shutkin, our firm's general counsel ((212) 848-4910), or Alfred C. Groff, a member of our firm's tax opinion committee ((202) 508-8090).
Shearman & Sterling LLP.
|
|
|