Circular 230.

• Author: Laffie, Lesli S.
• Position: IRS standards for tax shelter opinions

Proposed regulations on Circular 230 (NPRM REG-111835-99) would clarify general standards of practice before the IRS and modify the standards for providing tax shelter advice.

Two sections of the proposed regulations provide standards for tax shelter opinions. One section would apply to all shelter opinions that conclude that the Federal tax treatment of a tax-shelter item(s) is (are) more likely than not the proper treatment. The proposals would apply to all shelter opinions not governed by the new section that a practitioner knows (or has reason to believe) will be used or referred to by persons other than him to promote, market or recommend a tax shelter.

The proposed regulations would exclude opinions on municipal bonds and qualified retirement plans. Comments are requested on whether the regulations should exempt other transactions from the requirements for shelter opinions and, if so, the types of other transactions that should be exempted.

The current regulations govern advice by a practitioner on the Federal tax aspects of a tax shelter appearing or referred to in offering materials, or used or referred to in connection with sales promotion efforts and directed to persons other than the client who engaged the practitioner to give the advice. The proposed regulations would include a tax-shelter opinion that does not conclude that the Federal tax treatment of an item(s) is more likely than not the proper treatment and that a practitioner knows (or has reason to believe) will be used or referred to by persons other than he to promote, market or recommend the tax shelter to one or more taxpayers.

The proposed regulations would govern shelter opinions prepared for use by third parties that are promoting the shelter, regardless of whether the promotional efforts are conducted publicly or privately. They would modify the definition of a material Federal tax issue and define a "shelter item" as an item of income, gain, loss, deduction or credit if it is directly or indirectly attributable to a tax shelter.

Under the proposals, a practitioner who provides a written opinion on a tax-shelter item(s) would be required to comply with each's requirements. He would be required to inquire as to all relevant facts, be satisfied that the opinion takes account of all relevant facts and that the material facts are accurately and completely described in the opinion. Further, the opinion could not be based (directly or indirectly) on any unreasonable...