ABA Formal Opinion 346 and a New Statutory Penalty Regime

Abstract

In January 1982, the American Bar Association released Formal Opinion 346, less than two years after the Treasury Department issued proposed amendments to Circular 230. In its final form, Opinion 346 promulgated ethical and disciplinary standards for lawyers rendering opinions on tax shelter investments offered to nonclients. In that way, Opinion 346 differed significantly from ABA Formal Opinion 314, which governed advice to individual clients in the preparation of tax returns. When representing individual clients, the lawyer's relationship with the IRS was largely adversarial. But when providing a tax shelter opinion that the lawyer knew or should have known would be relied on by third persons, the lawyer functioned more as an adviser than an advocate.

The guidelines for tax lawyers in Opinion 346 responded directly to Treasury's 1980 proposed amendments to Circular 230. While officially restricted to legal opinions on tax shelter investment offerings, Opinion 346 examined the relationship between tax lawyers and the IRS in contexts that extended beyond the tax shelter marketplace into everyday tax practice.