The New Tax Shelter Opinion Letter Regulations: Cutting Back on a Client's Ability to Rely on the Advice of His Counsel

Abstract

On December 31, 2002, the U.S. Department of Treasury ("Treasury") issued Proposed Treasury Regulations ("Opinion Regs") relating to the issuance of tax opinions by counsel on matters that are "reportable transactions. However, in general, the Circular 230 changes would only further penalize accountants and attorneys who give tax shelter advice and the TSTA would only add further penalties to the administrative structure put in place by the Treasury during 2002 on tax shelters. The second proposed regulation change would affect Treas. Reg. 1.6664, which would limit the ability of a taxpayer to rely on outside advice in order to meet the reasonable cause exception to the accuracy-related penalties. The Treasury seems content with deterring clients from relying upon the advice of attorneys when there is a reportable transaction which was not adequately disclosed. The fact that a client cannot rely upon the advice of their attorney to satisfy the reasonable cause and good faith exception to accuracy-related penalties, interferes with the attorney client privilege, and puts clients in a disadvantaged position where they can no longer trust their attorneys advice on matters of potential "reportable transactions. The reliance issue is a problem because the Opinion Regs have included language, which will exclude an attorney's advice from the good faith exception to an accuracy-related penalty.