STATEMENT 2000-1

To return to the Statement text, close this window.

Endnotes

¹ Other components of the accuracy-related penalty, i.e., valuation and pension liability misstatements, are not addressed here because adequate disclosure generally does not play a role in the application or nonapplication of these components of the penalty.

² A corporation, like other taxpayers, may avoid the application of the accuracy-related penalty by establishing reasonable cause and good faith under §6664(c), as noted in the next paragraph.

³ 39 Tax Law. 635, 638-39 (1986).

⁴ Model Rule 3.1 provides in part that a "lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of exiting law." Although the ABA Tax Section task force report denies the existence of a disclosure option where the realistic possibility standard is not satisfied (id. at 639), the ABA Tax Section advocated such an option for not frivolous positions in comments communicated to the Director of Practice on proposed amendments to Circular 230, ultimately reflected in §10.34 and discussed below. Letter from John B. Jones, ABA Tax Section Chair, to Leslie B. Shapiro, Director of Practice (February 12, 1987).

⁵ We assume here that the understatement of income tax is "substantial" and that the return position does not relate to a tax shelter. For situations where the understatement is not substantial, see (8), (9), and (10) below. For situations where the return position is related to a tax shelter, see (11) and (12) below.

⁶ The lawyer should advise the client against taking the return position and, if the client persists, should withdraw.

⁷ The taxpayer may escape the application of the substantial understatement component of the penalty if substantial authority exists and she is able to establish a good faith belief that the position was more likely than not the correct position. However, this opportunity is independent of disclosure.

⁸ We do not believe that a lawyer consulted solely to advise a taxpayer whether to disclose a tax return position should be viewed as an income tax return preparer under section 6694 or be subject to Circular 230 §10.34 with respect to that issue. To conclude otherwise effectively would deprive the taxpayer of the opportunity to seek legal counsel from a lawyer free of conflicts of interest.

BACK TO TOP