March 28, 2006
Hymel, Schneider & Dixon on Impact of the New Anti-Tax Shelter Rules on Non-Tax Shelter Lawyers and Accountants
Mona L. Hymel (Arizona), Steven R. Schneider (Miller & Chevalier, Washington, D.C.) & Steven R. Dixon (Miller & Chevalier, Washington, D.C.) have posted Impact of the New Anti-Tax Shelter Rules on Non-Tax Shelter Lawyers and Accountants, 64 NYU Inst. Fed. Tax'n ___ (2006), on SSRN. Here is the abstract:
After many proposed and temporary regulations and recent legislative changes, major portions of the new anti-tax shelter rules are now final. Although targeted at abuses, the regime is broad and can unexpectedly impact lawyers and accountants involved in common business transactions. This article is meant to help tax practitioners navigate these complicated rules in daily practice addressing questions such as . . . There are so many rules - which apply to taxpayers and which apply to advisors? Do I need to worry about disclosure even when I don't have a tax-motivated transaction? What if I didn't disclose a transaction that I now understand to be a reportable transaction? What are my options? My partnership sent me a listed transaction protective disclosure - does this affect my personal return? I am a taxpayer - should I care if my advisor's correspondence states that it does not provide me penalty protection - What am I paying them for? I am an advisor - if I add the Circular 230 caveat to all of my correspondence, is it business as usual? If I prepare tax returns, am I governed by the Circular 230 rules on "covered opinions"? What if I prepare studies or reports for taxpayers under section 382 or section 482? Should I be nervous if someone tells me my e-mail was a covered opinion on a transaction where I am a material advisor on an undisclosed reportable transaction that is also a "listed transaction"? We answer these questions at the end of this article. This article focuses on two pieces of the anti-tax shelter rules: (1) the rules that define "reportable" transactions and require taxpayers and advisors to disclose those transactions and (2) the Circular 230 rules that govern tax opinions. The article does not discuss other parts of the regime such as (i) the strengthened reasonable cause exception and the disqualified advisor/opinion rules under new section 6662A; (ii) individual state tax shelter rules; and (iii) audit independence rules for accounting firms doing tax work for their audit clients.
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Among the more interesting points raised in the paper are:
(1) return preparation is practice before the Service when done by practitioners; and,
(2) return preparation where the practitioner makes substantive determinations and provides a report to the taxpayer looks a lot like providing written advice.
Personally, I would disagree with the way the first point was stated. I'd describe return preparation as practice before the Service with an exception in §10.7 that allows any individual to prepare returns. My description makes it clear that OPR might use a facts and circumstances approach to impute return preparation to a practitioner (and any related activities performed by non-practitioners that would be sanctionable if performed by a practitioner).
The second point is obvious, but if my description of the first issue is an accurate description of what OPR may do, it could wreak havoc on unsuspecting software companies that provide tax reports that make substantive determinations and who also employ practitioners, especially if you recall that the Service considers software companies return preparers under one of the major return preparer revenue rulings, Rev. Ruls. 85-186 through 189.
Posted by: Brian | Mar 29, 2006 11:30:08 AM