U.S. Department of the Treasury

(Archived Content)

FROM THE OFFICE OF PUBLIC AFFAIRS

The Treasury Department on Thursday will issue proposed regulations that would modernize the standards of practice for attorneys, accountants, and others who practice before the Internal Revenue Service. These standards, known as Circular 230, would be revised to include stricter requirements for rendering tax shelter opinions.

Abusive tax shelters are the most serious compliance problem in the U.S. tax system, Treasury Secretary Lawrence H. Summers said. These proposed measures would deter the purveyance of these shelters, protect the integrity of our tax system, and ultimately reduce the tax burdens of honest taxpayers.

The proposed regulations would modify existing standards of practice. In particular, the proposed regulations would revise standards for opinions rendered by tax practitioners regarding tax shelter transactions. These opinions give prospective investors an assurance that the purported tax benefit of a shelter is likely to be sustained if challenged by the IRS and may be offered in an effort to provide a potential investor comfort that penalties will not be imposed if the transaction is successfully challenged.

The new rules would strengthen the standards regarding factual due diligence and legal analysis. In particular, they would help ensure that practitioners analyze and address carefully whether a particular transaction has a legitimate business reason and is not being done solely for the tax benefits, and that they consider and analyze all potentially relevant judicial doctrines and anti-abuse rules. In addition, the proposed regulations would:

• prohibit certain contingent fee arrangements where the practitioner's fee is based on the tax benefit being sustained;
• require that practitioners in firms who have responsibility for a firm's tax practice take reasonable steps to put in place adequate procedures to ensure compliance with the Circular 230 standards; and,
• authorize the IRS to issue a public reprimand, or censure, in cases warranting a sanction less severe than suspension or disbarment.

Secretary Summers announced last February that the Circular 230 opinion standards would be revised to complement Treasury Department and IRS efforts to combat the proliferation of abusive tax shelters. The proposed regulations were completed following a period of public comment and input from the tax practitioner community, including the American Bar Association, the New York State Bar Association, and the American Institute of Certified Public Accountants. A public hearing on the proposed regulations is scheduled for May 2, 2001. The regulations will take effect only upon publication in final form in the Federal Register.

The Treasury Department has also issued regulations requiring the reporting and registration of tax shelters, shut down many tax shelter transactions that have come to Treasury's attention, and proposed legislation to further halt the marketing and promotion of shelters. In addition, the IRS has created an Office of Tax Shelter Analysis to coordinate its anti-shelter activities and stepped up its efforts to curb abusive trusts based in tax havens.