Lawyers, accountants and other tax advisers would be required to take certain steps when weighing in on a client's use of a tax shelter, the Bush administration proposed Monday in its latest effort to crack down on dubious tax-avoidance schemes.
The Treasury Department's proposed rules are aimed at tax advisers who provide wealthy clients with opinions on whether proposed tax-advantaged transactions would withstand an IRS challenge.
The proposed rules, among other things, would require tax advisers to provide detailed information in their opinions, including applicable tax laws and other facts, to support a claim that the tax shelter is legal.
Advisers also would need to inform clients about what protections, if any, an opinion provides. "For example, tax advisers would have to advise clients about issues that the opinion does not address and warn the client if the opinion will not protect the client against penalties," the department said.
The proposal also describes "best practices" that tax professionals should use when providing advice to clients. These best practices include, communicating clearly with the client about the scope of the advice given and arriving at a "conclusion supported by the law and the facts," the proposal says.
"We are proposing a set of best practices that makes clear that tax professionals should adhere to the highest ethical standards and ensure that their clients are well advised of the law and any risks they are taking," said Pam Olson, Treasury's assistant secretary for tax policy.
Tax shelters are investment strategies aimed at shielding income from taxes; some are legal and others can be deemed by the IRS as outside the bounds of the law.
Business people and the public will have a chance to give the government their thoughts on the proposal. Comments are due Feb. 13. The IRS will hold a public hearing on the proposal on Feb. 18. The proposal could be revised before a final rule is adopted.
