3. Ethical Problems for Tax Lawyers
While tax lawyers face many of the professional responsibility problems other lawyers do, such as conflicts of interest and handling confidential information, there are several distinctive situations that pose ethical problems for tax lawyers. First are those situations in which a tax lawyer provides advice to a client in a manner expected to protect the client from certain penalties, even if the advice turns out to be wrong. Second are situations involving mistakes, such as discovering that a prior year’s tax return is incorrect or catching the IRS making a mistake in the client’s favor. Finally are situations that involve how private tax lawyers interact with lawyers and other employees at the IRS.
3.1. Tax Opinions and Tax Shelters
A taxpayer who makes an “honest mistake” still owes the taxes due (and interest on the amount due), and an audit may reveal this. Yet the taxpayer must pay additional penalties only in certain situations. For example, IRC § 6662 imposes a 20% penalty, if the taxpayer underpaid tax due to “negligence or disregard of the rules or regulations,” or, regardless of negligence or disregard, if the underpayment was “substantial” (i.e., more than the greater of $5,000 or 10% of the tax owed) IRC § 6662(b)(1), (b)(2), (d)(1). It is in seeking protection from penalties that many clients turn to tax lawyers. Thus, clients will often seek assurances from a tax lawyer as to a favorable position on the return since such assurances may protect them from the penalties, even if the position fails to be sustained on audit or in litigation. Tax lawyers earn significant fees in providing such assurances (i.e., providing opinions as to the proper tax treatment).
In general, a taxpayer will not be subject to a § 6662 penalty if she acted reasonably and in good faith with respect to the return position that resulted in the underpayment of tax. § 6664(c)(1). A taxpayer who relies on a tax lawyer’s professional advice may cite doing so as evidence of acting reasonably and in good faith. Treasury Regulations § 1.6664-4(b)(1). However, the taxpayer must have disclosed all relevant facts to the lawyer, and the lawyer must base the advice on all relevant law taking the facts into consideration, and making no unreasonable assumptions. Treasury Regulations § 1.6664-4(b)(1). In short, the tax lawyer’s advice must be reasonable and in good faith and the taxpayer’s reliance itself must be reasonable and in good faith.
While the taxpayer penalty regime is complex, it is important to note that there are specific protections provided for different levels of confidence in tax advice. Similar to the requirements on a tax return preparer under § 6694, there will be no penalty premised on a tax position for which there is “substantial authority” or a tax position that is disclosed on Form 8275 and for which there is a “reasonable basis.” IRC § 6662(d)(2)(B). Re-read the considerations described above with respect to § 6694 and the meaning of “substantial authority” and “reasonable basis.” Remember that a position with substantial authority is one for which there is about a 40% chance of success, if litigated, and a position for which there is a reasonable basis is one for which there is about a 10-20% chance of success, if litigated.
The substantial authority and reasonable basis standards are objective standards. However, in some instances, in order to avoid a penalty, the taxpayer must also reasonably believe that the position is “more likely than not” to be sustained on its merits in litigation. The “more likely than not” standard is greater than 50%. A taxpayer is considered to “reasonably believe” if the taxpayer reasonably relies in good faith on the opinion of a professional tax advisor, if the opinion is based on the tax advisor’s analysis of the pertinent facts and authorities … and unambiguously states that the tax advisor concludes that there is a greater than 50-percent likelihood that the tax treatment of the item will be upheld if challenged by the Internal Revenue Service. Treasury Regulations § 1.6662-4(g)(4)(i)(B) [non-corporate taxpayer]; § 1.6664-4(f)(2)(B)(2) [corporate taxpayer].
This special requirement applies to “tax shelters.” In common usage, a “tax shelter” is a complicated tax scheme intended to generate substantial tax benefits that do not correspond to the underlying economic realities of the scheme. In other words, it is a complicated and abusive tax plan. Tax shelters tend to be marketed as investments, and those who are marketing the shelters hire tax lawyers to provide written tax opinions designed to protect the investors from penalties. Thus, these opinions are extremely valuable to tax shelter promoters – and providing these opinions on law firm letterhead can be an extremely lucrative business for tax lawyers. Over a five year period, one large firm tax partner “personally netted $93 million” – and hundreds of millions for his firm — by providing about six hundred tax shelter opinions. However, when the tax shelters began to unravel under IRS scrutiny, the lawyer and his firm were sued in a class action suit brought by the tax shelter investors, which resulted in the dissolution of the law firm, payments to the investors, and criminal penalties. Of course, many other tax lawyers have engaged in the same practice, even if many of them have not (yet) suffered similar consequences.
Congress and the American Bar Association have long been concerned with regulating tax opinions as a means of combating tax shelters, which generate illegal tax “savings” on a broad scale. Circular 230 addresses the issue as follows:
§ 10.35 Requirements for covered opinions.
(a) A practitioner who provides a covered opinion shall comply with the standards of practice in this section.
(b) Definitions. For purposes of this subpart–…
2) Covered opinion–(i) In general. A covered opinion is written advice (including electronic communications) by a practitioner concerning one or more Federal tax issues arising from–
(A) A transaction that is the same as or substantially similar to a transaction that, at the time the advice is rendered, the Internal Revenue Service has determined to be a tax avoidance transaction and identified by published guidance as a listed transaction under 26 CFR 1.6011-4(b)(2);
(B) Any partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, the principal purpose of which is the avoidance or evasion of any tax imposed by the Internal Revenue Code; or
(C) Any partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, a significant purpose of which is the avoidance or evasion of any tax imposed by the Internal Revenue Code if the written advice–
(1) Is a reliance opinion;
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(3) A Federal tax issue is a question concerning the Federal tax treatment of an item of income, gain, loss, deduction, or credit, the existence or absence of a taxable transfer of property, or the value of property for Federal tax purposes. For purposes of this subpart, a Federal tax issue is significant if the Internal Revenue Service has a reasonable basis for a successful challenge and its resolution could have a significant impact, whether beneficial or adverse and under any reasonably foreseeable circumstance, on the overall Federal tax treatment of the transaction(s) or matter(s) addressed in the opinion.
(4) Reliance opinion–(i) Written advice is a reliance opinion if the advice concludes at a confidence level of at least more likely than not (a greater than 50 percent likelihood) that one or more significant Federal tax issues would be resolved in the taxpayer’s favor. (ii) For purposes of this section, written advice, other than advice described in paragraph (b)(2)(i)(A) of this section (concerning listed transactions) or paragraph (b)(2)(i)(B) of this section (concerning the principal purpose of avoidance or evasion), is not treated as a reliance opinion if the practitioner prominently discloses in the written advice that it was not intended or written by the practitioner to be used, and that it cannot be used by the taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.
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(8) Prominently disclosed. An item is prominently disclosed if it is readily apparent to a reader of the written advice. Whether an item is readily apparent will depend on the facts and circumstances surrounding the written advice including, but not limited to, the sophistication of the taxpayer and the length of the written advice. At a minimum, to be prominently disclosed an item must be set forth in a separate section (and not in a footnote) in a typeface that is the same size or larger than the typeface of any discussion of the facts or law in the written advice.
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(10) The principal purpose. For purposes of this section, the principal purpose of a partnership or other entity, investment plan or arrangement, or other plan or arrangement is the avoidance or evasion of any tax imposed by the Internal Revenue Code if that purpose exceeds any other purpose. The principal purpose of a partnership or other entity, investment plan or arrangement, or other plan or arrangement is not to avoid or evade Federal tax if that partnership, entity, plan or arrangement has as its purpose the claiming of tax benefits in a manner consistent with the statute and Congressional purpose. A partnership, entity, plan or arrangement may have a significant purpose of avoidance or evasion even though it does not have the principal purpose of avoidance or evasion under this paragraph (b)(10).
(c) Requirements for covered opinions. A practitioner providing a covered opinion must comply with each of the following requirements.
(1) Factual matters.
(i) The practitioner must use reasonable efforts to identify and ascertain the facts, which may relate to future events if a transaction is prospective or proposed, and to determine which facts are relevant. The opinion must identify and consider all facts that the practitioner determines to be relevant.
(ii) The practitioner must not base the opinion on any unreasonable factual assumptions (including assumptions as to future events). An unreasonable factual assumption includes a factual assumption that the practitioner knows or should know is incorrect or incomplete. For example, it is unreasonable to assume that a transaction has a business purpose or that a transaction is potentially profitable apart from tax benefits … . The opinion must identify in a separate section all factual assumptions relied upon by the practitioner.
(iii) The practitioner must not base the opinion on any unreasonable factual representations, statements or findings of the taxpayer or any other person. An unreasonable factual representation includes a factual representation that the practitioner knows or should know is incorrect or incomplete. For example, a practitioner may not rely on a factual representation that a transaction has a business purpose if the representation does not include a specific description of the business purpose or the practitioner knows or should know that the representation is incorrect or incomplete. The opinion must identify in a separate section all factual representations, statements or findings of the taxpayer relied upon by the practitioner.
(2) Relate law to facts.
(i) The opinion must relate the applicable law (including potentially applicable judicial doctrines) to the relevant facts.
(ii) The practitioner must not assume the favorable resolution of any significant Federal tax issue…, or otherwise base an opinion on any unreasonable legal assumptions, representations, or conclusions.
(iii) The opinion must not contain internally inconsistent legal analyses or conclusions.
(3) Evaluation of significant Federal tax issues—
(i) In general. The opinion must consider all significant Federal tax issue. …
(ii) Conclusion as to each significant Federal tax issue. The opinion must provide the practitioner’s conclusion as to the likelihood that the taxpayer will prevail on the merits with respect to each significant Federal tax issue considered in the opinion. If the practitioner is unable to reach a conclusion with respect to one or more of those issues, the opinion must state that the practitioner is unable to reach a conclusion with respect to those issues. The opinion must describe the reasons for the conclusions, including the facts and analysis supporting the conclusions, or describe the reasons that the practitioner is unable to reach a conclusion as to one or more issues. If the practitioner fails to reach a conclusion at a confidence level of at least more likely than not with respect to one or more significant Federal tax issues considered, the opinion must include the appropriate disclosure(s) required under paragraph (e) of this section.
(iii) Evaluation based on chances of success on the merits. In evaluating the significant Federal tax issues addressed in the opinion, the practitioner must not take into account the possibility that a tax return will not be audited, that an issue will not be raised on audit, or that an issue will be resolved through settlement if raised.
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(4) Overall conclusion. (i) The opinion must provide the practitioner’s overall conclusion as to the likelihood that the Federal tax treatment of the transaction or matter that is the subject of the opinion is the proper treatment and the reasons for that conclusion. If the practitioner is unable to reach an overall conclusion, the opinion must state that the practitioner is unable to reach an overall conclusion and describe the reasons for the practitioner’s inability to reach a conclusion.
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(d) Competence to provide opinion; reliance on opinions of others.
(1) The practitioner must be knowledgeable in all of the aspects of Federal tax law relevant to the opinion being rendered, except that the practitioner may rely on the opinion of another practitioner with respect to one or more significant Federal tax issues, unless the practitioner knows or should know that the opinion of the other practitioner should not be relied on. If a practitioner relies on the opinion of another practitioner, the relying practitioner’s opinion must identify the other opinion and set forth the conclusions reached in the other opinion.
(2) The practitioner must be satisfied that the combined analysis of the opinions, taken as a whole, and the overall conclusion, if any, satisfy the requirements of this section.
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(f) Effect of opinion that meets these standards-
(1) In general. An opinion that meets the requirements of this section satisfies the practitioner’s responsibilities under this section, but the persuasiveness of the opinion with regard to the tax issues in question and the taxpayer’s good faith reliance on the opinion will be determined separately under applicable provisions of the law and regulations.
(2) Standards for other written advice. A practitioner who provides written advice that is not a covered opinion for purposes of this section is subject to the requirements of § 10.37.
Notes and Questions
33. “Tax shelters” are commonly thought of as abusive transactions. However, the technical definition of tax shelter includes “any plan or arrangement, if a significant purpose of such … plan or arrangement is the avoidance … of Federal income tax.” IRC § 6662(d)(2)(C). Section 10.35(b)(2)(i)(B) reflects this definition. While the organized tax bar disapproves of tax lawyers engaged in abusive planning, this definition of “tax shelter” has troubled many tax lawyers because it technically seems to include legitimate tax planning. How might “tax shelter” be re-defined so that it included only abusive transactions?
34. If Laura is a tax lawyer who e-mails a client suggesting that the client contribute to an IRA in order to avoid taxes, has she written a “covered opinion?” If she does not comply with all the requirement of § 10.35(c) in that e-mail, has she failed to satisfy her responsibilities – and thus subjected herself to the risk of discipline? Is e-mail “written advice”? Does § 10.35(b)(10) help? If the arrangement was not a contribution to an IRA, but the use of standard tax planning trusts in wills for a married couple, is § 10.35(b)(10) as helpful? Assume the tax planning is not controversial in any material sense, but not described in a statute or legislative history.
35. Lane goes to work in the tax department of a law firm. He notices that the footer of each of his e-mail contains a disclosure that the e-mail is not intended for use by the recipient in avoiding tax penalties. Why is that footer in the e-mail? What do you think clients think of the footer? What is the effect if the footer is not in a “typeface that is the same size or larger than the typeface of any discussion of the facts or law in the written advice?” Can the sender of e-mail always control the size of the text the reader receives?
36. How is “reasonable basis” used in defining “Federal tax issue” in § 10.35(b)(3)? What if “substantial authority” were used instead? What if “more likely than not” were used?
37. How difficult would it be to comply with the requirements in § 10.35(c)? Do the requirements seem merely like the sorts of acts a good lawyer would take in any event? Why does the tax bar consider these requirements onerous? How do these requirements differ from the requirements for “other” written advice in § 10.37? Which is more burdensome – exercising diligence with respect to the law, or diligence with respect to the facts? If, instead of sending an e-mail in the question above, Laura had called her client on the telephone, what provision in Circular 230 applies?
To err is human. But there are many kinds of errors, and when the errors involve the administration of the tax law, the tax lawyer may find herself pondering what to do. Tax lawyers routinely ponder what to do when they discover mistakes in a prior year’s return.
Circular 230 § 10.21 provides as follows:
A practitioner who, having been retained by a client with respect to a matter administered by the Internal Revenue Service, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided under the Code and regulations of such noncompliance, error, or omission.
Circular 230 makes it clear that a tax lawyer has the obligation to advise the client of any “noncompliance, error, or omission.” If a tax lawyer discovers a mistake on a prior year’s return, it is clear that the tax lawyer should inform the client of the mistake. Note that there is no requirement that the client be advised to file an amended return, but Circular 230 requires the client be advised of the “consequences” of the mistake. What are the consequences?
It is often said that there is no legal obligation to file an amended tax return correcting a prior year’s return. Some, however, argue that because the tax is legally due and owing, the taxpayer is legally obligated to correct the prior return and pay the tax due. In other words, the argument is that, even if the IRC does not require an amended return, other legal principles do. Others may point to language in the Treasury Regulations that provide that taxpayers “should” file an amended return, but it is hard to miss that the regulations do not use the word “must” or “shall.” See Treasury Regulations § 1.45-1(a) and § 1.461-1(a)(3). The IRS certainly encourages the filing of amended returns; it provides forms for the purposes. Even if filing an amended return is not required by the IRC, filing the return and paying the tax due may be useful for other reasons, such as stopping the accrual of interest – after all, the tax due may be discovered on an audit, even if no amended return is filed.
What if the mistake on the prior year’s return was not an “honest mistake,” but intentional? Choosing to amend the return may disclose a crime, and Fifth Amendment rights may be implicated. If a taxpayer has the right not to incriminate himself, obviously his lawyer is not obligated to advise him to do so.
Tax returns are filed on an annual basis, but a given return may be relevant across many years. If the client chooses not to amend the return to correct one year’s mistake, the tax lawyer cannot simply ignore her knowledge of the mistake in continuing to represent the client. She must be diligent in ensuring that she does not incorporate the mistake into future planning or reporting. Review Circular 230 § 10.22; Model Rules 1.2, 1.6, 4.1 and 8.4; IRC §§ 6701 and 7206(2). This may be very difficult in some situations, but not others. In some situations, the most prudent course of action may be withdrawing from the representation (and the client should be advised that withdrawal may be one of the “consequences” implicated by § 10.21.) Of course, as clients’ circumstances and tax planning change, and as the tax law changes, tax positions in prior years may suddenly become more important in later years than anyone would have anticipated.
If the client chooses not to correct the return and the return later becomes the subject of an audit, the tax lawyer’s bind increases and she may need to withdraw. While the return is being reviewed, it may be almost impossible for the lawyer not to make a false or misleading statement about the return, and, of course, she is also generally unable to disclose the error over the objection of the client. Review Circular 230 § 10.22; Model Rules 1.2, 1.6, 4.1, and 8.4.
What if the mistake in question was not made by the client on a prior year’s return but rather by the IRS – and it is a mistake in your client’s favor? The Committee on Standards of Tax Practice of the ABA Tax Section considered this issue in detail in its Standards of Tax Practice 1999-1. The Committee distinguished between computational and conceptual mistakes, generally advising that the tax lawyer notifies the IRS of the mistake if it is computational (i.e., a math mistake) but not if it is conceptual. The Committee considered that, on the one hand, the lawyer may not disclose confidential information without the client’s consent (Model Rule 1.6(a)) but, on the other hand, the lawyer may not engage in dishonest conduct (Model Rule 8.4(c)). If the client objects to disclosing the IRS’s computational mistake to it, the tax lawyer may have the duty to withdraw.
Notes and Questions
38. ABA Formal Opinion 314 instructs the lawyer who knows of a mistake on a prior return to advise the client to file an amended return. However, Circular 230 only requires advising the client as to the consequences of failing to correct the mistake. Presumably, bar authorities in states that have adopted the Model Rules would consult the ABA Formal Opinions in considering discipline under the rules. Such opinions serve as persuasive authority along with state ethics opinions. But wouldn’t those authorities be likely to consult Circular 230 too?
39. Lanny is a tax lawyer who has been hired by a new client. In reviewing the client’s files in order to provide some tax advice for a possible business deal, Lanny reviews a prior year’s tax return in detail. During this review, he discovers a minor mistake that resulted in very limited tax savings and is extremely unlikely to be relevant in any future years. Lanny believes the mistake was “honest,” and that no negligence or other penalty would be applicable. He believes the client has no legal obligation to amend the return. The client’s CPA prepared the return. Lanny is surprised to discover any mistake on a return prepared by this CPA, as she is well-known for her extraordinary work. Lanny is concerned that if he tells the client of the mistake, the client may fire the CPA. Lanny believes that the client is very hot-tempered and fairly unsophisticated and is unlikely to comprehend that hiring a new CPA will not ensure mistake-free returns in the future, and will involve a great deal of transition costs as the new CPA would have to spend a good deal of time learning about the client’s business and reviewing the files. Lanny believes that it is in the client’s best interests to retain this CPA. Must Lanny tell the client about the mistake? What if Lanny believes that the error was not a “mistake” but intentional? What if Lanny had prepared the return, and then later discovered the error?
3.3. Working with IRS Lawyers and Other Employees
Who would want to be an IRS lawyer? It is a complicated role with considerable regulation. There are, of course, the state ethics rules, but there is are also Circular 230, tax code provisions (such as IRC §§ 6103 and 7214), and the general restrictions on all federal government lawyers and employees. As with all government lawyers there are inter-agency issues, intra-agency issues, and bureaucratic realities. There is also the fact that IRS employees, in general, and IRS lawyers in particular, are rarely well-received. Mentioning at a dinner party that one is a tax lawyer may chill conversation, but saying that one is a lawyer for the IRS may have even more dire social consequences. Violence against IRS employees in general is also a real risk: more than 900 threats against IRS employees are investigated each year.
Yet, many tax lawyers choose to work for the IRS. Working for the federal government has its benefits in terms of lifestyle, even if not in terms of cash compensation. But many tax lawyers who choose this line do it for other reasons. Though not as prevalent a professional development choice as it once was, service in the IRS may be good professional training for future private tax lawyers, perhaps much like a stint in the prosecutor’s office serves future defense attorneys. One reason some tax lawyers choose the IRS is in order to defend the interests of the honest taxpayers. These lawyers often think of themselves not as representing “the system” but “all the taxpayers.” When litigating against a taxpayer who crossed the line, these lawyers consider themselves to be representing all of the taxpayers who did not cross the line.
When private tax lawyers believe that their clients did not cross the line in tax planning, and their clients’ reputations and assets are on the line, they too, of course, consider themselves to be carrying on a noble crusade. The conflict between the private tax lawyer and the IRS tax lawyer may occur in an emotional and stressful situation for the client. It is here that professional rules are essential for navigating the high stakes and high stresses that otherwise might erode the professional barriers and reduce the conflict to a personal level.
These situations may also involve another source of tension: potential sanctions against the tax lawyer. Review the readings above related to “substantial authority” and “reasonable basis” and the penalties to which tax lawyers may be subject as a result of their tax advice (IRC § 6694), as well as the materials above related to the criminal sanctions that may be imposed on tax lawyers in certain situations (IRC § 7206). The tax lawyer may be personally at risk as a result of a review of the client’s tax reporting, and thus the tax lawyer may be defending not only his client but himself. Indeed, it is often prudent, and in some situations necessary, for the tax lawyer who provided the tax planning advice not to be the tax lawyer who defends it.
With these tensions in mind, consider the following from Circular 230:
§ 10.51 Incompetence and disreputable conduct.
(a) Incompetence and disreputable conduct. Incompetence and disreputable conduct for which a practitioner may be sanctioned under § 10.50 includes, but is not limited to–
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(4) Giving false or misleading information, or participating in any way in the giving of false or misleading information to the Department of the Treasury or any officer or employee thereof . . . knowing the information to be false or misleading. Facts or other matters contained in testimony, Federal tax returns, financial statements, applications for enrollment, affidavits, declarations, and any other document or statement, written or oral, are included in the term “information.”
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(7) Willfully assisting, counseling, encouraging a client or prospective client in violating, or suggesting to a client or prospective client to violate, any Federal tax law, or knowingly counseling or suggesting to a client or prospective client an illegal plan to evade Federal taxes or payment thereof.
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(9) Directly or indirectly attempting to influence, or offering or agreeing to attempt to influence, the official action of any officer or employee of the Internal Revenue Service by the use of threats, false accusations, duress or coercion, by the offer of any special inducement or promise of an advantage, or by the bestowing of any gift, favor or thing of value.
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(12) Contemptuous conduct in connection with practice before the Internal Revenue Service, including the use of abusive language, making false accusations or statements, knowing them to be false or circulating or publishing malicious or libelous matter.
(13) Giving a false opinion, knowingly, recklessly, or through gross incompetence, including an opinion which is intentionally or recklessly misleading, or engaging in a pattern of providing incompetent opinions on questions arising under the Federal tax laws. …
Internal Revenue Manual 184.108.40.206.6.1 – Badges of Practitioner Abuse (05-20-2005)
(1) Practitioners may be subject to discipline under Circular 230 if they exhibit a pattern of attempting to influence the case disposition or a Service employee to obtain the desired results in several collection investigations by:
· Using abusive language
· Threatening claims of misconduct (e.g. Section 1203)
· Making false claims of misconduct
· Making false accusations
· Verbal/Physical threats or assaults
· Making a bribe (e.g. offering gifts or other things of value)
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(2) A second badge of practitioner misconduct is a pattern of delay by the practitioner in performing one or more of the following actions (Circular No. 230 Section 10.20) during the course of several collection cases:
· Missing appointments
· Canceling appointments at the last moment with no good cause provided
· Agreeing to provide requested documentation and/or information and then refusing to do so, thereby hindering the Service’s efforts to continue its investigation
· Providing partial information requiring repeated call backs and correspondence causing delays
From 1991-2 C.B. 1137:
A practitioner’s meeting with IRS representatives concerning a client’s affairs deteriorated into acrimony. As people began to leave the meeting room, the practitioner grasped a revenue officer by the shoulder and urged her to continue the meeting. The revenue officer refused, telling the practitioner to remove his hand. The practitioner again grasped the revenue officer by the shoulder and repeated his request, which was refused.
The matter was referred to the Director of Practice. The Director notified the practitioner of his possible violation of Treasury Department Circular No. 230, section 10.51(i), which states that a practitioner may be discharged or suspended for contemptuous conduct in connection with practice before the IRS.
The physical contact, the Director found, was akin to contemptuous conduct as defined in section 10.51(i). The practitioner consented to a short suspension from practice before the IRS. The Director deemed suspension appropriate due to the seriousness of physically accosting an IRS employee engaged in the performance of his duties. However, the Director’s finding that the practitioner made no attempt to threaten or coerce was a mitigating circumstance.
Notes and Questions
40. If a tax lawyer is disciplined under Circular 230, how likely is it that she will also be disciplined by state bar authorities? What is the difference?
41. IRS lawyers may be motivated by the idea that they represent “all the (other) taxpayers.” But, of course, this is an insufficient conception of their client’s identity. It is important for a lawyer to know who the client is, for example, in order to determine with whom confidential information may be shared. If Leo is an IRS lawyer, who is his client? The U.S. government? The President? The Treasury Department? The IRS? The Secretary of the Treasury? The Commissioner of the IRS? If Leo is asked by Congress to provide certain information, may he? Must he? In what circumstances? What if the President requests it? What if the IRS Commissioner requests it? Lawyering for the government raises complex professional responsibility issues.
42. If an IRS lawyer concludes that the taxpayer’s argument is very strong and the government’s argument is very weak, may she continue to pursue the taxpayer? What if she concludes that the law is squarely on the taxpayer’s side rather than the government’s side? What if the government’s position is not frivolous, but close to it? In Rev. Proc. 64-22, 1964-1 C.B. 689, the IRS announces that it will not assert a “strained construction” of the law. What does that mean?
43. Lacey is a tax lawyer. She is representing Cory before the IRS. Lacey discusses the return with both Cory and the CPA who prepared the return. One of the transactions reflected on Cory’s return relates to the sale of real property to Cory’s sister-in-law in exchange for a promissory note. Lacy learns that, initially, the transaction “was not documented exactly right,” as the CPA put it, but that, after first being contacted by the IRS, the CPA advised Cory to contact a lawyer, Abe, who “fixed the problem” by providing documentation back-dated to the date of sale and containing the terms that the CPA advised should be contained in order to qualify for the position taken on the return. The CPA has provided Lacy with an envelope of supporting documents, most of which are not related to this transaction but rather were specifically requested by the IRS. If Lacy simply forwards the envelope to the IRS with a cover letter stating only “enclosed please find the requested materials,” is she subject to discipline? Has she committed mail fraud? Has she committed any other crime?
44. Larry is a tax lawyer. He is representing Casey before the IRS. The IRS employee has asked Larry for copies of a sales contract, the minutes of a corporation Casey owns, and a lease agreement. Larry agrees to send these documents during the first week of July. When he fails to do so, the IRS employee calls and asks him for the information. He sends the sales contract in the last week of July. He then sends several pages of the lease agreement in mid August, and then, two weeks later, after receiving another call from the IRS employee, he sends the remainder of the lease agreement with a cover letter apologizing for failing to send the entire agreement earlier. In September, he sends the corporation’s minutes for its annual meeting, and then in October, after the IRS employee calls to ask if there are other minutes, Larry provides the minutes for the corporation’s special meetings. Is this misconduct? Does it matter if Larry is intending to delay the matter, or if, instead, he is simply disorganized?
 31 U.S.C. § 330 (2006).
 Donald B. Tobin, Richard Lavoie, and Richard E. Trogolo, Problems in Tax Ethics 22 (2009). See Jasper L. Cummings, Jr., The Range of Legal Tax Opinions, with Emphasis on the ‘Should’ Opinion, Tax Notes, February 17, 2003, p. 1125, 1128.
 Tax lawyers are said to have a “duty to the system.” Bernard Wolfman, James P. Holden, and Kenneth L. Harris, Standards of Tax Practice § 101.2 (5th ed., 1999). Professor Deborah Schenk has written that the self-assessment nature of the tax system means that the tax system cannot permit the “absolute adversarial” relationship that lawyers might have in other situations. Deborah H. Schenk, Book Review: Tax Ethics, 95 Harv. L. Rev. 1995, 2004 (1982). The idea that “tax ethics … must be approached from a special perspective” as a consequence of self-assessment nature of our tax system seems the most common argument for tax lawyers’ duty to the system. Id. at 89. See also Anthony C. Infanti, Eyes Wide Shut: Surveying Erosion in the Professional Tax Bar, 22 Va. Tax. Rev. 589, 606 (2003). However, some have criticized this conception of the tax lawyer. See, e.g., David J. Moraine, Loyalty Divided: Duties to Clients and Duties to Others – the Civil Liability of Tax Attorneys Made Possible by the Acceptance of a Duty to the System, 63 Tax Law. 169 (2009).
 See, e.g., Treasury Regulations § 1.6662-4(d)(2). (“The possibility that a return will not be audited, or, if audited, that an item will not be raised on audit, is not relevant in determining whether the substantial authority standard (or the reasonable basis standard) is satisfied.”)
 5 U.S.C. § 500 (2006).
 Indeed, under Circular 230 §10.3(c), enrolled agents may also practice before the IRS, but this discussion is limited to tax lawyers and CPAs as these two professions dominate tax planning.
 National Conference of Lawyers and Certified Public Accountants: A Study of Interprofessional Relationships, 36 Tax Law. 26, 28-29 (1981).
 Id. at 33-34.
 Id. at 34.
 Id. at 34-35.
 Id. at 35.
 Donald B. Tobin, Richard Lavoie, and Richard E. Trogolo, Problems in Tax Ethics 22 (2009). See Jasper L. Cummings, Jr., The Range of Legal Tax Opinions, with Emphasis on the ‘Should’ Opinion, Tax Notes, February 17, 2003, p. 1125, 1128.
 Donald B. Tobin, supra, note 11, at 25 Cummings, supra, note 11, 1126-1127.
 Report of the Special Task Force on Formal Opinion 85-352, 39 Tax Law. 635, 639-40(1985). The realistic possibility standard does not need to be met if the position “is advanced by payment of the tax and claim for refund, which necessarily sets forth in detail each ground upon which a refund is claimed.” ABA Tax Section’s Report of the Special Task Force on Formal Opinion 85-352, 39 Tax Law. 635, 639 (1985). See also IRC §6694(a)(2)(B) and IRC § 6692(d)(2)(B). Note that the pursuit-of-refund alternative would only be available for taxpayers with sufficient funds to pay the tax upfront and then pursue the refund. This connects with the forum-shopping issues between the Tax Court and the federal district courts/Court of Federal Claims.
 Additionally, the penalty applies to substantial valuation misstatements. IRC § 6662(b)(3).
 If the tax lawyer is considered a preparer (as discussed above), a position related to a tax shelter or reportable transaction will be considered unreasonable, unless it was reasonable for the lawyer to believe that the position was “more likely than not to be sustained on its merits” in litigation. IRC § 6694(a)(2)(C).
 The opinions, of course, do not protect the investors from paying any back taxes (and interest) due when the scheme is audited, but are intended to protect the investors from penalties.
 Karen C. Burke and Grayson M.P. Crouch, COBRA Strikes Back: Anatomy of a Tax Shelter, 62 Tax Law 59, 61-62 (2008).
 Id. at 63.
 It is assumed that a mistaken past return resulting in an overpayment will be corrected in order to claim a refund.
 Andrea Ball, Hatred Toward IRS Nothing New, The Dallas Morning News, March 3, 2010, http://www.dallasnews.com/sharedcontent/dws/news/texassouthwest/stories/DN-irsworkers_03tex.ART.State.Edition1.4bdd764.html.