10.35—Requirements for covered opinions.
(a)
A practitioner who provides a covered
opinion shall comply with the standards of
practice in this section.
(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;
(2) Is a marketed
opinion;
(3) Is subject to conditions of confidentiality; or
(4) Is subject to contractual protection.
(A)
Written advice provided to a client during
the course of an engagement if a practitioner is
reasonably expected to provide subsequent written
advice to the client that satisfies the
requirements of this section;
(B)
(b)
n advice, other than advice described
in paragraph (b)(2)(i)(A) of this section
(concerning listed transactions) or paragraph
(b)(2)(ii)(B) of this section (concerning the
principal purpose of avoidance or evasion)
that—
(1) Concerns the qualification of
a qualified plan;
(2) Is a State or local
bond opinion; or
(3) Is included in documents
required to be filed with the Securities and
Exchange Commission;
(C)
Written advice prepared for and provided to
a taxpayer, solely for use by that taxpayer, after
the taxpayer has filed a tax return with the
Internal Revenue Service reflecting the tax
benefits of the transaction. The preceding
sentence does not apply if the practitioner knows
or has reason to know that the written advice will
be relied upon by the taxpayer to take a position
on a tax return (including for these purposes an
amended return that claims tax benefits not
reported on a previously filed return) filed after
the date on which the advice is provided to the
taxpayer;
(D)
Written advice provided to an employer by a
practitioner in that practitioner's capacity as an
employee of that employer solely for purposes of
determining the tax liability of the employer;
or
(E)
Written advice that does not resolve a
Federal tax issue in the taxpayer's favor, unless
the advice reaches a conclusion favorable to the
taxpayer at any confidence level (e.g., not
frivolous, realistic possibility of success,
reasonable basis or substantial authority) with
respect to that issue. If written advice concerns
more than one Federal tax issue, the advice must
comply with the requirements of paragraph (c) of
this section with respect to any Federal tax issue
not described in the preceding sentence.
(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)
(b)
poses 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.
(5) Marketed opinion—
(i)
Written
advice is a marketed opinion if the
practitioner knows or has reason to know that the
written advice will be used or referred to by a
person other than the practitioner (or a person
who is a member of, associated with, or employed
by the practitioner's firm) in promoting,
marketing or recommending a partnership or other
entity, investment plan or arrangement to one or
more taxpayer(s).
(ii)
(b)
poses 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 marketed opinion if the
practitioner prominently discloses in the written
advice that—
(A)
The advice was not intended or written by
the practitioner to be used, and that it cannot be
used by any taxpayer, for the purpose of avoiding
penalties that may be imposed on the taxpayer;
(B)
The advice was written to support the
promotion or marketing of the transaction(s) or
matter(s) addressed by the written advice; and
(C)
The taxpayer should seek advice based on
the taxpayer's particular circumstances from an
independent tax advisor.
(6)
Conditions of
confidentiality. Written advice is subject to
conditions of confidentiality if the
practitioner imposes on one or more recipients of
the written advice a limitation on disclosure of
the tax treatment or tax structure of the
transaction and the limitation on disclosure
protects the confidentiality of that
practitioner's tax strategies, regardless of
whether the limitation on disclosure is legally
binding. A claim that a transaction is proprietary
or exclusive is not a limitation on disclosure if
the practitioner confirms to all recipients of the
written advice that there is no limitation on
disclosure of the tax treatment or tax structure
of the transaction that is the subject of the
written advice.
(7) Contractual protection.
Written advice is subject to contractual
protection if the taxpayer has the right to a
full or partial refund of fees paid to the
practitioner (or a person who is a member of,
associated with, or employed by the practitioner's
firm) if all or a part of the intended tax
consequences from the matters addressed in the
written advice are not sustained, or if the fees
paid to the practitioner (or a person who is a
member of, associated with, or employed by the
practitioner's firm) are contingent on the
taxpayer's realization of tax benefits from the
transaction. All the facts and circumstances
relating to the matters addressed in the written
advice will be considered when determining whether
a fee is refundable or contingent, including the
right to reimbursements of amounts that the
parties to a transaction have not designated as
fees or any agreement to provide services without
reasonable compensation.
(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.
(9) State or local bond opinion.
A State or local bond opinion is
written advice with respect to a Federal
tax issue included in any materials delivered
to a purchaser of a State or local bond in
connection with the issuance of the bond in a
public or private offering, including an official
statement (if one is prepared), that concerns only
the excludability of interest on a State or local
bond from gross income under section 103 of the
Internal Revenue Code, the application of section
55 of the Internal Revenue Code to a State or
local bond, the status of a State or local bond as
a qualified tax-exempt obligation under section
265(b)(3) of the Internal Revenue Code, the status
of a State or local bond as a qualified zone
academy bond under section 1397E of the Internal
Revenue Code, or any combination of the above.
(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. A
factual assumption includes reliance on a
projection, financial forecast or appraisal. It is
unreasonable for a practitioner to rely on a
projection, financial forecast or appraisal if the
practitioner knows or should know that the
projection, financial forecast or appraisal is
incorrect or incomplete or was prepared by a
person lacking the skills or qualifications
necessary to prepare such projection, financial
forecast or appraisal. 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)
(c)
ctitioner must not assume the
favorable resolution of any significant Federal
tax issue except as provided in paragraphs
(c)(3)(v) and (d) of this section, or otherwise
base an opinion on any unreasonable legal
assumptions, representations, or conclusions.
(3)
Evaluation of significant Federal
tax issues —(i) In general. The
opinion must consider all significant Federal tax
issues except as provided in paragraphs (c)(3)(v)
and (d) of this section.
(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.
(iv) Marketed opinions.
In the
case of a marketed opinion, the
opinion must provide the practitioner's conclusion
that the taxpayer will prevail on the merits at a
confidence level of at least more likely than not
with respect to each significant Federal tax
issue. If the practitioner is unable to reach a
more likely than not conclusion with respect to
each significant Federal tax issue, the
practitioner must not provide the marketed
opinion, but may provide written advice that
satisfies the requirements in paragraph (b)(5)(ii)
of this section.
(v) Limited scope opinions.
(A)
The practitioner may provide an opinion that
considers less than all of the significant Federal
tax issues if—
(1) The practitioner and the
taxpayer agree that the scope of the opinion and
the taxpayer's potential reliance on the opinion
for purposes of avoiding penalties that may be
imposed on the taxpayer are limited to the Federal
tax issue(s) addressed in the opinion;
(2) The opinion is not advice
described in paragraph (b)(2)(i)(A) of this
section (concerning listed transactions),
paragraph (b)(2)(i)(B) of this section (concerning
the principal purpose of avoidance or evasion) or
paragraph (b)(5) of this section (a marketed opinion ); and
(3) The opinion includes the
appropriate disclosure(s) required under paragraph
(e) of this section.
(B)
A practitioner may make reasonable
assumptions regarding the favorable resolution of
a Federal tax issue (an assumed issue) for
purposes of providing an opinion on less than all
of the significant Federal tax issues as provided
in this paragraph (c)(3)(v). The opinion must
identify in a separate section all issues for
which the practitioner assumed a favorable
resolution.
(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.
(ii)
In the case of a marketed
opinion, the opinion must provide the
practitioner's overall conclusion that the Federal
tax treatment of the transaction or matter that is
the subject of the opinion is the proper treatment
at a confidence level of at least more likely than
not.
(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.
(e) Required disclosures.
A
covered opinion must contain all of the following
disclosures that apply—
(1)
Relationship between promoter and
practitioner. An opinion must prominently
disclose the existence of—
(i)
Any compensation arrangement, such as a
referral fee or a fee-sharing arrangement, between
the practitioner (or the practitioner's firm or
any person who is a member of, associated with, or
employed by the practitioner's firm) and any
person (other than the client for whom the opinion
is prepared) with respect to promoting, marketing
or recommending the entity, plan, or arrangement
(or a substantially similar arrangement) that is
the subject of the opinion; or
(ii)
Any referral agreement between the
practitioner (or the practitioner's firm or any
person who is a member of, associated with, or
employed by the practitioner's firm) and a person
(other than the client for whom the opinion is
prepared) engaged in promoting,
marketing or recommending the entity, plan, or
arrangement (or a substantially similar
arrangement) that is the subject of the
opinion.
(i)
The opinion was written to support the
promotion or marketing of the transaction(s) or
matter(s) addressed in the opinion; and
(ii)
The taxpayer should seek advice based on
the taxpayer's particular circumstances from an
independent tax advisor.
(ii)
Additional issues may exist that could
affect the Federal tax treatment of the
transaction or matter that is the subject of the
opinion and the opinion does not consider or
provide a conclusion with respect to any
additional issues; and
(iii)
With respect to any significant Federal
tax issues outside the limited scope of the
opinion, the opinion was not written, and cannot
be used by the taxpayer, for the purpose of
avoiding penalties that may be imposed on the
taxpayer.
(4)
Opinions that fail to reach a
more likely than not conclusion. An opinion
that does not reach a conclusion at a confidence
level of at least more likely than not with
respect to a significant Federal tax issue must
prominently disclose that—
(i)
The opinion does not reach a conclusion at
a confidence level of at least more likely than
not with respect to one or more significant
Federal tax issues addressed by the opinion;
and
(ii)
With respect to those significant Federal
tax issues, the opinion was not written, and
cannot be used by the taxpayer, for the purpose of
avoiding penalties that may be imposed on the
taxpayer.
(5)
Advice regarding required
disclosures. In the case of any disclosure
required under this section, the practitioner may
not provide advice to any person that is contrary
to or inconsistent with the required
disclosure.
(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.