It'S Not Easy Being Easy: Advising Tax ReturnPositions

Standards governing the tax lawyer, particularly with respect to tax return advice and preparation, are more stringent today than ever before. A myriad of professional and statutory precepts attempt to mediate the tension between the lawyer's duty to represent a client diligently and the sometimes conflicting duty to promote the administration of justice (frequently referred to as a "duty to the system").(1) In 1952, Norris Darrell summed up the dichotomy by stating, "You of course have a double duty: a duty to do your best for the client and not to bring the lightning down upon him, and a duty to live up to your professional responsibility."(2) The standards governing the tax lawyer are often vague, sometimes inconsistent, and frequently difficult to apply. Nevertheless, the need to make decisions based on these often slippery standards occurs on a daily basis in tax practice, and even seemingly mundane situations can be problematical.Clients do not come to tax lawyers for expensive advice on easy questions. The lawyer normally must give advice where either the law itself or the application of the facts to the law is uncertain.(3) The lawyer must decide whether a position that is neither clearly correct nor cleariy incorrect may be advanced in the client's favor on the tax return.(4) The lawyer faces a client who is paying for and expects diligent, even zealous representation of his(5) interests.(6) At the same time, the lawyer must abide by standards that may require him to act in ways that appear, at least to the client, to be contrary to the client's best interests. The standards governing a tax attorney's conduct are often clear in the abstract, but become perplexing in application. The lawyer's natural tendency is to promote the interests of the client, who is paying the lawyer's fees--that is, the lawyer has a tendency to be easy on the client.(7) At the same time, the standards of tax practice impose upon the practitioner a duty that sometimes makes being easy on the client difficult or impossible. Hence, to paraphrase the words of a popular country music song, the practitioner may find that "[i]t's not easy being easy."(8)Congress, the United States Treasury Department (Treasury), and the American Bar Association (ABA) should promote the policy of consistency between the various practitioner and taxpayer standards in drafting legislation, regulations, and professional practice standards. Consistency in the standards will increase the ability of practitioners and taxpayers to comply with the authorities on which our voluntary self-assessment tax system is based.II. OVERVIEW OF GOVERNING STANDARDSA conglomeration of standards governs the tax lawyer in advising tax return positions. These standards include statutory standards established by the Internal Revenue Code of 1986, as amended (Code), through the imposition of penalties on taxpayers and on tax return preparers. The Code imposes duties on lawyers both directly and indirectly, through assessment of penalties on the client. The principal penalties the lawyer needs to be concerned with are the accuracy-related penalty imposed directly on the taxpaye(9) and the preparer penalties imposed on the lawyer who prepares an erroneous tax return or renders substantial advice with respect to the preparation of such a return.(10)Professional standards also govern the tax lawyer's conduct in advising tax return positions. State disciplinary rules govern lawyer conduct generally. These are administered by state disciplinary bodies according to the rules in each state. State rules, in turn, are greatly influenced by the ABA Model Rules of Professional Conduct and their predecessors, the Model Code of Professional Responsibility, and the Canons of Professional Ethics.(11) Although these ABA documents have no binding effect in and of themselves, state disciplinary systems often adopt them in whole or in part.(12) In the tax area, the ABA has promulgated three influential pronouncem ents--Opinion 314,(13) Opinion 346,(14) and Opinion 85-352(15)--that form the basis for the professional standards governing tax practice. …