Lowering the Bar: ABA Formal Opinion 85-352

By Dennis J. Ventry Jr. Dennis J. Ventry Jr. is a visiting scholar in taxation at UCLA School of Law and an assistant professor of law at American University Washington College of Law (beginning fall of 2006). Comments are welcome at dventry@wcl.american.edu. Copyright 2006 Dennis J. Ventry Jr. All rights reserved. I. Introduction A little more than a year after Treasury issued final regulations to Circular 230 designed to elevate tax prac- tice standards and less than a year after Congress enacted a suite of antishelter provisions in the Deficit Reduction Act of 1984 (which, in turn, followed antishelter legisla- tion in the 1982 Tax Equity and Fiscal Responsibility Act (TEFRA)), the American Bar Association issued Formal Opinion 85-352. 1 In promulgating Opinion 85-352, the ABA Committee on Ethics and Professional Responsibil- ity professed to reconsider the much-maligned reason- able basis standard first articulated in Formal Opinion Under Opinion 85-352, a lawyer may advise reporting positions as long as she ‘‘has a good faith belief that those positions are warranted in existing law or can be sup- ported by a good faith argument for an extension, modification or reversal of existing law’’ and there is ‘‘some realistic possibility of success if the matter is litigated.’’ 3 The lawyer acts in good faith even if she concludes that the client’s position probably will not prevail. 4 There is no requirement to disclose a position meeting that standard. ABA Committee on Ethics and Professional Responsibility, Formal Opinion 85-352 (July 7, 1985). ABA Committee on Professional Ethics, Formal Opinion 314 (Apr. 27, 1965). In 1971 the ABA changed the name of its Committee on Professional Ethics to the Standing Committee on Ethics and Professional Responsibility. For convenience and readability, this column will refer to the newly designated committee as the Ethics Committee. ABA Comm. on Ethics and Professional Responsibility, Op. 85-352, supra note 1. Id. TAX NOTES, July 3, 2006 Opinion 85-352 restated that part of Opinion 314 concerning a lawyer’s duty in advising a client on tax return positions. It did not supersede Opinion 314 re- garding tax controversy representation or negotiation and settlement proceedings before the IRS. Nor did it affect Opinion 346, issued only three years earlier in 1982, which dealt specifically with tax shelter opinions issued to third parties. 5 In adopting Opinion 85-352, the Ethics Committee rejected an alternative proposal from the ABA Section of Taxation that would have required reporting positions to meet a ‘‘meritorious’’ standard. The Tax Section defined positions meeting its elevated standard as those ad- vanced in good faith and evidenced by a practical and realistic possibility of success, if litigated. 6 A good-faith position required the tax lawyer to have an honest belief that it ‘‘well may be held to be correct, either on the merits of existing authority or by reversal of existing authority.’’ 7 Only in extraordinary circumstances would the tax lawyer be unable to determine if a position was meritorious; in those situations, the Tax Section’s pro- posal would have allowed the position to be reported with adequate disclosure. 8 In the end, Opinion 85-352 merely restated the reasonable basis standard without appreciably elevating ethical standards for tax lawyers. The Ethics Committee rejected not only the Tax Sec- tion’s meritorious standard, but also its generally non- adversarial view of the IRS. The Tax Section had stated unequivocally that a ‘‘tax return is not a submission in an adversary proceeding.’’ 9 Even in the event of an audit, the relationship between the tax lawyer and his client vis-a-vis the IRS remained nonadversarial unless the revenue agent asserted an adversarial (rather than inves- tigative or fact-finding) position. By comparison, Opin- ion 85-352 stated that ‘‘in many cases a lawyer must realistically anticipate that the filing of a tax return may ABA Committee on Ethics and Professional Responsibility, Formal Opinion 346 (Revised) (Jan. 29, 1982). ABA Section of Taxation, ‘‘Proposed Revision to Formal Opinion 314,’’ May 21, 1984, reprinted in Bernard Wolfman and James P. Holden, Ethical Problems in Federal Tax Practice, 2d edition (Charlottesville, Va.: The Michie Company, 1985), at Id. Id. Id. at 71. (C) Tax Analysts 2006. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content. Lowering the Bar: ABA Formal Opinion 85-352