Opinion ID: 3003619
Heading Depth: 3
Heading Rank: 2

Heading: Inherent Conflict of Interest

Text: The government’s argument relies heavily on Mayer’s purported inherent conflict of interest. The district court held that, at the time of the transaction, Jump had no 7 The Fifth Circuit only affirmed the district court’s holding that it possessed jurisdiction to determine the partnership’s reasonable cause defense. Klamath, 568 F.3d at 548. The government did not challenge the substance of the district court’s finding that the taxpayers had reasonable cause. Id. No. 09-1109 23 reason to suspect that Mayer’s opinion was anything but proper. The government, however, asserts that Jump could not have reasonably relied on that advice because he paid Mayer a large fee to structure the transactions, which ultimately provided a large tax benefit for minimal risk. At oral argument, the government suggested that any time an adviser incorporates a potential tax shelter into a restructuring plan, the taxpayer may not reasonably rely on that adviser’s legal advice and must obtain a second opinion. Such a benefit to the adviser, so the argument goes, should render any subsequent advice regarding the transaction’s legality unreliable as a matter of law. We find no such bright-line rule in the case law and decline to implement one here. The government is correct that in many instances, perhaps even most, a taxpayer might be unreasonable in relying on an adviser who stands to gain significantly from a transaction. But one in need of legal advice almost always has to pay something for it. Mayer received a flat fee for his services— which, importantly, included not only an impermissible transaction, but also significant work restructuring Jump’s various business entities in response to concerns about his companies’ liability. To accept the government’s argument would mean that a taxpayer may never rely upon the legal advice of the same adviser who counsels the individual on restructuring. The reasonable cause determination depends on the particular facts and circumstances of each case, see Treas. Reg. § 1.6664- 4(b)(1), and we trust that our district courts can apply the reasonable cause standard accordingly. Thus, Jump’s 24 No. 09-1109 reliance on Mayer’s advice was not per se unreasonable simply because he also advised Jump on restructuring his businesses.