Lawyers, accountants and other professionals who offer tax advice must meet stricter ethical standards under guidelines issued by the Treasury Department (search) and Internal Revenue Service (search) on Friday.
The new rules mark another step in the government's crackdown on abusive tax shelters (search) that multiplied during the booming economy of the late 1990s.
"These new standards send a strong message to tax professionals considering selling a questionable product to clients," said IRS Commissioner Mark Everson. "The new provisions give us more tools to battle abusive tax avoidance transacti "best practices" clamp down on opinions that tax professionals issue to taxpayers, often wealthy investors, who want to know whether a tax-sheltering strategy could be considered illegal or abusive.
If challenged, investors often use such letters to prove they relied on professional advice. Tax shelters aim to minimize taxation, some legally and others illegally.
The new rules say the opinion letters must clearly state whether the taxpayer would be more likely than not to successfully defend the tax transaction if it's challenged by the IRS.
Lawyers, accountants and others issuing the opinion letters must rely on facts, consider all relevant facts and analyze all related federal tax laws.
The new rules also require that the attorneys, accountants and others disclose whether they have a special financial arrangement with tax professionals who recommend, promote or market a tax shelter.
Treasury Department's acting assistant secretary for tax policy, Greg Jenner, said the new regulations "strike an appropriate balance between tightening practitioner standards and minimizing burden on everyday advice."
A recently passed law gives the government authority to fine tax professionals who knowingly violate these best practices. The IRS Office of Professional Responsibility enforces standards for tax professionals.