The Rise of Law and the Fall of Circular 230 Tax Lawyer Professional Standards, 1985–2015

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Michael Hatfield


This Article focuses on the two issues that dominated discussions of professional responsibility standards for tax lawyers in the 1985–2015 period: return position standards and tax shelter opinions. It opens with the ABA’s 1965 opinion providing “reasonable basis” as the standard for undisclosed return positions and then traces the development of the “realistic possibility of success” and “substantial authority” standards. The Article then explores the post-1986 second wave of corporate tax shelters and the responses of Congress, the Treasury Department, the Justice Department, and the tax bar. In addition to documenting the extensive interaction between the federal government and the tax bars, the Article also chronicles the rise and fall of the prominence of Circular 230 and Treasury’s role in regulating tax lawyers. The Article concludes with reflections on the 1985–2015 period in light of the 1945–1985 history covered in two earlier articles, and it then suggests how to move the professional responsibility discussion forward. By the end of 2015, with the ABA opinion on return position standards pre-empted by statute and Circular 230 eviscerated by courts, professional ethics for tax lawyers had been largely replaced by penalty standards and uncertainties. To improve the deliberations on how best to develop standards from the current situation, empirical research into the practice realities of tax lawyers is suggested, giving attention to the diversity of the tax bar and the geographical, firm size, and specialization variations of the tax bar.

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