Contact Us Now


PHONE: 513-412-3483
FAX: 513-412-3482



September 1, 2004

When is your letter to a client a Tax Opinion

#Tax Advisor, #2004 Archived

A long time client calls you to ask your advice in structuring the sale of investment property as a Section 1031 tax deferred exchange. You carefully outline the steps needed to be taken to treat the sale of investment property and the acquisition of replacement property as a Section 1031 exchange. After you hang up with your client, you follow up with either a written letter to your client or memo to the file. According to the proposed Circular 230 regulations, you have just authored a Tax Opinion. Unwittingly this Tax Opinion probably fails to comply with the new standard for Tax Opinions, including a conclusion as to the likelihood that the client will prevail on the merits, the rigorous examination of facts and application of law to your client's transaction as outlined in the Treasury Regulations. The proposed changes require the practitioner to “be knowledgeable in all aspects of federal tax law relevant to the opinion rendered”. In the absence of such knowledge, the practitioner may rely upon the opinion of another practitioner as long as the identity of the other practitioner is set out.

What did the “Innocent Spouse” really know and when: Under existing law prior to 1998, a spouse had to prove that they did not know or enjoy the benefits of the omitted income. While Congress substantially revamped the law in 1998 by relaxing the requirements for obtaining relief the statute is still premised on whether the spouse knew or had reason to know about their tax or financial situation. In the case where your client may be considering divorce, it is important for you to advise your client to carefully consider his or her tax options, particularly where it may be later revealed that the other spouse was hiding or falsifying tax information. Assurance from the other spouse that the tax return or financial information is correct is not enough. Where a spouse is divorced, separated or no longer living together Section 6015(c) provides for an election for separate tax liability.The time to resolve potential tax issues is before the divorce is final.

Drafting Mistake made in Family Partnership: Where the assets of the decedent were transferred from his revocable trust to the Family Limited Partnership, the full value of the property was includible in the estate of the decedent where the Decedent retained possession, control and enjoyment of the income and continued to live in the property rent free.

Back to Top