Sec. 6700 could make tax advice you give subject to shelter penalties

When tax shelters first burst on the public scene in the 1970s, the IRS and Congress moved to take action to shut down the promoters of the tax schemes and punish them for fraudulent activities.  One of the solutions was IRC Sec. 6700, which established penalties for tax shelter promoters.  As a new wave of shelters has emerged in recent years, that provision of the Code is being revived and strengthened by the IRS, and tax professionals of all kinds could get tangled in the web of IRS enforcement activity, according to Brian R. Lynn of Caplin & Drysdale Chartered in Washington, DC.

Court interpretations since Sec. 6700 was created have found that Congress meant to declare that some “opinions” can be “wrong” and thus seen as fraudulent activity.  Lynn notes that the courts and the IRS have done little to separate “huckster” activity from the work of lawyers and accountants who are working in areas of the Code that are subject to interpretation and debate.  That could subject tax professionals to the penalties outlined in Sec. 6700.

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This story is from the CCH’s monthly Focus on Tax newsletter, which provides advise and guidance on federal and state tax issues for tax and accounting professionals.

Read this article from CCH’s Journal of Taxation of Financial Products.


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