Revised Corporate Tax Shelter Discussion Draft
February 14, 2001

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IV. Section 6701(a): Modifications of Penalties for Aiding and Abetting Understatement of Tax Liability Involving Tax Shelters

The Draft increases the current aiding and abetting penalty to 50% of the gross proceeds derived by the person aiding and abetting from the tax shelter if the penalty involves a tax shelter or abusive tax shelter device. In addition, the Draft adds a separate penalty on any person who (1) aids or assists in, procures, or advises with respect to the creation, organization, sale, implementation, management, or reporting of a tax shelter or an abusive tax shelter device and (2) opines, advises, represents, or otherwise indicates (directly or indirectly) that the taxpayer’s tax treatment of items attributable to such tax shelter or abusive tax shelter device and giving rise to an understatement of tax liability would more likely than not prevail or not give rise to a penalty, if such opinion, advice, representation, or indication is unreasonable. We assume that the "unreasonable" standard in the new penalty is a negligence standard. The Draft also provide that, if a standard higher than "more likely than not" was used in any such opinion, advice, representation, or indication, then the test will be applied as if such standard were substituted for the more likely than not standard.

We have consistently supported extension of the aiding and abetting penalties to reach promoters, their advisors, and other participants in the transaction. We applaud the broadening of the aiding and abetting penalty and agree with public disclosure of the penalties. However, we believe that the standard for imposing the aiding and abetting penalty should be negligence in the case of both listed and non-listed transactions. We suggest that a clarification be made in the legislative history to final legislation.

In addition, we do not support an aiding and abetting penalty if a tax advisor gives a "should" opinion and the appropriate level was "more likely than not." The difference between the two is a fine line and not one on which it is appropriate to base penalties. We support imposition of the penalty if a tax advisor gives a more likely than not (or higher) opinion, and it was negligent to give a more likely than not opinion. We believe that the Draft should be amended accordingly.

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