1 / 20

Tax Opinions: What Does it Cost You and What is it Worth to Your Client

Tax Opinions: What Does it Cost You and What is it Worth to Your Client. ABA Tax Section February 18, 2012 Speakers: Jack Cummings, Alston & Bird Julie Divola, Pillsbury Daniel White, Bryan Cave. Contents. Regulatory Landscape for Tax Opinions Why Opine? Staff Legal Bulletin No. 19

adler
Download Presentation

Tax Opinions: What Does it Cost You and What is it Worth to Your Client

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Tax Opinions: What Does it Cost You and What is it Worth to Your Client ABA Tax Section February 18, 2012 Speakers: Jack Cummings, Alston & Bird Julie Divola, Pillsbury Daniel White, Bryan Cave

  2. Contents • Regulatory Landscape for Tax Opinions • Why Opine? • Staff Legal Bulletin No. 19 • Canal Corp. v. Comm’r, 135 T.C. 9 (2010) 1

  3. The Landscape • Circular 230 • Taxpayer Penalty Protection • State Bar/ABA standards • State law negligence • AICPA (FIN 48) • Securities Laws 2

  4. Opinion Standards • Will • Should • More likely than not (Treas. Reg. 1.6662-4(d)) • Substantial Authority (Treas. Reg. 1.6662-4(d)) • Realistic Possibility of Success (ABA Opn. 85-352) • Reasonable Basis (Treas. Reg. 1.6662-3(b)) 3

  5. The Context for Opinions • Closing Condition • Third Party Reliance/Inducement • Penalty Protection (IRC 6662) • Financial Statements (FIN 48) • Securities Offering/Disclosure 4

  6. Penalty Protection • Non-tax shelter transaction (IRC 6662(d)(2)(B) • Substantial authority • Reasonable basis plus disclosure • Tax shelter transactions 5

  7. Staff Legal Bulletin No. 19 • Published October 14, 2011 • Affects Tax Opinions in Registered Offerings • Debt offerings • Stock offerings • Reorganization opinions • Requirements • Required Elements 6

  8. Securities Laws • Tax Opinions Required: • Form S-11 • Securities Act Industry Guide 5 • Roll-up transactions • Registered offerings where “tax consequences are material to an investor and a representation as to tax consequences is set forth in the filing” 7

  9. Tax Consequences are Material • Substantial likelihood that a reasonable investor would consider the information important in deciding how to vote or make an investment decision • Would it significantly alter the total mix of available information 8

  10. Are Opinions Required? • Stock Dividend • described in Section 305(a)? • taxable under Section 305(b)? • described in Section 355(a)? • Acquisition • reorganization or taxable? • Target? • Acquiring? • Debt offering • OID? • Other (eg., note exchange) 9

  11. Required Substance of the Opinion • Material Federal Income Tax Consequences • Conclusions as a matter of Law • Assumptions and Qualifications • Uncertainty 10

  12. Material Federal Income Tax Consequences • Need not opine on state, local, or foreign tax law • May opine to “material” but not “certain” or “principal” consequences • Must identify each material consequence • Must conclude on each tax item • Must set forth the basis for the opinion • If unable to conclude, provide the reason and discuss possible alternatives and risks 11

  13. Examples of Inadequate Disclosure “In the opinion of counsel… • a partnership is taxed in the following manner” • a preponderance of the tax consequences is likely to occur” • the following discussion is a fair and accurate summary of the material tax consequences” 12

  14. Assumptions and Qualifications They must be: • Adequately disclosed (e.g., “modification is not economically significant…”) • Consistent with the transaction • Future facts/conditions (e.g., “exchange offer will occur according to its terms…”) • Facts not known/knowable Opinion cannot: • Assume tax consequences • Assume underlying legal conclusion (e.g., state law partnership, merger is valid under local law) 13

  15. Uncertainty: Opinions below “will” • Lack of authority • Conflicting authority • Unclear authority (significant doubt) • Must explain the basis for and degree of uncertainty “While not free from doubt and while no authority is directly applicable, the tax consequences will be…” 14

  16. Other Issues • Investor reliance • “Informational Purposes only” • “Investors should seek and rely on their own tax advisors” • Personal Tax Consequences 15

  17. Administrivia • File before registration statement is effective • Not required if • the reorganization tax opinion is a closing condition to a merger • prospectus discusses substance • filed prior to closing (or if S-3, 8K, 6K – incorporated by reference) • Waivable conditions require filed opinion • Consent to filing 16

  18. Canal Corp. v. Comm’r • Issue: Was leveraged partnership transaction a ‘disguised sale’ under Code Section 707. • Despite ‘should’ opinion-based reasonable cause defense, Court imposed substantial understatement penalty. See Treas. Reg. 1.6664-4(c) 17

  19. Why did the Canal court Reject Opinion Reliance? • Inadequate analysis (eg, debt-equity, economic substance) • Opinion from firm that planned the transaction • Large, fixed fee for opinion • Typos • Timing of Delivery of Final Opinion 18

  20. 2nd Guessing Opinion Analysis • AccordLong Term Capital Management, 330 F. Supp. 2d. 122, 206 (D. Conn. 2004), aff’d (2nd Cir. 2005) (failure to apply law to facts) • U.S. v. Boyle (taxpayer reliance on expert appropriate when not competent to discern error. To require 2nd opinion nullifies purpose of seeking advice). • Sophistication of client? • How many people must read the opinion? SeeLTCM 19

More Related