Tax Opinion / Structuring Memo

Service description

A tax opinion is a written legal analysis of how federal tax law applies to a specific transaction or position, such as a restructuring, a sale or a claimed deduction. The lawyer states the facts relied on, applies the relevant authorities to them, and reaches a conclusion at a stated level of confidence. Clients use it to support a return position or to give a counterparty comfort.

Common industries

Applies to any business entering a transaction with significant or uncertain tax treatment.

ROI

A well-reasoned opinion provides penalty protection and deal certainty — a bounded, well-defined deliverable.

Benefit

A written legal opinion or memo on the tax treatment of a transaction or position, to support a filing or give a counterparty comfort.

Why get it

When a return position is later challenged, a reasoned opinion from a qualified advisor can help show the business acted in good faith, and counterparties in deals often ask for one before closing.

When you benefit

A one-time deliverable tied to a single transaction or position, though a later related transaction may call for a new or updated opinion.

What it costs

Flat or hourly fee.

When you pay

Firms usually quote a flat fee once the transaction and the level of opinion are defined, or bill hourly while the facts are still moving. Payment is typically split between engagement and delivery of the final opinion.

Other costs

Time to gather and certify the facts relied on, and fees for appraisals or other experts if the analysis depends on them.

Risks to know

An opinion is only as good as the facts it relies on; if the real facts differ, its protection can fall away. Relying on professional advice supports a good-faith defense to the accuracy-related penalty only if the reliance was reasonable (26 CFR §1.6664-4), and an opinion does not bind the IRS.

When risks arise

The risk is set by the facts stated at signing, but it surfaces only if the IRS examines the position, often well after the return is filed.

The process

The lawyer reviews the transaction documents and facts, researches the governing statutes, regulations and rulings, and drafts the opinion. The business reviews the stated facts and confirms they are accurate. The lawyer then finalizes and delivers the signed opinion with the assumptions it depends on.

Your commitment

The business gives the lawyer a complete and accurate account of the transaction, including documents, projections and the business purpose behind it, and confirms in writing that the facts are true. It should say what level of comfort it needs and by when, since that shapes the analysis.

Documents to gather

• Transaction documents or a term sheet
• Entity chart showing ownership of each party
• Financial statements or projections the analysis will rely on
• Prior-year returns that touch the same position

Helpful reading

• Rules for written tax advice finalized — Journal of Accountancy
• Office of Professional Responsibility and Circular 230 — Internal Revenue Service

Further research

• 31 CFR § 10.37 — Requirements for written advice (Circular 230)
• 26 U.S. Code § 6662 — Imposition of accuracy-related penalty on underpayments
• 26 U.S. Code § 6664 — Definitions and special rules (reasonable cause exception)
• 26 CFR § 1.6664-4 — Reasonable cause and good faith exception to section 6662 penalties
• 26 U.S. Code § 7525 — Confidentiality privileges relating to taxpayer communications