Welcome to the Federal Tax Update Podcast, hosted by Lynn Nichols. This is presented as a member benefit by the South Carolina Association of CPAs. It is produced to provide current information about developments in U.S. tax law, such as cases, ruling, IRS pronouncements and expert comments on hot topics.

Trending in this edition:

  • Tax Practice advice by expert Kip Dellinger from Tax Notes Today: Avoiding malpractice in Tax engagements
  • Tax Court decision on medical marijuana dispensary San Jose Wellness (156 T.C. No. 4); cannot deduct depreciation or charitable gifts
  • IRS Clarifies Health FSA Carryover and Claims Periods: Notice 2021-15
  • Tax Court and the strange case of Debra Jean Blum: Malpractice Settlement not covered by IRC Sec. 104 “Physical Injury” exclusion

Nichols note: Our special topic this week is “Experts Seek Consensus on Tax Opinions Standards.” The complexity of recent changes in law adds importance. The disclosure on Form 8275 Disclosure Statement only goes so far, but is very important.

Some words and terms have been and continue to be a source of frustration and debate among Tax practitioners who want to avoid penalties for themselves and their clients, and malpractice claims from clients claiming financial harm from a “bad” tax opinion.

Let’s look at the “Reasonable Basis” standard vs. other standards:

“Frivolous” = Patently improper

“Not Frivolous” = Less than 20%, maybe only 1 in 10; Not patently improper, there is merit to the position

“Reasonable Basis” = Generally thought of as at least 20%; Significantly higher than Not Frivolous and lower than Realistic Possibility of Success

“Realistic Possibility of Success” = 1 in 3 possibility of success if challenged by IRS

“Substantial Authority” = Weight of authorities in support of a position is substantial in relation to the weight of authorities in opposition to the position (40%)

“More Likely Than Not” = Greater than 50% probability of success if challenged by IRS

Other relevant terms:

“Should” = Generally, 70-80% probability of success if challenged by IRS

“Will” = Generally, 90% or greater probability of success if challenged by IRS

Missed last week’s Tax topic? Catch up with Lynn and “Form 7202 for Self-Employed to Claim COVID Tax Credits” or check out his Tax Updates video playlist.

All commentary is brief, and you should not take a position on the items discussed until you thoroughly examine it with authoritative sources. The topics can be found discussed in further length at Tax Notes Today.

“I have relied on Tax Analysts® to provide reliable and timely analysis of Federal tax developments for over 30 years. The ‘headnotes’ you see here are from ‘Tax Notes Today,’ the preeminent source of accurate information and analysis of important developments and trends in Federal taxation,” Nichols says.

You can contact Lynn Nichols at lynnnicholscpa@outlook.com or 714.321.3387 and connect on LinkedIn.

A federal tax specialist for 50 years, Lynn Nichols provides tax consulting services to CPA firms on complex federal income tax issues, professional standards in tax practice and effective tax practice management.