¹REG-111835-99 (1/12/01).

²Treasury Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents and Appraisers Before the Internal Revenue Service (hereinafter, "Circular 230").

³See Wolfman, Holden and Harris, Standards of Tax Practice 105.1.5.2 and 105.1.5.4 (Little, Brown and Co., 5th ed., 1999).

⁴The AICPA's comments are available at www.aicpa.org/letters/comments.htm (hereinafter, "AICPA Comments").

⁵The ACTC, a nonprofit association comprised of tax attorneys in private practice, government service and academia, "promotes the study of tax policy and seeks methods for improving the operation and administration of" U.S. tax laws, particularly in the areas of tax practitioner ethics, professionalism and voluntary compliance; see www.americantax.org/american_college_of_tax_counsel.htm .

⁶The ACTC comments (submitted 5/23/01) are available at www.taxbase.or , Doc. No. 2001-15321.The ABA's comments (submitted 4/23/01), are available at www.abanet.org/tax/pubpolicy/2001/c230irs0104/ . In its general comments, the ABA "strongly endorse[d] the Service's plan to thoroughly review, update and amend" Circular 230 and indicated that the proposed amendments have their "strong support," subject to their specific concerns. The NYSBA, "Report #995: Report on Proposed Modifications to Circular No. 230" (submitted 7/25/01) (hereinafter, "NYSBA Report") states that, although the NYSBA believes that the "proposed revisions would significantly improve Circular 230" and "enhance the multi-prong attack on tax shelters" (which it supports), it also raises concerns about several of the proposed changes. The 74-page report and an accompanying letter are available at www.nysba.org/sections/tax/menu/index.htm.

⁷See Hembera, Jr., "Witnesses Say Circular 230 Regs Are Too Burdensome," 91 Tax Notes 880 (5/7/01).

⁹NYSBA Report, note 6 supra, at p. 16, also identifies several other services for which it believes practitioners should be able to charge contingent fees.

¹⁰The NYSBA believes that practitioners should be able to enforce collection of unpaid client fees by asserting a lien on client records, as permitted by state law. Thus, it argues that proposed Section 10.28 should be deleted from the final regulations; see NYSBA Report, note 6 supra, at p. 18.

¹¹See, e.g., Edenfield v. Fane, 507 US 761 (1993) (permissible scope of CPA in-person solicitation).

¹²AICPA CPC Rule 502, Advertising and Other Forms of Solicitation, permits CPAs to engage in noncoercive personal solicitation, while ABA Model Rules 7.2 and 7.3 regulate attorney advertising and solicitation of prospective clients. In addition, Federal and state consumer-protection statutes, cases like Edenfield v. Fane, note 11 supra, and professional ethics rules already regulate attorney and CPA advertising and solicitation. For example, FTC Act Section 5 prohibits "unfair and deceptive acts or practices," which is sufficient to proscribe false, misleading or coercive claims not only by tax practitioners subject to Circular 230, but also those outside the realm of Treasury authority who might offer clients tax advice (e.g., investment bankers).

¹³See Wolfman, note 3 supra, at 208, for a discussion of shelter investments, including legislative and judicial responses.

¹⁴The term "tax shelter item" is new; proposed Section 10.35(c)(3) defines it as "an item of income, gain, loss, deduction, or credit if the item is directly or indirectly attributable to a tax shelter as defined in Section 6662(d)(2)(c)(iii) of the Internal Revenue Code." The NYSBA Report, note 6 supra, at p. 32, considers four alternatives to the definition of "tax shelter opinion" in proposed Section 10.35 before recommending an "opt-out statement" approach. Under this approach, proposed Section 10.35 would apply to any written advice, unless the advice contained an explicit statement that it was not intended to be used for "penalty protection purposes." According to the NYSBA, this approach is both fair and workable and will increase "taxpayer awareness of the risks involved in overly aggressive transactions."

¹⁵Current Section 10.33(c)(2) defines a shelter as "an investment which has as a significant and intended feature for Federal income or excise tax purposes either of the following attributes: (i) Deductions in excess of income from the investment being available in any year to reduce income from other sources in that year, or (ii) Credits in excess of the tax attributable to the income from the investment being available in any year to offset taxes on income from other sources in that year."

¹⁶See AICPA Comments, note 4 supra, under "General Comments," pp. 1, 2.

¹⁷The definition of tax shelter in current Section 10.33(c)(2)(ii) excludes the following nine transactions: "municipal bonds; annuities; [some] family trusts...; qualified retirement plans; individual retirement accounts; stock option plans; securities issued in a corporate reorganization; [some] mineral development ventures...; and [certain] real estate [transactions]...." While both proposed Sections 10.33(c)(2) and 10.35(c)(2) define shelter by referring to Sec. 6662(d)(2)(c)(iii), proposed Section 10.35(c)(2) also excludes qualified retirement plans and municipal bonds from the definition. The AICPA speculates that these transactions were inadvertently omitted from the definition in proposed Section 10.33(c)(2). Although the Service has invited comments about the possible exclusion of other transactions, it has not identified the criteria it will use to decide whether other exclusions are warranted. According to the AICPA, the fact that the other seven transactions currently excluded were omitted from the proposed definition "is not an encouraging indication of what might be expected in the way of exclusions, and portends a difficult process for adding exclusions" back into the definition of a shelter.

¹⁸AICPA Comments, note 4 supra, at Appendix C, provides examples of transactions that would and would not be shelters under the categories suggested.

¹⁹NYSBA Report, note 6 supra, at p. 43. The NYSBA Report devotes more than 25 pages to a detailed analysis of the proposed shelter regulations and urges the IRS to clarify numerous provisions.