[17173]
March 5, 2004
TO: FIXED-INCOME ADVISORY COMMITTEE No. 4-04
MONEY MARKET FUNDS ADVISORY COMMITTEE No. 5-04
TAX COMMITTEE No. 8-04
RE: INSTITUTE COMMENT LETTER REGARDING PROPOSED CHANGES TO
CIRCULAR 230
The attached Institute comment letter addresses proposed revisions by the Treasury
Department to Circular 230, which, among other things, sets forth standards for tax shelter
opinions. The proposed revisions would, among other things, (1) expand the definition of a tax
shelter to include “any… arrangement, a significant purpose of which is the avoidance or
evasion of any tax imposed by the Internal Revenue Code”; (2) eliminate municipal bonds from
the list of investments or arrangements that are excluded from the definition of tax shelter; (3)
require marketed tax shelter opinions to identify, consider and evaluate all relevant facts and
material federal tax issues; and (4) require marketed tax shelter opinions to include certain
disclosures with respect to any material federal tax issue, including a statement that “the
opinion may not be sufficient for the purpose of avoiding tax penalties” and a statement that
taxpayers should seek advice from their own tax counsel with respect to material federal tax
issues addressed in the opinion.
The Institute’s comment letter explains why investment company purchasers of
municipal bonds require unqualified bond counsel opinions for the municipal securities that
they purchase and describes the adverse impact that the proposed revisions would have on
bond purchasers. The draft comment letter argues that the proposed changes to Circular 230
would unduly burden the municipal bond market, would not achieve Treasury’s objective of
eliminating abusive tax shelters, and could in fact result in a proliferation of such abusive
transactions.
Consequently, the comment letter urges Treasury to modify its proposed rules to
provide that an unqualified tax opinion -- concluding that interest on a municipal bond is
exempt to the recipient under Section 103 -- is not a tax shelter opinion for Circular 230
purposes. The letter also recommends that opinions with respect to those synthetic municipal
investments meeting the requirements of Revenue Procedure 2003-84 (including grandfathered
arrangements) be exempt from the definition of tax shelter opinion.
2
Lisa Robinson
Assistant Counsel
Attachment (in .pdf format)