The Substantial Authority Conduct Standard for Undisclosed Tax Positions: Establishing the Weight Afforded Acceptable Authorities

Abstract

ABSTRACT: The Internal Revenue Code (IRC) provides that tax return preparers who have taken undisclosed positions on tax returns must be able to demonstrate that they have met the “substantial authority” standard of conduct to avoid IRC §6694 preparer penalties. However, there is limited guidance regarding: (1) the weight to afford an authority in an analysis of the law, and (2) the level of confidence tax return preparers must have that a position taken will be upheld if challenged. In the absence of definitive guidance, tax return preparers are left to their own subjective determination regarding whether they have met the provisions of the conduct standard. This article reviews the statutory conduct provisions and factors considered by the courts in determining the precedential value, or deference, to be afforded authorities acceptable under the Code. In this article, the authors show how an analysis of case law can be used when there is uncertainty regarding the weight to afford an authority available to support an undisclosed tax position.