Recent cases underscore hazards that may plague an attempt to rely on a legal opinion regarding tax matters (tax opinion) as a basis for avoiding penalties asserted by the Internal Revenue Service. The first problem is evident—the Service or a court may find that reliance on the opinion, under all the facts and circumstances, does not evidence the requisite “reasonable cause” and “good faith.”
The second problem is more subtle, namely, that disclosure of the existence of the opinion and of the taxpayer’s reliance on it may result in waiver of the attorney-client and work product privileges not only with respect to the opinion itself but also with respect to other communications between the taxpayer and its legal advisors.
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