A member may reach a conclusion that a position is warranted based on a well-reasoned construction of the applicable statute, well-reasoned articles or treatises, or pronouncements issued by the applicable taxing authority, regardless of whether such sources would be treated as authority under Internal Revenue Code Section 6662 (the accuracy-related penalty on underpayments). A position would not fail to meet these standards merely because it is later abandoned for practical or procedural considerations during an administrative hearing or in the litigation process.
In cases where the member believes that the taxpayer may have some exposure to a penalty, the statement suggests that the member advise the taxpayer of such risk. Where disclosure of a position on the tax return may mitigate the possibility of a taxpayer penalty under the Internal Revenue Code, the member should consider recommending that the taxpayer disclose the position on the return. Additionally, a member should not recommend a tax return position or prepare or sign a tax return reflecting a position that the member knows could exploit the audit selection process of a taxing authority, or serves as a mere arguing position advanced solely to obtain leverage in a negotiation with a taxing authority.