Tax advice.
State tax advice.
Questions. Answers. Direction. Clarity.
Each client has unique facts that when faced with complicated state tax law can cause misalignment between the desired conclusion and reality. Thus, in those moments of grey or uncertainty, when the client pushes back against the "technically correct" answer - what will be the guidance? What conclusion will you provide? How will you communicate that conclusion?
This is a common occurence. One in which caused me to say to a colleague the other day - "sometimes it feels like clients don't want technical support. They just want moral support."
"Moral support" meaning, clients just want you to find some legal authority that will allow them to do or reach their desired outcome. They don't really just want to know the "technically correct answer."
The "technically correct" answer is cut and dry. Leaves no wiggle room (usually). It's a stronger conclusion. Less risk of challenge or an audit assessment.
The "moral support" answer is not so cut and dry. It is like trying to thread the needle. Trying to stand on legal authority to go in a different direction - to reach the desired result. This path may be more risky, but it may also be supportable by legal authority. Meaning, this position is not unsupportable, it just has a lower level of support than a "technical correct" answer. For example, it may have a "realistic possible of success" (33% probability of being sustained) or only have a "reasonable basis" (20% to 30% probability of being sustained).
The next higher level of assurance would be "substantial authority." Internal Revenue Code Regs. Sec. 1.6662-4(d)(3)(i) explains when there is substantial authority in support of a tax position. The regulation provides in part:
There is substantial authority for the tax treatment of an item only if the weight of the authorities supporting the treatment is substantial in relation to the weight of authorities supporting contrary treatment. All authorities relevant to the tax treatment of an item, including the authorities contrary to the treatment, are taken into account in determining whether substantial authority exists. The weight of authorities is determined in light of the pertinent facts and circumstances in the manner prescribed by paragraph (d)(3)(ii) of this section. There may be substantial authority for more than one position with respect to the same item. Because the substantial authority standard is an objective standard, the taxpayer's belief that there is substantial authority for the tax treatment of an item is not relevant in determining whether there is substantial authority for that treatment.
Then we get to the desired level of "more likely than not" (generally viewed as more than 50% probability of position being sustained).
More likely than not means evidence reasonably tending to support the conclusion. Evidence that is competent, relevant, and material, and which to a rational and impartial mind naturally leads, or involuntarily leads to conclusion for which there is valid, just and reasonable substantiation.
"Should" and "will" levels of assurance would be lovely, but again, that is in the more "cut and dry" fact patterns.
“Should” opinions generally provide a 70% to 75% probability of position being sustained. This opinion standard implies a reasonably high level of confidence that the position will be sustained and is significantly higher than the “more likely than not” standard but allows for a not insignificant risk of being wrong.
"Will" opinions generally provide a 90-95% probability of position being sustained.This opinion provides the highest level of comfort. But note that “a legal opinion is not an insurance policy.” A judge could still decide adversely on the matter, so the opinion should not be considered a guarantee of absolute certainty.
Consequently, when a client (or colleague) asks you a question, keep in mind that it is always a technical question. You are always providing answers which contain a level of assurance whether you specifically clarify what level of assurance you are providing. Make sure your client understands the "level" and the risk.
Most clients and colleagues are likely looking for "should" and "will" guidance at the start of the conversation, but if that answer is not giving them the desired outcome, they may start to move down the "assurance level ladder" to "substantial authority" or "realistic possibility of success."
The lower you get on the "ladder," the closer you are getting to providing "moral support" versus "technical support."
This is one time when you want to be as high up on the ladder as possible (even if you are afraid of heights).
My advice - don't get to the bottom of the ladder, and please don't fall off the ladder.