Circular 230 Opinion Standards, Legal Ethics and First Amendment Limitations on the Regulation of Professional Speech by Lawyers


This article addresses the legal ethics and First Amendment implications of recent Treasury Department regulations governing legal opinions on tax-motivated transactions. As discussed in the article, the regulations are intended to address the significant policy and budgetary issue of practitioners’ involvement in the development, marketing and encouragement of abusive tax shelters. However, the article concludes that the regulations are in many respects an inappropriate response to these problems because their prohibitions prevent a lawyer from giving taxpayers a complete, informed assessment of their rights. As such, they create significant ethical conflicts and deny the public legal advice. More generally, they distort the lawyer’s role and erode the principles underlying legal ethics rules.

Although the regulations are limited to a relatively narrow class of professional activity, they raise broader questions about the government’s power to control the public’s knowledge of its legal rights, and a lawyer’s ability to draw the full range of meanings from the law for the benefit of a client. As such, the regulations pose fundamental questions about the relationship among the government, the public and lawyers. They are similar to other government attempts to regulate the advice of lawyers, including a 1996 law that prohibited Legal Services lawyers from challenging welfare laws, and a 1997 law that made it illegal for lawyers to counsel on asset dispositions to qualify for Medicaid benefits. The 1996 law was struck down by the Supreme Court in Legal Services Corp. v. Velazquez, 531 U.S. 533 (2001), and the Department of Justice refused to enforce or defend the 1997 law.

The article addresses the First Amendment implications of the regulations, which were explicitly authorized by Congress. The article discusses the limited First Amendment caselaw and scholarship regarding professional speech, and proposes an analytical model based on the role of the relevant profession in society, and the accepted professional norms. Under the model, professional speech may be prohibited in a narrowly-tailored fashion where the speech involves illegal conduct, presents a clear and realistic threat to the proper functioning of the profession or the institutions with which the profession interacts, or deviates from accepted professional norms. In addition, professional speech may be regulated for the purpose of furthering a legitimate State policy, provided that the regulation does not distort the usual functioning of the profession based on accepted usage, or prevent the exercise of professional judgment. However, professional speech may not be prohibited merely because the client may use the information to make a bad choice, or to engage in illegal conduct. The article also articulates a more general “hearer-centered” theory, similar to the commercial speech doctrine, for legal opinions used to market tax shelters to third parties.

The article considers separately the “viewpoint neutral” and the “viewpoint based” requirements of the regulations under the foregoing principles. It concludes while the “viewpoint-neutral” standards may be seen as furthering the legitimate government purpose of ensuring that taxpayers not enter into tax-motivated transactions without a full understanding of the risks, they are not narrowly tailored to their purpose and distort the normal functioning of the profession based on accepted usage. It concludes that the “viewpoint-based” standards are less justified in terms of furthering a legitimate government purpose, and more seriously distort the role of a lawyer and interfere with the exercise of professional judgment. Finally, the article proposes guidelines for tax opinions that are more consistent with the ethical rules and First Amendment principles.


Constitutional Law | Legal Ethics and Professional Responsibility | Taxation-Federal

Date of this Version

February 2006