Question 1
A partnership client is considering a syndicated conservation easement generating a charitable deduction equal to more than six times the purchase price. The appraisal is from a firm reportedly under government scrutiny, and a promoter memo asserts the deduction is 'more likely than not' to be sustained. Management wants the deduction this year with no disclosure beyond Form 8283 and asks you to prepare the return and attach the promoter materials. You see multiple red flags in the appraisal assumptions and sales materials.
Which response aligns with Circular 230?
- Treat the promoter memo as substantial authority and proceed, attaching Form 8283 without further inquiry.
- Claim only half the deduction to reduce audit risk and omit any disclosure.
- Decline to recommend or prepare the deduction; explain the lack of reasonable basis, unreasonable reliance, penalties, and disclosure considerations if they proceed elsewhere.
- Proceed if the client signs an engagement letter shifting all valuation responsibility to them.
Explanation: Circular 230 §§10.34, 10.37, and 10.22 prohibit relying on unreasonable representations and taking positions without a reasonable basis; the practitioner should decline and warn about penalties and disclosure. The other options proceed without adequate diligence, suppress disclosure, or attempt to contract away ethical duties.