Notice 2009-5 does not follow the law

6694(a)(2)(A) IN GENERAL. --Except as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position.

As noted above, section 6694(a)(2)(A)expressly used "substantial" authority as the standarad of conduct for undisclosed problematical positions.

Below is some language extracted from Notice 2009-5

Notice 2009-5, December 16, 2008 – transitional rules



B. Definition of Substantial Authority

Until further guidance is issued, solely for purposes of section 6694(a) , "substantial authority" has the same meaning as in § 1.6662-4(d)(2) (or any successor provision) of the accuracy-related penalty regulations. The analysis prescribed by § 1.6662-4(d)(3)(i) through (ii) (or any successor provisions) applies for purposes of determining whether substantial authority is present. The authorities considered in determining whether there is substantial authority for a position are those authorities described in § 1.6662-4(d)(3)(iii) (or any successor provision).

Solely for purposes of section 6694(a) , a tax return preparer nevertheless will be considered to have met the standard in section 6694(a)(2)(A) if the tax return preparer relies in good faith and without verification on the advice of another advisor, another tax return preparer, or other party. Factors used in evaluating a tax return preparer's good faith reliance on the advice of another are found in § 1.6694-2(e)(5) .


This last quotation from Notice 2009-5, by creating a "reliance" provision, is inconsistent with 6694(a) which has never defined "substantial authority" to include a reliance rule. Notice 2009-5 is also inconsistent with the 6694 Final Regulations for the same reason. And Notice 2009-5 is also inconsistent with Notice 2009-5 which references § 1.6662-4(d)(3)(iii) because this relation does not include any reliance rule to establish "substantial authority."

You should take advantage of Notice 2009-5 for the 2008 tax year because it proveds a "reliance rule" (noted above) that is not supportable by the section 6694(a) statute and § 1.6662-4(d)(3)(iii) which is a longstanding regulation with substantial judicial support.

Obviously, this "reliance" transitional rule will not survive the new Treasury under the 44th President.