What should a practitioner do when a client brings in a 'vetted' tax strategy that sounds too good to be true?

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AcadiFi · Accepted Answer

The practitioner should slow the conversation down, demand factual support, evaluate legal authority, and avoid treating promotional material as proof. A tax strategy is not validated merely because someone says other high earners are using it. If the facts are incomplete or the support is weak, due diligence requires skepticism rather than enthusiastic adoption.

Assume Granite Ridge Capital is shown a strategy where a taxpayer buys an interest for $100,000, claims a sharply inflated charitable value, and expects a massive deduction with little economic downside. The client arrives saying the deal was reviewed by specialists and already used by peers. That is exactly when a careful practitioner should request organizing documents, valuation support, legal analysis, and a clear explanation of economic substance. If the answers collapse into slogans, the risk is obvious.

For EA Part 3, the key lesson is that you are not required to accept a claim because a client wants certainty fast. Circular 230-style thinking pushes toward reasonable inquiry, competence, and refusal to sign onto positions you cannot support. When a structure sounds designed to produce a tax result first and a business purpose second, extra caution is warranted. Practice more in our EA question bank.

What should a practitioner do when a client brings in a 'vetted' tax strategy that sounds too good to be true?

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