A “tax opinion” is a formal, written statement provided by a lawyer to a client about the tax consequences of a specific transaction. In addition to describing the expected tax treatment, the opinion also specifies the lawyer’s confidence in this determination—a “will” opinion indicates near certainty; a “more likely than not” opinion is much more qualified. These opinions are used for a variety of purposes: to meet the contractual obligations of a deal, to facilitate proper accounting of uncertain tax positions on financial statements, and to reassure current and prospective investors, just to name a few.

In her article, “Tax Lawyers as Tax Insurance,” recently published in the William & Mary Law Review, my colleague Heather Field provides a novel insight on an additional function of tax opinions. Existing scholarship largely conceives of the cost-saving function of tax opinions as a shield protecting clients against governmental attempts to levy penalties. Professor Field demonstrates that this description is incomplete and undertheorized. By giving clients a limited and conditional indemnity for adverse tax consequences, tax opinions also function as a form of tax insurance because the lawyer serves as a partial insurer. As a result, tax opinions can also be used by clients as a sword to proactively seek recompense from the opinion’s drafters.

Professor Field also provides convincing evidence of the substantive overlap between tax opinions and third-party tax-insurance policies. By demonstrating that tax opinions often contain traditional indicia of insurance and mitigate the risk associated with ambiguity, tax opinions, similar to third-party insurance policies, allow taxpayers to proceed with transactions despite tax uncertainty. Although the risk-shifting provided by tax opinions is not identical to that provided by third-party insurers (thereby precluding the need to regulate tax opinions as traditional insurance), Professor Field shows that the insuring potential of tax opinions via malpractice claims has likely been underappreciated.

Recognizing the insuring role potentially played by tax opinions has forceful consequences for how lawyers might provide and charge for their legal advice. The cost of a tax opinion might more appropriately relate to the potential cost of indemnification, rather than the time spent drafting the opinion. Tax lawyers might wish to expressly limit their potential liability in their client-engagement letters (if allowed under the jurisdiction’s ethics rules) or caveat the advice rendered in their opinions even further. These open questions are of heightened relevance in light of the many ambiguities (and increased need for tax opinions) created by the December 2017 Tax Cuts and Jobs Act.

Professor Field’s article does not aim to resolve the many issues it raises. But by identifying a new paradigm of tax-lawyers-as-tax-insurance, she makes clear that the stakes are significant, with far-reaching implications for how tax lawyers could and should provide their legal advice.