Bond lawyers will not see the full impact of Circular 230 on their opinion practice for a decade, and the regulations could represent a first step toward a degraded standard for state and local bond opinions, according to former National Association of Bond Lawyers president Monty Humble.
Professionalism and integrity remain critical issues for NABL as members face the imposition of Circular 230 regulations, which will set forth standards for state and local bond opinions, Humble said in an interview this week.
The proposed regulations are expected to be finalized by the end of the year. They would require bond lawyers to discuss the tax rationale underlying their opinions in a memo to be included in the bond transcript. The memo would have to identify all of the relevant facts, relate applicable law to those facts, evaluate significant federal tax issues, and provide an overall conclusion.
Humble, a tax partner with Vinson & Elkins LLP in Dallas, said he did not expect the municipal bond markets discussion of Circular 230 to be as extensive as it has been since the regulations were proposed last year.
Acknowledging that it is still difficult for bond lawyers to gauge the rules potential impact, Humble said he often wonders why they have been concerned about a set of regulations that essentially say do what youve always done and only after you have become highly confident of your conclusion, render your opinion.
But, he said, there are other times in which he looks back over more than 20 years of experience as a practicing attorney and tries to assess the likely response of bond lawyers and investment bankers to the Circular 230 regime.
I am profoundly concerned that we are about to take our first step onto a slippery slope that will lead to a degraded opinion standard, which will serve none of us well and will likely lead to an increase in the volume of transactions that would not be done under the standards that are used today, Humble said.
I have spent too many late nights at the financial printer not to believe there will be times when tax lawyers under time pressure will take the safe approach and write an issue up as a potential significant federal tax issue even if they dont really think that it is, he said.
An underwriters counsel, under the same pressure and with less time to become familiar with a bond issue, may also decide to protect the underwriter by including the disclosure in the offering document, Humble said.
When that type of disclosure becomes routine, it will then be very easy to offer transactions that would not have been done under todays standards, he said.
Humble said he thinks it will be ten years before municipal market participants know the final outcome of Circular 230.
In a market that has worked very well to enable autonomous local self-government for the past 130 years, change ought to be undertaken only when it is clearly required, he added.
Beyond Circular 230, Humble said he dealt with several unexpected events and issues during his tenure as NABL president, including the Joint Committee on Taxations proposed elimination of advance refundings, a vacancy in NABLs director of government affairs position, and Hurricane Katrina.
NABL filled the void in Washington with Elizabeth Wagner, a former Treasury and IRS official who most recently worked as a director in the Washington national tax office of KPMG LLP.
The board felt that NABL needed to focus attention on our Washington presence; to establish a continuous dialogue with regulators that assured we not only brought them our complaints but also listened to their concerns, and worked to enhance our working partnerships with other groups that represent bond market participants, Humble said.
Elizabeth clearly enjoys the respect and confidence of many people in Washington, both inside and outside the government, he continued. Her reputation and the relationships that have grown out of her character have already proven very valuable to the association. She provides credibility to us, but she also participates actively in our discussions to assure that we are consistent with our mission.
Walter St. Onge 3d, a partner with Palmer & Dodge LLP in Boston, took the helm of NABL at the associations annual Bond Attorneys Workshop in Chicago last week.
He is a deep thinker who [wants] to serve our members and fulfill the larger responsibility of NABL to the municipal markets, Humble said. Walt is his own man, but most of the initiatives that we undertook this year came from the board, including Walt, so I wouldnt be surprised if he chose to build on those.
