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Definition: Tax Opinion
Tax opinion is issued by bond issuers (or other investment providers) with the help of their tax attorney which states how the bonds (or other investments) will be treated for the tax purpose. The tax opinion shows how the investment complies with rules and policies exempting it from taxation. It a legal document stating how an investment will be treated by its holders for the purpose of computation of federal income tax.
The tax opinion is important from the view point of issuer since this provides a means of marketing his bond, by showing the tax exemptions one may get by investing in it. It is also beneficial for the person buying bonds since tax opinion gives him the information using which he can select among different options.
There are different tax opinion standards, but the following are the most popularly used:
Not frivolous 10% to 20% chance of one’s argument prevailing
Reasonable Basis : Around 33% chance
Realistic possibility of success : 30% - 45% chances
Substantial Authority : 40% - 50% chance
More Likely Than Not : more than 50% chance
Should : 60% likely
Will : near 100% chances of winning the argument, hence assured tax treatment