The new standards attempt to discourage people from designing and peddling shelters that have no apparent purpose other than to dodge taxes. IRS officials are focusing on tax professionals, since that's where taxpayers - both wealthy individuals and businesses - typically hear about shelter ideas in the first place.

The rules take aim in particular at a widely used tool in selling complex tax shelters: vaguely worded "opinion letters" that are written by lawyers and accountants and used to assure investors a transaction is legitimate. Many investors assume, often wrongly, that an opinion letter - especially one written on the stationery of a blue-chip firm - will protect them against stiff financial penalties in case the IRS decides to attack a shelter. The theory is that, even if a shelter is ruled invalid, the investor can argue he or she acted in good faith, because the transaction had been blessed by a professional.

Lawyers say many opinion letters are practically worthless because of their ambiguities and because they don't address all the details of the transaction involved. Reputable tax advisers urge people to obtain independent evaluations from qualified tax experts who have no financial stake in the proposed transaction. Another potential pitfall: Never listen to a promoter who insists on complete confidentiality before disclosing details of a shelter idea.

A carefully crafted legal opinion from a reputable tax adviser with no financial stake in the matter can be useful in protecting investors from penalties in case the IRS later attacks. The new rules aim in part at making clear what kinds of opinion letters work, and which don't.

"The Treasury has been concerned that some practitioners may be providing opinions based on unrealistic factual assumptions or without considering important legal doctrines, and taxpayers might be misled into thinking that such opinions protect them against the assertion of IRS penalties," says David Hariton, a partner at Sullivan & Cromwell in New York.

Officially known as Circular 230, the revised standards will include detailed requirements for tax opinions issued by attorneys and accountants. In addition, they are expected to require tax advisers to warn clients explicitly what protections, if any, a tax opinion offers. People familiar with the document say it will be released, but decline to specify when.

"The Circular 230 revisions, which we will announce shortly, will take a big step forward in tightening up opinion-writing rules," says IRS Commissioner Mark W. Everson.

The new standards come as the IRS is gaining broader overall power to fight abusive tax shelters. A law enacted in late October gives the IRS stronger weapons to use against tax-shelter architects and promoters, who now may face monetary penalties. And if that person is acting for an employer or someone else, the Treasury can impose a monetary penalty on the employer or others if they "knew, or reasonably should have known, of the conduct," according to a congressional report. These penalties can be on top of, or in place of, suspension, disbarment or censure.

The IRS also has beefed up its Office of Professional Responsibility, which enforces standards for tax professionals who practice before the IRS. It is headed by Cono Namorato, a respected former prosecutor. In the past year, it has doubled in size and now has a staff of about 50.

The revisions are also expected to include significant modifications to the version of Circular 230 originally proposed a year ago for public comment. Some tax professionals had complained those standards were too broad in certain areas.

The government has gone to court to challenge shelters - but with mixed results. This summer, it scored a major victory in a federal district court case involving a hedge fund. But more recently, it has lost a few shelter-related cases, sparking speculation that Congress may step in next year with new legislation designed to provide broad anti-abuse rules.

The Senate earlier this year approved legislation designed to clarify what is known as the "economic substance" doctrine. That doctrine generally denies tax benefits stemming from "transactions that do not result in a meaningful change to the taxpayer's economic position other than a purported reduction in federal income tax," according to a congressional report on the subject.

But that Senate provision ran into stiff opposition in the House and didn't survive a House-Senate conference. In the wake of the recent IRS defeats in court, however, it's possible that lawmakers may revive efforts to pass this or a somewhat similar provision. "If this issue comes up next year, I doubt that the statutory language would take the same approach you have seen this year," says Senate Finance Committee Chairman Charles Grassley, an Iowa Republican. "It would not surprise me if the issue comes up again."

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Red Flags

Danger signs when considering a tax shelter:

- Promoters insist on confidentiality.

- Promoters won't let you get an opinion from someone not connected with the deal.

- The shelter appears designed solely to save taxes, with no real business purpose.

- Tax savings are large and the amount invested is relatively small or "risk-free."

- The transaction involves moving assets offshore.