Tax Lawyer's Blog

I found an interesting article in Legal Times titled When is Tax Practice ‘Legal’? 

The author, Christopher S. Rizek, discusses whether and to what extent communications between a taxpayer and his or her non-lawyer tax advisor are privileged.

Rizek begins by stating that IRS Circular 230 contains the following disclaimer:

 Nothing in the regulations in this part shall be construed as authorizing persons not members of the bar to practice law.

However, he says this statement is inconsistent with other parts of the Circular which specify the services non-lawyers are permitted to perform:

Although the boundaries of the practice of law are notoriously difficult to delineate, the ABA Commission on Multidisciplinary Practice (the “MDP”) has proposed to define them by presumptively including in legal practice “preparing any legal document,” “preparing or expressing any legal opinion,” and “preparing any claims, demands or pleadings of any kind, or any written documents containing legal argument or interpretation of law, for filing in any court, administrative agency or other tribunal.”

The MDP Commission also suggests defining “legal services” as “services which, if provided by a lawyer engaged in the practice of law, would be regarded as part of such practice of law” for purposes of the disciplinary rules.

Arguably, therefore, Circular 230 is self-contradictory. At the same time it disclaims that it authorizes non-lawyers to engage  in the practice of law, it identifies as part of “practice before the IRS” many activities that would undoubtedly constitute the practice of law if performed by a lawyer. Acts that would constitute the practice of law if done by a lawyer in a legal setting cannot logically cease to be the practice of law simply because they are done by nonlawyers in different settings.

So how do we resolve the contradiction? Ignore the disclaimer, Rizek, says:

[The Courts have held that] legal opinions and advice concerning tax issues, research and preparation for such items, and perhaps even the structuring of transactions, may be considered to be parts of the practice of law that are now federally authorized  for non-lawyers. Communications may therefore be privileged to the extent they relate to such matters.

As long as it’s own disclaimer is ignored, Circular 230 can be read to support this interpretation.

Rizek closes by saying:

It may come as a surprise to some state bar associations to learn that non-lawyers claim federal authority to perform braod categories of work that are squarely within the traditional definition of legal services, and that Congress has implicitly endorsed these practices.

Clearly Congress and the IRS have endorsed the practice of law in the area of tax preparation and tax advisory services. The system has long operated to allow non-lawyers to provide all sorts of tax related services to their taxpayer clients – from simple tax preparation to complex tax structuring. Non-lawyer tax practitioners are even permitted (upon special certification) to try cases in U.S. Tax Court.

This, again, is another reason I favor IRS regulation of tax preparers. We are obviously going to continue to allow non-lawyers to practice tax law, therefore, we should try to equalize the benefits as well as the obligations of non-lawyer and lawyer participation.

I don’t know what form the new IRS regulatory scheme will ultimately take, but I recommend that, in addition to omitting the disclaimer from Circular 230, it do the following:

• Provide a Federal Attorney/Client Privilege - If you are going to allow non-lawyers to practice law, you should allow their clients the same privilege tax lawyers’ clients have with respect to their communications with their attorneys.
• Include a list of allowed services – A detailed and comprehensive list of services that licensed, non-lawyer, practitioners are allow to perform.
• Require Ethics education - Lawyers and CPAs are required to obtain a certain number of hours in ethics education every year. For example Florida lawyers must take 5 hours of ethics instruction. Licensed tax practitioners should have a similar ethics education requirement.
• Require a malpractice insurance disclosure – Regulated taxpayers should be encouraged to obtain malpractice insurance and should be required tell their clients and potential clients if they do not carry it.

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