ETHICS FOR THE TAX ATTORNEY:
AN INTRODUCTORY LESSON
Jonathan Corey Silverman
Summer 2006
Introduction
Although comprehensive, this Article does not purport to discuss every minute detail and
authority of and for the ethical rules and guidelines necessary to be a successful and compliant
tax attorney. One must certainly be mindful of their individual state Bar association’s rules of
professional conduct, local, state and Federal rules of court, administrative agency rules, and of
course state and Federal statutes.
This article will be presented in the following fashion. Section One will briefly describe
the various sources of ethics rules and regulations. Section Two will describe and discuss the
American Bar Association’s Model Rules of Professional Conduct, which for the most part have
been adopted by most states with numerous revisions and variations. Section Three will describe
and discuss a tax practitioner’s duties when representing a client before the Internal Revenue
Service. Section Four will describe and discuss the various ethical duties necessary to practice
before the United States Tax Court. Section Five will describe and discuss various sections of
the Internal Revenue Code that deal with the regulation of lawyers or other tax practitioners, as
well as the additions to tax and penalties. Lastly, Section Six will briefly describe the types of
discipline a lawyer could be subjected to for violating the various ethical rules.
Section 1- Sources of Ethics; In General
Beginning one’s career as an attorney has many hurdles that an individual must surmise.
This includes the person’s first, and hopefully only, time taking the Law School Admission Test
(commonly called the “LSAT”). Following this, upon a law student’s entry into matriculation at
his or her particular law school, each is subjected to three years of rigorous and time-consuming
studies and possibly practical experiences. Following graduation, the potential attorney must
usually complete and pass a long application and screening process in order to have the privilege
to practice law in his or her respective state. During this time, the potential lawyer will be
studying and eventually must take and pass the Bar. In addition to the Bar is another exam
called the Multistate Professional Responsibility Examination (MPRE), which also must be
passed and which demonstrates that the person has a working knowledge of the American Bar
Association’s1 Model Rules of Professional Conduct.2 These Model Rules, as discussed later,
have pretty much been adopted in most states with numerous variations and revisions.
Upon finally passing the Bar and upon entry into the practice of law, the attorney is under
a continuing duty, at every stage of his or her career, to uphold and observe various ethical
obligations promulgated by a number of authorities. As a practicing tax attorney, there seems to
be an extra layer of authority that one must adhere to and stay abreast of. The sources are
numerous, but not impossible to sift through. These sources include, first and foremost, the
attorney’s individual state Bar association’s rule of professional conduct. For example, Florida
has the Rules Regulating the Florida Bar as part of Florida Statutes. It comprises of many
The American Bar Association (ABA) is “the largest voluntary professional association in the world. With more
than 400,000 members, the ABA provides law school accreditation, continuing legal education, information about
the law, programs to assist lawyers and judges in their work, and initiatives to improve the legal system for the
public.” See www.abanet.org (The American Bar Association official website) under “About the ABA.”
1
The Model Rules of Professional Conduct, which are published by the ABA, “were adopted by the House of
Delegates of the [ABA] on August 2, 1983.” These Rules originally began in 1908 as Canons of Professional
Ethics, but have been amended and revised several times over the past 90 years. See ABA Model Rules [Preface].
2
2
Chapters including the Rules of Discipline, Rules of Professional Conduct, and Clients’ Security
Fund Rules.3 Since there are obviously many states and each state’s code has its nuances, I will
not attempt to describe further any individual state’s rules, but will instead use the American Bar
Association’s Model Rules of Professional Conduct to illustrate many of the ethical guidelines
and constraints of the practicing tax attorney.
Another source for ethical guidance is Circular 230,4 which is promulgated by the United
States Department of the Treasury and contains various “rules governing the recognition of
attorneys, certified public accountants, enrolled agents, and other persons representing taxpayers
before the Internal Revenue Service.”5 Additionally, Chapter 76 of Subtitle F of the Internal
Revenue Code6 contains the Rules of Practice and Procedure in the United States Tax Court.
The United States Tax Court is one of four different fora in which a taxpayer can choose to
litigate a potential suit. The other courts include the United States District Court, the United
States Court of Federal Claims, and the United States Bankruptcy Court. In order to keep this
Article concise, I will not discuss in detail the rules to practice before the latter three courts, thus
any specific references should be made to their individual rules of court.
Another source is of course the Code itself which has various provisions that constitute
ethical principles which must be adhered to, even if by subtle implication. Lastly, the American
Institute of Certified Public Accountants and state Certified Public Accountant (C.P.A.)
3
See generally, Rules Regulating the Florida Bar; Fla. Stat. (2006).
4
See 31 C.F.R. Part 10, §10.0, et. al.
5
31 C.F.R. Part 10,§10.0.
6
Unless otherwise stated, all references to the Internal Revenue Code or Code are to the Internal Revenue Code of
1986, as amended.
3
regulatory bodies have various rules that a C.P.A. (who may also consequently be a licensed
attorney) must follow.7 These will not be addressed in this Article.
Each of these sources will be dealt with separately and are the thrust of this Article.
Please remember, this Article is not intended to be all-inclusive, but is intended to showcase
some of the many sources of ethics that a practicing tax attorney will be subjected to during his
or her career. Let’s get started!
Section 2- The ABA Model Rules of Professional Conduct
The American Bar Association is a private organization of which many attorneys are
members.8 In addition to providing numerous benefits and publications, and offering
memberships in certain specialty sections (e.g. the Tax Section), it also has been the source in
promulgating the Model Rules of Professional Conduct.9
Because the Model Rules are in fact model rules, they are not binding. However, most
states, if not all, have adopted some form of the Model Rules with various revisions and nuances.
As noted in the Tax Court section below, the Mode Rules are to be employed as a default for
ethics in practicing before the Tax Court.10 This section will highlight many of the important
Rules of which the tax attorney should be mindful. Of course, please note that because these are
not binding on the state, the lawyer still needs to consult his or her state Bar’s individual rules.
In addition, since there are many Model Rules to consider, this Article will only deal with a
select few. If the reader should seek any further guidance relating to the Model Rules, please
consult the full text.
7
See generally, A.I.C.P.A. website at www.aicpa.org.
8
See n. 1, supra, this Article.
9
See n. 1 and 2, supra, this Article.
10
See Tax Court Rule 201(a).
4
In the preamble to the Model Rules, it discusses the responsibilities of a lawyer.11 In
general, “[a] lawyer, as a member of the legal profession, is a representative of clients, an officer
of the legal system and a public citizen having special responsibility for the quality of justice.”12
The very first rule states that “[a] lawyer shall provide competent representation to a client…
[which]…requires the legal knowledge, skill, thoroughness and preparation reasonably necessary
for the representation.”13 The comment14 to the Rule, regarding legal knowledge and skill,
states:
In determining whether a lawyer employs the requisite knowledge and skill in a
particular matter, relevant factors include the relative complexity and specialized
nature of the matter, the lawyer’s general experience, the lawyer’s training and
experience in the field in question, the preparation and study the lawyer is able to
give the matter and whether it is feasible to refer the matter to, or associate or
consult with, a lawyer of established competence in the field in question.15
Rule 1.3 states that “[a] lawyer shall act with reasonable diligence and promptness in
representing a client.” The comments further enhance this statement by saying:
A lawyer should pursue a matter on behalf of a client despite opposition,
obstruction or personal inconvenience to the lawyer, and take whatever lawful and
ethical measures are required to vindicate a client’s cause or endeavor…16
Perhaps no professional shortcoming is more widely resented than
procrastination. A client’s interest often can be adversely affected by the passage
11
See ABA Model Rule [Preamble: A Lawyer’s Responsibilities].
12
American Bar Association, Model Rules of Professional Conduct Preamble [1]. (2003). The Preamble goes on
to discuss other facets and duties of being a lawyer including, but not limited to, a lawyer performing various
functions like an advocate or a third-party neutral; a lawyer should be competent, prompt, and diligent; a lawyer’s
conduct should conform to the requirements of the law. See ABA Model Rules Preamble.
13
ABA Model Rule 1.1 (“Competence”).
14
Following each individual Rule is a comment which is intended to interpret or explain the various Rules and the
comments sometimes cite examples.
15
ABA Model Rule 1.1 (Comment [1]). The comments also go on to define “thoroughness and preparation.”
16
ABA Model Rule 1.3 (Comment [1]).
5
of time or the change of conditions; in extreme instances, as when a lawyer
overlooks a statute of limitations, the client’s legal position may be destroyed.17
By way of example, in Holland v. Flournoy, an attorney was suspended for five months
and ordered to return the fees clients had paid him.18 In Holland, the clients retained the attorney
to appeal a foreclosure action upon their property by the City of Marianna and paid the attorney
$159.86 as a retainer.19 The complaint alleged that the attorney neglected to file the appeal and
thus the case was dismissed.20 The Court found that “negligence is the sole basis of the
complaint, there being no suggestion of moral turpitude.”21
Another example where an attorney lacked the necessary diligence in representing a
client is Eytchison v. Flournoy.22 In Eytchison, the attorney was retained to “litigate and recover
some claims for excess taxes” paid by the client to the City of Marianna.23 The client paid the
attorney $25 as a retainer and gave to hold in his possession tax receipts and certificates.24 The
attorney was suspended for two months for allowing two years to elapse having done nothing for
the client.25
17
ABA Model Rule 1.3 (Comment [3]).
18
195 So. 138, 138-41 (Fla. 1940).
19
Id. at 140. It was agreed that the attorney would refund the fees and costs if the appeal was unsuccessful. See id.
20
Id. at 141.
21
Id. at 141.
22
195 So. 142, 142 (Fla. 1940).
23
Id.
24
Id.
25
Id.
6
Communication with clients is another extremely important part of being an attorney. In
fact Rule 1.4, entitled “Communication,” gives a laundry list of items of which a lawyer must
communicate to the client. These include the following:
(1) promptly inform the client of any decision or circumstance with respect to
which the client’s informed consent…is required…;
(2) reasonably consult with the client about the means by which the client’s
objectives are to be accomplished;
(3) keep the client reasonably informed about the status of the matter;
(4) promptly comply with reasonable requests for information; and
(5) consult with the client about any relevant limitation on the lawyer’s conduct
when the lawyer knows that the client expects assistance not permitted by the
Rules…26
An example of a case where an attorney failed to communicate and was disciplined is
Cincinnati Bar Association v. Braddock.27 In Braddock, there was a six-count complaint against
the attorney.28 In one count, the attorney was retained to represent a couple in an audit by the
IRS for their income tax return.29 The clients paid the attorney $200, but he failed to attend the
audit hearing and an assessment was entered against the clients.30 The clients made several
unsuccessful attempts to contact the attorney by phone and by office visits.31 In another count,
ABA Model Rule 1.4(a). The comment to the Rule goes on to state “[r]easonable communication between the
lawyer and the client is necessary for the client effectively to participate in the representation…[ ] If these rules
require that a particular decision about the representation be made by the client, paragraph (a)(1) requires that the
layer promptly consult with and secure the client’s consent prior to taking action…” See Comments [1] and [2].
26
27
487 N.E.2d 308 (Ohio 1986).
28
Id. at 308-10
29
Id. at 310.
30
Id.
31
Id.
7
the attorney was retained to file a counterclaim in a suit against his client.32 The attorney failed
to attend the hearing and status calls, thus the counterclaim was eventually dismissed and a
judgment was entered against his client.33 The client made several attempts to contact the
attorney and when he was finally reached, stated he had filed a motion to set aside the judgment;
the motion was denied.34
With regard to communicating with the client, even at the outset, it is vital for a lawyer to
remember that his or her role is also that of an advisor; and that he or she too is also a citizen of
society, therefore other factors other than law can come into play with regard to representation.35
The Rules state that “[i]n representing a client, a lawyer shall exercise independent professional
judgment and render candid advice.”36 In rendering this advice, “a lawyer may refer not only to
law but to other considerations such as moral, economic, social and political factors that may be
relevant to the client’s situation.”37
As an important cousin to communication, confidentiality is one of the cornerstones of
legal ethics. Generally, a lawyer may not “reveal information relating to the representation of a
client unless the client gives informed consent,38 the disclosure is impliedly authorized in order
32
Id. at 309.
33
Id.
34
Id. See id. at 309-10 for details regarding the other counts alleged in the complaint.
35
See generally, ABA Model Rule 2.1 (“Advisor”).
36
ABA Model Rule 2.1.
ABA Model Rule 2.1. In addition, “[a] client is entitled to straightforward advice expressing the lawyer’s honest
assessment. Legal advice often involves unpleasant facts and alternatives that a client may be disinclined to
confront. In presenting advice, a lawyer endeavors to sustain the client’s morale and may put advice in as
acceptable a form as honesty permits. However, a lawyer should not be deterred from giving candid advice by the
prospect that the advice will be unpalatable to the client.” ABA Model Rule 2.1 (Comment [1]).
37
“Informed consent” is defined by the ABA Model Rules as “the agreement by a person to a proposed course of
conduct after the lawyer has communicated adequate information and explanation about the material risks of and
reasonably available alternatives to the proposed course of conduct. ABA Model Rule 1.0(e).
38
8
to carry out the representation or the disclosure is permitted by paragraph (b).”39 The limited
exceptions to this rule specified in paragraph (b) are that a lawyer may reveal confidential
information:
(1) to prevent reasonably certain death or serious bodily harm;40
(2) to secure legal advice about the lawyer’s compliance with these Rules;
(3) to establish a claim or defense on behalf of the layer in a controversy between
the lawyer and the client, to establish a defense to a criminal charge or civil claim
against the lawyer based upon conduct in which the client was involved, or to
respond to allegations in any proceeding concerning the lawyer’s representation
of the client; or
(4) to comply with other law or court order.41
Another issue that can come up, more often than not, in the course of an attorney’s career
is conflicts of interest. The Rules disallow a lawyer’s representation of a client, subject to some
limited exceptions, if it involves a concurrent conflict of interest.42 A concurrent conflict of
interest exists if “(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially
limited by the lawyer’s responsibilities to another client, a former client or a third person or by a
personal interest of the lawyer.”43 There is an exception where an attorney can in fact represent a
39
ABA Model Rule 1.6(a).
40
Some states have varied this requirement. For instance, Rule Regulating the Florida Bar 4-1.6 requires a lawyer
to reveal information “to the extent the lawyer reasonably believes necessary: (1) to prevent a client from
committing a crime; or (2) to prevent a death or substantial bodily harm to another.”
ABA Model Rule 1.6(b). The comment to the Rule goes on to mention that “[a] fundamental principle in the
client-lawyer relationship is that, in the absence of…informed consent, the lawyer must not reveal information
relating to the representation… This contributes to the trust that is the hallmark of the lawyer-client relationship.
The client is thereby encouraged to seek legal assistance and to communicate fully and frankly with the lawyer even
as to embarrassing or legally damaging subject matter.” ABA Model Rule (Comment [2]).
41
42
ABA Model Rule 1.7(a).
43
ABA Model Rule 1.7(a)(1) and (2).
9
client notwithstanding the fact that there exists a concurrent conflict of interest if the
representation is not prohibited by law, the lawyer reasonably believes that he or she can provide
competent and diligent representation to the affected clients, the representation does not in fact
involve a claim of one client against another, and each client consents in writing.44 With regards
to a lawyer’s former clients, “[a] lawyer who has formerly represented a client in a matter45 shall
not thereafter represent another person in the same or a substantially related matter in which that
person’s interests are materially adverse to the interests of the former client,” unless the client
consents in writing.46
In addition to the general prohibition against concurrent conflicts of interest, the Rules
also provide a number of additional conflicts from which an attorney must abstain.47 For
example, a lawyer cannot “enter into a business transaction with a client or knowingly acquire an
ownership, possessory, security or other pecuniary interest adverse to a client.”48 Additionally, a
lawyer cannot use information relating to the representation of a client to the client’s
ABA Model Rule 1.7(b). “Resolution of a conflict of interest problem…requires the lawyer to: 1) clearly
identify the client or clients; 2) determine whether a conflict exists; 3) decide whether the representation may be
undertaken despite the existence of a conflict…; and 4) if so, consult with the clients affected…and obtain their
informed consent, confirmed in writing.” ABA Model Rule 1.7 (Comment [2]).
44
“The scope of a ‘matter’ for purposes of this Rule depends on the facts of a particular situation or transaction.
The lawyer’s involvement in a matter can also be a question of degree. When a lawyer has been directly involved in
a specific transaction, subsequent representation of other clients with materially adverse interests in that transaction
clearly is prohibited.” ABA Model Rule 1.9 (Comment [2]).
45
46
ABA Model Rule 1.9(a).
47
See generally, ABA Model Rule 1.8 (“Conflict of Interest; Current Clients; Specific Rules”).
ABA Model Rule 1.8(a). These transactions are prohibited unless “(1) the transaction and terms on which the
lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in
a manner that can be reasonably understood by the client; (2) the client is advised in writing of the desirability of
seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and
(3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and
the lawyer’s role in the client in the transaction, including whether the lawyer is representing the client in the
transaction.” ABA Model Rule 1.8(a)(1), (2), and (3).
48
10
disadvantage,49 a lawyer cannot solicit any substantial gift from a client, including a testamentary
gift, or prepare an instrument giving the lawyer or someone related to the lawyer any substantial
gift,50 and a lawyer cannot provide financial assistance to a client in connection with pending
litigation.51
At some point in the tax attorney’s career, he or she may work for or on behalf of a
corporation or some other organization. Rule 1.13(a) provides that “[a] lawyer employed or
retained by an organization represents the organization acting through its duly authorized
constituents.”52 Of greater importance is the fact that if an organizational lawyer knows that an
officer or other person associated with the organization is “engaged in action, intends to act or
refuses to act in a matter related to the representation that is a violation of a legal obligation of
the organization, or a violation of law which reasonably might be imputed to the organization,
the lawyer shall proceed as is reasonably necessary in the best interests of the organization.”53
Regardless, the Rules state that any measures taken by the lawyer must be so that there is
minimal disruption of the organization.54 These measures include asking for a reconsideration of
49
ABA Model Rule 1.8(b).
50
ABA Model Rule 1.8(c). A lawyer can solicit a substantial gift if the lawyer or other recipient of the gift is
related to the client. See Rule 1.8(c). Family members include spouse, child, grandchild, parent, grandparent or
other relative or individual with whom the lawyer or client maintains a close, familial relationship. Rule 1.8(c).
ABA Model Rule 1.8(e). Exceptions to this Rule include “(1) a lawyer may advance court costs and expenses of
litigation, the repayment of which may be contingent on the outcome of the matter; and (2) a lawyer representing an
indigent client may pay court costs and expenses of litigation on behalf of the client.” Rule 1.8(e)(1) and (2). See,
e.g., In the Matter of the Application for the Discipline of Jerrold M. Hartke, 407 N.W.2d 671, 671-73 (Minn. 1987).
51
ABA Model Rule 1.13(a). (Emphasis added). “An organizational client is a legal entity, but it cannot act except
through its officers, directors, employees, shareholders and other constituents.” Further, “[w]hen one of the
constituents of an organizational client communicates with the organization’s lawyer in that person’s organizational
capacity, the communication is protected by Rule 1.6 [confidentiality, see n. 38, supra, this Article].”
52
ABA Model Rule 1.13(b). (Emphasis added). It is also worth noting that in dealing with the constituents, “a
lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the
organization’s interests are adverse to those of the constituents with whom the layer is dealing.” Rule 1.13(d).
53
54
ABA Model Rule 1.13(b).
11
the matter, advising that a separate legal opinion on the matter be sought, and possibly referring
the matter to a higher authority within the organization.55 All in all, in any sort of matter, it is
imperative that the lawyer make clear his or her role as the lawyer for the organization.56
As a tax attorney, like many attorneys, one may very well come into possession of
property belonging to a client or a third party. Rule 1.15, as a general proposition, states “[a]
lawyer shall hold property of clients or third persons that is in a lawyer’s possession in
connection with a representation separate from the lawyer’s own property.”57 Some states
require more detailed accounting and trust rules with regard to safekeeping of client or third
party property.58 In addition, the Model Rules require that:
Upon receiving funds or other property in which a client or third person has an
interest, a lawyer shall promptly notify the client or third person…[and unless
provided otherwise]…a lawyer shall promptly deliver to the client or third person
any funds or other property that the client or third person is entitled to receive
and, upon request by the client or third person, shall promptly render a full
accounting regarding such property.59
There also arises some circumstances that warrant a lawyer to withdraw from
representation. The Model Rules make withdrawal mandatory under three circumstances: if the
representation will result in the violation of the law or rules of professional conduct, if the
lawyer’s physical or mental condition materially impairs the ability to represent, or if the lawyer
55
ABA Model Rule 1.13(b).
56
See generally, ABA Model Rule 1.13 (Comments [7] through [11]).
57
ABA Model Rule 1.15(a).
58
See, e.g., Chapter 5 of the Rules Regulating the Florida Bar [“Rules Regulating Trust Accounts’].
ABA Model Rule 1.15(d). The comment to the Rule further provides that “[a] lawyer should hold property of
others with the care required of a professional fiduciary. Securities should be kept in a safe deposit box, except
when some other form of safekeeping is warranted by special circumstances. All property that is the property of the
clients or third persons, including prospective clients, must be kept separate from the lawyer’s business and personal
property and, if monies, in one or more trust accounts.” Model Rule 1.15 (Comment [1]).
59
12
is discharged.60 There are also a number of circumstances where a lawyer may want to withdraw
from representation, which include the client’s persistence in a course of conduct that using the
lawyer’s services may result in a crime or fraud, the client’s use of the lawyer’s services to
commit a crime or fraud, the client’s insistence on causes or matters that the lawyer finds
“repugnant” or has a “fundamental disagreement,” or the client fails to fulfill obligations to the
lawyer relating to the services provided by the lawyer and has been given warning as such.61 It
is important to note that in withdrawing, the lawyer has to comply with “applicable law requiring
notice to or permission of a tribunal when terminating a representation.”62 In some cases, if so
ordered by a tribunal, the lawyer must continue representation except with good cause.63
One theme that echoes throughout this Article’s many sources of ethics, and throughout
ethics in general, is the bringing forth of meritorious claims and contentions.64
A lawyer shall not bring or defend a proceeding, or assert or controvert an issue
therein, unless there is a basis in law and fact for doing so that is not frivolous,
which includes a good faith argument for an extension, modification or reversal of
existing law.65
The Rule goes on to state that merely filing or defending an action is not frivolous just because
the facts have not been at the inception fully developed or because the lawyer may in fact
develop evidence by the various methods of discovery.66
60
ABA Model Rule 1.16(a).
61
ABA Model Rule 1.16(b)(2), (3), (4), and (5). See Rule for others.
62
ABA Model Rule 1.16(c).
ABA Model Rule 1.16(c). Additionally, “[u]pon termination of representation, a lawyer shall take steps to the
extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing
time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding
any advance payment of fee or expense that has not been earned or incurred.” Model Rule 1.16(d).
63
64
See generally, ABA Model Rule 3.1. See also, e.g., n. 103, infra, this Article.
65
ABA Model Rule 3.1.
13
Once again, please note that this Article is intended to provide an overview of various,
specific ethical obligations that could face the tax attorney. It is not intended to be an in-depth
look into every facet of ethics. In addition to those just mentioned, the Model Rules also provide
detailed rules regarding lawyer fees,67 imputations of conflicts of interest,68 special rules for
conflicts regarding former and current government attorneys,69 clients with diminished
capacity,70 a lawyers role as an intermediary,71 expediting litigation,72 and many others.
Section 3- Internal Revenue Service – Circular 230
Practicing before the Internal Revenue Service has its own set of specific ethical rules
that one must follow in addition to the others described in this article. These rules are prescribed
in an annual publication affectionately known as Circular 230.73 The relevant rules are
applicable to practitioners74 which includes attorneys, C.P.A.’s, enrolled agents and other
qualifying individuals.75 This is an unusual circumstance as it appears persons other than just
attorneys may practice before the IRS, thus these rules are applicable to more than just attorneys.
66
ABA Model Rule 3.1 (Comment [2]).
67
See ABA Model Rule 1.5.
68
See ABA Model Rule 1.10.
69
See ABA Model Rule 1.11.
70
See ABA Model Rule 1.14.
71
See ABA Model Rule 2.2.
72
See ABA Model Rule 3.2.
31 C.F.R. Part 10, §10.0, et. al. Section 10.0 defines the scope of the regulations: “This part contains rules
governing the recognition of attorneys, [CPA’s], enrolled agents, and other persons representing taxpayers before
the [IRS]. Subpart A…sets forth rules relating to the authority to practice before the [IRS]; subpart B…prescribes
the duties and restrictions relating to such practice; subpart C…prescribes the sanctions for violating the regulations;
subpart D…contains the rules applicable to disciplinary proceedings…”
73
74
31 C.F.R. Part 10, §10.2(e).
75
See 31 C.F.R. Part 10, §10.3(a), (b), (c), (d), and (e).
14
However, the rules make clear that these regulations do not allow a non-attorney to practice
law.76
The duties and restrictions relating to practice before the IRS include a variety of
prohibitions and mandatory rules. One example is that “[a] practitioner who…knows that the
client has not complied with the revenue laws of the [U.S.] or has made an error in or omission
from any return, document, affidavit, or other paper which the client has submitted or executed
under the revenue laws…must advise the client promptly of the fact of such noncompliance,
error, or omission.”77 Additionally, a practitioner must exercise “due diligence” in preparing or
approving returns, affidavits, or other papers relating to IRS matters and in determining
correctness of representations (oral or written) made to the Treasury Department and/or the IRS
or client in matters relating to the IRS.78 Furthermore, the practitioner “may not unreasonably
delay the prompt disposition of any matter before the [IRS].”79
As do most state Bar associations (and for that matter the Model Rules),80 Circular 230
even contains a provision for fees that a practitioner may charge. Section 10.27 states that a
practitioner “may not charge an unconscionable fee for representing a client in a matter before
the [IRS].”81 It further mandates that a contingent fee82 may not be charged for preparing an
76
See id. at §10.32.
77
31 C.F.R. Part 10, §10.21. Additionally, the practitioner has to inform the client of the potential consequences
under the Code and Regulations for the noncompliance, etc.
31 C.F.R. Part 10, §10.22(a). There is a presumption of due diligence “if the practitioner relies on the work
product of an other person and the practitioner used reasonable care in engaging, supervising, training, and
evaluating the person, taking proper account of the nature of the relationship between the practitioner and the
person.” Id. at §10.22(b).
78
79
Id. at §10.23.
80
See ABA Model Rule 1.5.
81
Id. at §10.27(a).
15
original tax return or for providing any advice relating to certain positions taken on a return.83
Practitioners are also prohibited under these rules from representing a client if there is a conflict
of interest.84 The section states that a conflict of interest exists if: “(1) [t]he representation of one
client will be directly adverse to another client; or (2) [t]here is a significant risk that the
representation of one or more clients will be materially limited by the practitioner’s
responsibilities to another client, a former client or a third person or by a personal interest of the
practitioner.”85 There is provided a sort of safety valve so that the practitioner can in fact
represent a client notwithstanding the enumerated conflict of interest if there is a reasonable
belief on the part of the practitioner that he or she can competent and diligent representation to
the clients who may be affected by the conflict, if the representation is not prohibited by law, and
all of the affected clients consent in writing.86
One of the many duties that a practitioner has before the IRS is to adhere to what is
termed in the regulations as “best practices for tax advisors.”87 In general, “tax advisors should
provide clients with the highest quality representation concerning Federal tax issues by adhering
“Continent fee” is defined “[for] purposes of this section…[as] any fee that is based, in whole or in part, on
whether or not a position taken on a tax return or other filing avoids challenge by the [IRS] or is sustained either by
the [IRS] or in litigation.” Id. at §10.27(b). An example includes “any fee arrangement in which the practitioner will
reimburse the client for all or a portion of the client’s fee in the event that a position taken on a tax return or other
filing is challenged by the [IRS] or is not sustained, whether pursuant to an indemnity agreement, a guarantee,
rescission rights, or any other arrangement with a similar effect.” Id. at §10.27(b).
82
83
See id. at §10.27(b)(2).
84
Id. at §10.29.
85
Id. at §10.29(a).
86
See id. at §10.29(b)(1), (2), and (3).
87
See generally, id. at §10.33.
16
to best practices in providing advice and in preparing or assisting in the preparation of a
submission to the [IRS].”88 The regulation lists what it considers best practices, which include:
(1) Communicating clearly with the client regarding the terms of the agreement…
(2) Establishing the facts, determining which facts are relevant, evaluating the
reasonableness of any assumption or representations, relating the applicable law
(including potentially applicable judicial doctrines) to the relevant facts, and arriving at a
conclusion supported by the law and the facts.
(3) Advising the client regarding the import of the conclusions reached, including, for
example, whether a taxpayer may avoid accuracy-related penalties…if a taxpayer acts in
reliance on the advice.
(4) Acting fairly and with integrity in practice before the IRS.89
Another important facet of these regulations is found in section 10.34, which sets forth
standards for advising with respect to tax return positions and for preparing and signing returns.
Generally, a practitioner “may not sign a tax return as a preparer if the practitioner determines
that the tax return contains a position that does not have a realistic possibility of being sustained
on its merits (the realistic possibility standard) unless the position is not frivolous and is
adequately disclosed to the [IRS].”90 A practitioner can not advise a client to take a return
position, or prepare a return upon which such position is taken, “unless (1) the practitioner
determines that the position satisfies the realistic possibility standard;91 or (2) [t]he position is not
frivolous92 and the practitioner advises the client of any opportunity to avoid the accuracy-related
88
Id. at §10.33(a). (Emphasis added).
89
Id. at §10.33(a)(1), (2), (3), and (4).
Id. at §10.34(a). (Emphasis added). This refers to the “realistic possibility standard” which is defined later in the
section as such: “[a] position is considered to have a realistic possibility of being sustained on its merits if a
reasonable and well informed analysis of the law and the facts by a person knowledgeable in the tax law would lead
such a person to conclude that the position has approximately a one in three, or greater, likelihood of being sustained
in the merits.” Id. at §10.34(d)(1).
90
91
See n. 90, supra, of this Article for description of the “realistic possibility standard.”
17
penalty in section 6662 of the [Code] by adequately disclosing the position and of the
requirements for adequate disclosure.”93
The regulation also provides for various sanctions if the practitioner violates any of the
numerous ethical or procedural mandates. Section 10.50(a) states that “[t]he Secretary of the
Treasury, or his or her delegate, after notice and an opportunity for a proceedings, may censure94,
suspend or disbar any practitioner from practice before the [IRS] if the practitioner is shown to
be incompetent or disreputable, fails to comply with any regulation in this part, or with intent to
defraud, willfully and knowingly misleads or threatens a client or prospective client.” The
regulations provide numerous examples of incompetence and disreputable conduct for which the
above sanctions may be used, which include, but are not limited to: conviction of any criminal
offense under the tax laws, conviction of any criminal offense involving dishonesty or breach of
trust, giving false or misleading information (or participating in any way in the giving of such
information), willfully failing to make tax returns, attempting or agreeing to attempt to influence
any officer or employee of the IRS, and knowingly aiding and abetting another to practice before
the IRS during a period of suspension or disbarment.95 The regulations further provide rules and
procedures applicable to disciplinary proceedings.96
As one can clearly see, practicing before the IRS, which happens to be an administrative
agency, can certainly pile-on extra duties. However, it should be remembered that any sort of
92
93
94
“A position is frivolous if it is patently improper.” §10.34(d)(2).
31 C.F.R. Part 10, §10.34(a).
“Censure is a public reprimand.” §10.50(a).
95
See §10.51(a), (b), (d), (f), (h), and (j). Others include solicitation violations under §10.30, misappropriation of
funds from a client intended to be payment to the US for taxes, contemptuous conduct in connection with practice
before the IRS, etc.” See §10.51. See also §10.52(a).
96
See Subpart D of “Circular 230” for rules relating to disciplinary proceedings.
18
ethical conduct prescribed in codes and regulations are the minimum standards for which one
must adhere. It is my recommendation that each person strive to practice above these standards
so as never to come to so close to the line to where one’s judgment may become impaired.
Section 4- The United States Tax Court
Taxpayers generally have three courts in which to choose to litigate. These are the
United States Claims Court, the United States District Court, and the United States Tax Court.97
There are also cases where the United States Bankruptcy court can issue substantive tax
rulings.98 For purposes of this Article, we will only focus on the rules applicable to the United
States Tax Court. Please be aware and conscious of the various Federal Rules of Civil
Procedure, Federal Rules of Evidence, and local court rules before litigating in any of the abovementioned forums.
The Tax Court has nationwide jurisdiction with its principal office in Washington, D.C
and is composed of 19 members.99 The Tax Court, after giving public notice and an opportunity
for comment, is granted the authority to make and amend rules governing its practice and
procedure.100 Nestled within Part II of Subchapter C of Chapter 76 within Subtitle F of the
Internal Revenue Code lies the Rules of Practice and Procedure of the Tax Court. Rule 24
97
See generally, Kafka, Gerald A. & Cavanagh, Rita A. Litigation in Federal Civil Tax Controversies. 1999 WL
629394 at *1, ¶1.01. (2006). ( “Two principle generic types of litigation can be commenced by a taxpayer to
determine the amount of tax liability: [ ]deficiency litigation, and refund actions. Deficiency litigation takes place in
the Tax Court, where issuance of a…notice of deficiency identifying a proposed tax liability is the sole jurisdictional
prerequisite, and prior payment of the deficiency is not required…” The Court of Claims and the District Court
“must be premised on the payment of the full amount of the tax in dispute and the timely filing of a claim for
refund.”).
98
See generally Richmond, Gail Levin. Federal Tax Research (6th Ed.), p. 175. Foundation Press; New York,
NY, 2002.
99
Kafka, Gerald A. & Cavanagh, Rita A. Litigation in Federal Civil Tax Controversies. 1999 WL 629409 at *1,
¶2.05. (2006).
100
Tax Court Rule 1(a).
19
governs the general rules for appearances and representation. Most notably, for purposes of this
Article, is Rule 24(g) that governs conflicts of interest. It states that
[i]f any counsel of record (1) was involved in planning or promoting a transaction
or operating an entity that is connected to any issue in the case, (2) represents
more than one person with differing interests with respect to any issue in a case,
or (3) is a potential witness in a case, then such counsel must either secure the
informed consent of the client…; withdraw from the case; or take whatever steps
are necessary to obviate a conflict of interest or other violation of the ABA Model
Rules of Professional Conduct…101
Additionally, Rule 201(a), regarding conduct of practice before the Court, states that
“[p]ractitioners before the Court shall carry on their practice in accordance with the letter and
spirit of the Model Rules of Professional Conduct of the American Bar Association.”102
Another important rule to be aware of is Rule 33(b) which governs the signing of
pleadings. It states:
[t]he signature of counsel or a party constitutes a certificate by the signer that the
signer has read the pleading; that, to the best of the signer’s knowledge,
information, and belief formed after reasonable inquiry, it is well grounded in fact
and is warranted by existing law or a good faith argument for the extension,
modification, or reversal of existing law; and that it is not interposed for any
improper purpose, such as to harass or to cause unnecessary delay or needless
increase in the cost of litigation…If a pleading is signed in violation of this Rule,
the Court, upon motion or upon its own initiative, may impose upon the person
who signed it, a represented party, or both, an appropriate sanction, which may
include an order to pay the other party or parties the amount of reasonable
expenses incurred because of the filing of the pleading, including reasonable
counsel’s fees.103
101
Tax Court Rule 24(g). See also n. 42-46, supra, this Article.
102
Tax Court Rule 201(a). For the Model Rules of Professional Conduct, see Section 2 of this Article, supra.
103
Tax Court Rule 33(b). (Emphasis added). See also Fed. R. Civ. P. 11, which provides for similar sanctions
against an offending party, and that by signing a pleading, “…an attorney…is certifying to the best of the person’s
knowledge, information and belief, formed after an inquiry which is reasonable under the circumstances, (1) it is not
being presented for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the
cost of litigation; (2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a
nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new
law…” and others. Fed. R. Civ. P. 11(b).
20
A similar rule with similar sanctions exists for discovery in Tax Court proceedings.104
Additionally, Rule 104 describes various circumstances and sanctions warranted for failing to
attend depositions, failing to answer interrogatories, or failing to respond to a request for
production or inspection.105 Furthermore, Rule 104 even provides that
[i]f any person, after being served with a subpoena or having waived such service,
willfully fails to appear before the officer who is to take such person’s deposition
or refuses to be sworn, or if any person willfully fails to obey an order requiring
such person to answer designated interrogatories or questions, then such failure
may be considered contempt of court.106
This same rule provides a list of additional sanctions if a party, etc. fails to obey an order
from the Court with respect to Rules 71 through 76, inclusive, 81 through 84, inclusive, and
90.107 Of final note, Rule 149 states that “[t]he unexcused absence of a party or a party’s counsel
when a case is called for trial will not be ground for delay. The case may be dismissed for
failure properly to prosecute, or the trial may proceed and the case be regarded as submitted on
the part of the absent party or parties.”108
So as one can see, practicing in front of the Tax Court requires the skilled tax practitioner
to be aware and conscious of not only his ethical duties prescribed by his or her state Bar, but
104
See Tax Court Rule 70(e).
105
See Tax Court Rule 104(a) and (b).
106
See Tax Court Rule 104(a). (Emphasis added).
See Tax Court Rule 104(c). Sanctions include “(1) [a]n order that the matter regarding which the order was
made or any other designated facts shall be taken to be established for the purposes of the case in accordance with
the claim of the party obtaining the order. (2) [a]n order refusing to allow the disobedient party to support or oppose
designated claims or defenses, or prohibiting such party from introducing designated matters in evidence. (3) [a]n
order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed or dismissing
the case or any part thereof, or rendering a judgment by default against the disobedient party.” Tax Court Rule
104(c)(1), (2), and (3). See Rule for others.
107
108
Tax Court Rule 149(a). See also Tax Court Rule 149(b).
21
also the strictures of the Tax Court rules which, if violated, could lead to some serious sanctions,
and possibly a malpractice suit.
Section 5- Internal Revenue Code
An important section of the Internal Revenue Code is §7525(a) that discusses
confidentiality privileges relating to taxpayer communications. Generally, it states that
[w]ith respect to tax advice, the same common law protections of confidentiality
which apply to a communication between a taxpayer and an attorney shall also
apply to a communication between a taxpayer and any federally authorized tax
practitioner to the extent that communication would be considered a privileged
communication if it were between a taxpayer and an attorney.109
This rule does not apply to any criminal tax matter before the IRS or the Courts.110 The term
“federally authorized tax practitioner” is defined loosely to mean “any individual who is
authorized under Federal law to practice before the [IRS] if such practice is subject to Federal
regulation…”111 It is important to note also that this section will not apply to any
communications regarding tax shelters.112
No lesson in tax ethics would be complete without at least a survey of penalties and
additions to tax. These will be covered in much more depth in your Tax Procedure course.
Although not ethical rules per se, a competent tax practitioner should be aware of the myriad of
additions to tax and penalties which a taxpayer (and possibly the attorney) could be subjected to.
Many important, and potentially damaging, additions to tax can be found in §§6651 through
6664, inclusive. For example, §6651(a)(1) provides for a 5% (up to a maximum of 25%)
addition to tax on the tax required to be shown for a failure to timely file one’s return for each
109
I.R.C. §7525(a)(1).
110
See I.R.C. §7525(a)(2).
111
See I.R.C. §7525(a)(3)(A). See also n. 73-74, supra, this Article.
112
See I.R.C. §7525(b). For a definition of “tax shelter,” see n. 118, infra, this Article.
22
month which the failure continues.113 Likewise, §6651(a)(2) imposes a similar addition of 0.5%
(up to a maximum of 25%) for failure to timely pay the amount of tax shown on the return, for
each month which the failure continues. Additionally, §6654 provides a complex method to
determine an addition to tax for failure to pay estimated income tax.114 Other additions to tax are
imposed for failing to make a deposit of tax115 and failing to file certain information returns as is
required by some exempt organizations.116
The laundry list of assessable penalties can be found in §§6662 through 6725. For
example, §6662(a) imposes a penalty “added to the tax [of] an amount equal to 20 percent of the
portion of the underpayment to which this section applies.” The portions of an underpayment to
which the section is referring to includes: “(1) [n]egligence or disregard of the rules or
regulations[,] (2) [a]ny substantial understatement of income tax[,] (3) [a]ny substantial valuation
misstatement under chapter 1[,] (4) [a]ny substantial overstatement of pension liabilities[,] (5)
[a]ny substantial estate or gift tax valuation understatement.”117 Regarding a substantial
understatement of income tax, §6662(d) provides a method to reduce the penalty by showing that
a portion of the understatement was attributable to “the tax treatment of any item by the taxpayer
if there is or was substantial authority for such treatment” or there is adequate disclosure.118
There is an exception if it “is shown that such failure is due to reasonable cause and not due to willful neglect…”
See I.R.C. §6651(a)(1).
113
The amount of the addition is determined by “applying- (1) the underpayment rate established under section
6621, (2) to the amount of the underpayment, (3) for the period of the underpayment.” I.R.C. §6654(a). See I.R.C.
§6654(b) for definitions of “amount” and “period of underpayment,” and §6654(c) and (d) for “number of required
installments” and the “amount of required installments.”
114
115
See I.R.C. §6656.
116
See I.R.C. §6652(a), (c).
117
I.R.C. §6662(b).
See I.R.C. §6662(d)(2)(B). This exception does not apply to any item attributable to a “tax shelter.” See I.R.C.
§6662(d)(2)(C). “Tax shelter” is defined as (I) a partnership or other entity, (II) any investment plan or
118
23
Another penalty is the fraud penalty, which states that “[i]f any part of an underpayment
of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount
equal to 75 percent of the portion of the underpayment which is attributable to fraud.”119
Another important penalty to be aware of is what is commonly called the “Trust Fund Recovery
Penalty” or the failure to collect and pay over tax, or attempt to evade or defeat tax.120 This
provides for a 100% penalty for failing to “collect, truthfully account for, and pay over any tax
imposed by this title [and] who willfully fails to collect such tax, truthfully account for and pay
over such tax…”121
The Code also provides for a number of crimes and offenses, which could result in heavy
fines and/or imprisonment.122 One example is §7216 which states:
Any person who is engaged in the business of preparing, or providing services in
connection with the preparation of, returns…, or any person who for
compensation prepares any such return for any other person, and who knowingly
or recklessly- (1) discloses any information furnished to him for, or in connection
with, the preparation of any such return, or (2) uses any such information for any
purpose other than to prepare, or assist in preparing any such return, shall be
guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more
than $1,000, or imprisoned not more than 1 year, or both, together with the costs
of prosecution.
Another such provision provides for a similar punishment if any person who has been
summoned to testify, to appear, or to produce documents and records neglects to do so.123
arrangement, or (III) any other plan or arrangement, if a significant purpose of such partnership, entity, plan, or
arrangement is the avoidance or evasion of Federal income tax.” I.R.C. §6662(d)(2)(C)(ii).
119
I.R.C. §6663.
120
See I.R.C. §6672.
121
I.R.C. §6672(a).
122
See generally, I.R.C. §§7201-7217.
123
I.R.C. §7210.
24
These are by no means the only penalties to be aware of by the competent attorney, but it
is necessary to inform that they do exist and failing to comply with the rules can be cause for
discipline for failure to exercise diligence or even competence.
Section 6- Lawyer Discipline
When ethical obligations of an attorney are violated, he or she may be subjected to
different forms of discipline. This section will discuss the various forms of discipline for ethical
violations and give examples as to the type or types of conduct that will warrant the various
sanctions. This section will only showcase, and is not intended to be exhaustive of, the kinds of
discipline available, the type of conduct warranting the discipline, and the various factors courts
and tribunals use to determine the range of discipline. Since I am a member of the Florida Bar, I
will use the Rules Regulating The Florida Bar, Rules of Discipline to demonstrate the various
kinds of discipline to which a lawyer may be subject in the State of Florida. Please remember
that other states may refer to these sanctions by some other term and may impose additional
sanctions.
Rule Regulating the Florida Bar 3-5.1 describes the types of discipline. The Rule states
that “[a] judgment entered, finding a member of The Florida Bar guilty of misconduct, shall
include one or more of the following disciplinary measures: (a) Admonishments124… (b) Minor
Misconduct125… (c) Probation126… (d) Public Reprimand127… (e) Suspension128…
Rule Regulating The Florida Bar 3-5.1(a). “A Supreme Court of Florida order finding minor misconduct and
adjudging an admonishment may direct the respondent to appear before the Supreme Court of Florida, the board of
governors, grievance committee, or the referee for the administration of the admonishment.”
124
Rule Regulating The Florida Bar 3-5.1(b). “Minor misconduct is the only type of misconduct for which an
admonishment is an appropriate disciplinary sanction.” The Rule goes on to list factors, which if any exist, the
conduct will not be minor. These factors are: “(A) the misconduct involves misappropriation of a client’s funds or
property; (B) the misconduct resulted in or is likely to result in actual prejudice (loss of money, legal rights, or
valuable property rights) to a client or other person; (C) the respondent has been publicly disciplined in the past 3
years; (D) the misconduct involved is of the same nature as misconduct for which the respondent has been
disciplined in the past 5 years; (E) the misconduct includes dishonesty, misrepresentation, deceit, or fraud on the
125
25
(f) Disbarment129… (g) Notice to Clients130… (h) Forfeiture of Fees131… (i) Restitution132…
[and] (j) Disbarment on Consent.133”
Now, looking at a few cases from various jurisdictions, I will now give some examples
by way of case law of the type of conduct and factors courts use to judge which sanctions to
impose. It is worth noting that the neglect, inattention, or incompetence of a tax attorney in
handling certain tax affairs is often accompanied by unrelated misconduct, so in most
part of the respondent; or (F) the misconduct constitutes the commission of a felony…” See section for other details
regarding a finding of minor misconduct.
Rule Regulating The Florida Bar 3-5.1(c). “The respondent may be placed on probation for a stated period of
time of not less than 6 months nor more than 3 years or for an indefinite period determined by conditions stated in
the order.” Some conditions of probation may be completing a professionalism program, having a member of The
Florida Bar supervise the lawyer’s work, requiring the lawyer to report to a designated agency, completing an ethics
course or paper approved by the Supreme Court of Florida, supervising fees an trust accounts as the court directs, or
advertising restrictions. See Rule 3-5.1.
126
Rule Regulating The Florida Bar 3-5.1(d). “A public reprimand shall be administered in the manner prescribed
in the judgment but all such reprimands shall be reported in the Southern Reporter. The respondent shall appear
personally before the Supreme Court of Florida, the board of governors, any judge designated to administer the
reprimand, or the referee, if required, and such appearance shall be made part of the record of the proceeding.”
127
Rule Regulating The Florida Bar 3-5.1(e). “The respondent may be suspended from the practice of law for a
definite period of time or an indefinite period thereafter to be determined by the conditions imposed by the
judgment.” The lawyer continues to be a member of the Bar during the suspension, but may not practice. See Rule
3-5.1(e).
128
Rule Regulating The Florida Bar 3-5.1(f). “A judgment of disbarment terminates the respondent’s status as a
member of the bar. Permanent disbarment shall preclude readmission.”
129
130
See Rule Regulating The Florida Bar 3-5.1(g).
Rule Regulating The Florida Bar 3-5.1(h). “An order of the Supreme Court of Florida or a report of minor
misconduct adjudicating a respondent guilty of entering into, charging, or collecting a fee prohibited by the Rules
Regulating The Florida Bar may order the respondent to forfeit the fee or any part thereof.”
131
Rule Regulating The Florida Bar 3-5.1(i). “In addition to any of the foregoing disciplinary sanctions…, the
respondent may be ordered or agree to pay restitution to a complainant or other person if the disciplinary order finds
that the respondent has received a clearly excessive, illegal, or prohibited fee or that the respondent has converted
trust funds or property.”
132
Rule Regulating The Florida Bar 3-5.1(j). “A respondent may surrender membership in The Florida Bar in lieu
of defending against allegations of disciplinary violations by agreeing to disbarment on consent.”
133
26
circumstances it is difficult to speculate as to the discipline attributable to the range of
misconduct.134
In one case, the Grievance Committee recommended different, smaller sanctions like
admonishment and a public reprimand for various ethical violations by a tax attorney.135 In
Reedy, the attorney was retained by a decedent’s stepdaughter, also the personal representative,
to handle probate proceedings and to file various Federal and state tax returns.136 The attorney
was paid a fee for past services and for services to be rendered, but failed to seek approval from
the court in violation of Iowa law.137 The first installment of the fee was put into the attorney’s
trust account, but withdrawn for personal use; the second installment was never placed in the
trust account.138 The attorney also prepared the tax returns, procuring checks for the payment of
taxes from a joint account of the client’s and another’s, but failed to file the tax returns.139
Additionally, the attorney misrepresented to the client that he not only filed the returns, but that
he paid the appropriate taxes from checks drawn from his own checking account.140 He even
went so far as to show the client false copies of checks.141 The Grievance Committee found, and
the Supreme Court of Iowa agreed, that, among other things, the attorney neglected the client’s
Landis, Debra T. Negligence, Inattention, or Professional Incompetence of Attorney in Handling Client’s Affairs
in Tax Matters as Ground for Disciplinary Action--Modern Cases. 66 ALR 4th 314, §2, 1988.
134
135
Iowa Sup. Ct. Bd. of Prof. Ethics & Conduct v. Reedy, 586 N.W.2d 701, 703 (Iowa 1998).
136
Id. at 701-02.
137
Id.
138
Id. at 702.
139
Id.
140
Id.
141
See id.
27
affairs and misrepresented the payment of the checks in violation of the disciplinary rules. 142
The Grievance Committee recommended an admonishment for the fee violation143 and a public
reprimand for the other violations.144 The Court concluded by stating: “[a]lthough the various
violations standing alone might warrant the discipline recommended…[citations omitted]…we
are convinced that the cumulative impact of the offenses in the present case warrant suspension
of respondent’s license.”145
In In the Matter of Disciplinary Proceedings Against Scott N. Herrick, Attorney at Law,
an attorney was publicly reprimanded for conduct constituting neglect of legal matters,
intentional failure to carry out a contract of employment for professional services, and for
misrepresentations.146 In the case, the attorney was retained by an organization to apply for taxexempt status and to prepare and file the articles of incorporation.147 Over the course of a year
and a half, the attorney repeatedly misrepresented to the organization that the exempt status was
being delayed by the IRS, but in fact the attorney failed to file the application.148 The parties in
the case stipulated that the attorney’s misrepresentations were “not the result of any deceitful
intent or purpose on his part, but rather as a result of his ‘gross neglect’ to determine the actual
status of the matter before communicating with his client.”149 The Court found the attorney
guilty of the above conduct and he was publicly reprimanded.150
142
Id. at 702.
143
See id. at 702-03.
144
Id. at 703.
145
Id. (Emphasis added).
146
381 N.W.2d 368, 369 (Wis. 1986).
147
Id. at 369.
148
Id.
28
In another case, an attorney was retained to resolve the threats by the IRS to impose a lien
against the assets of a business in which the clients were partners.151 The client paid the attorney
$1,000 as a retainer to transfer all of the assets to a trust that would apparently avoid the IRS
lien.152 The respondent failed to establish the trust, failed to return phone calls and messages,
and cashed the $1,000 check.153 This caused the clients to retain another attorney to seek
repayment of the $1,000 fee.154 The respondent signed a $600 promissory note, which he failed
to pay, and the clients had to spend hundreds of dollars to collect the original fee.155 The Court
found the following violations of the ethics rules: dishonesty, fraud, and deceit, fitness to
practice law, neglect of a legal matter entrusted to him, failure to carry out a contract of
employment, and failure to pay client funds which he is entitled to receive.156 The attorney was
suspended from practice for a year and one day, was ordered to pay costs of $383.71, and was
ordered to pay restitution of $1,000.157
In another case, an attorney was retained to file annual reports and pay certain fees to
keep the client’s corporation in good standing with Georgia, as well as file personal and
corporate federal tax returns.158 The clients paid the attorney $275.00, a portion of which was to
149
Id.
150
Id.
151
People v. Pilgrim, 698 P.2d 1322, 1322-23 (Colo. 1985).
152
Id. at 1323.
153
Id.
154
Id.
155
Id.
156
Id.
157
Id.
158
In the Matter of Ike L. Turner, 361 S.E.2d 824, 824 (Ga. 1987)
29
be used for the fees and the other portion used for a retainer.159 Additionally, the client’s
entrusted important documents to the attorney, including previous tax returns.160 For about a
year, the clients attempted to contact the attorney regarding the matters, but the attorney refused
to return calls, keep appointments, or update the clients on any of the matters.161 The attorney
also failed to refund the $275.00 and return the documents.162 Based on these facts, and the fact
that the attorney had two previous disciplinary occurrences, he was disbarred.163
Conclusion
As one can clearly see, there are a number of ethical rules and regulations by which an
attorney must live and follow. Specifically, these include state Bar association rules of
professional conduct, administrative agency rules, rules of court, and of course state and Federal
statutes. As for the tax attorney, there is an extra layer of duties to which a compliant and
competent tax attorney must adhere. This includes the practice before the IRS, and practice
before the Tax Court, in addition to other courts, the Internal Revenue Code, etc. Although
voluminous, it is not hard to be compliant with the sheer amount of rules and regulations. Be
mindful before making certain decisions and remember an attorney is there to serve his or her
clients. Living by the base rules is admirable, but setting one’s sights higher is paramount.
159
Id.
160
Id.
161
Id.
162
Id.
163
Id. at 824-25.
30