a day in the ethical life of a tax lawyer · lawyer prepares the tax returns for client’s...

Online CLE

A Day in the Ethical Life of a Tax Lawyer

1 Ethics credit

From the Oregon State Bar CLE seminar 18th Annual Oregon Tax Institute, presented on June 7 and 8, 2018

© 2018 Nellie Barnard, David Elkanich. All rights reserved.

Chapter 6

A Day in the Ethical Life of a Tax Lawyer—Presentation Slides

Nellie BarNard

Holland & Knight LLPPortland, Oregon

david elkaNich

Holland & Knight LLPPortland, Oregon

Chapter 6—A Day in the Ethical Life of a Tax Lawyer—Presentation Slides

6–ii18th Annual Oregon Tax Institute


6–118th Annual Oregon Tax Institute

Copyright © 2015 Holland & Knight LLP. All Rights Reserved

A DAY IN THE ETHICAL LIFE OF A TAX LAWYER

David J. [email protected]

Nellie Q. [email protected]

“The fact that [the defendant taxpayer] desired toevade the law, as it is called, is immaterial, becausethe very meaning of a line in the law is that youintentionally may go as close to it as you can if youdo not pass it.”

Superior Oil Co. v. Mississippi, 280 US 390, 395-96 (1930)



WHAT IS THE ETHICAL LINE IN THE SAND?

1) What must, may or should you do when a client asks you to provide it with legal representation despite your knowledge that the client is not complying with tax law?

2) Can you advise a client on tax issues if you know that the client is violating the law in other substantive ways?

THE DOs AND DON’Ts: RPC 1.2(c)

RPC 1.2(c)

Lawyers shall not knowingly counsel or assist a client in criminal or fraudulent conduct

BUT

Lawyers can discuss the consequences of any proposed conduct and counsel or assist in determining the validity, scope, meaning or application of the law.



THE ABA COMMENTS ARE HELPFULComment [9]

Difference between giving your client legal advice/analysis on questionable conduct and recommending the means by which they can commit a crime/fraud.

Comment [12]A lawyer must not participate in a transaction to effectuate criminal or fraudulent avoidance of tax liability.

Comment [13]A lawyer must consult with the client regarding the limitations the RPCs place on the lawyer's conduct.

THE DOs and DON’Ts: RPC 2.1

RPC 2.1

A lawyer shall “exercise independent professional judgment and render candid advice.”

Lawyer may refer to the law and to relevant moral, economic, social and political factors.



MORE ABA COMMENTSComment [2]

Purely technical legal advice is sometimes inadequate. Moral/ethical considerations impinge upon most legal questions and may influence how the law will be applied.

Comment [3]Clients can ask for purely technical advice, but the more inexperienced the client, the greater the lawyer’s responsibility.

Comment [5]A lawyer may initiate advice to a client when doing so appears to be in the client's interest or substantial adverse consequences are likely.

FIRST HYPOTHETICALLisa Lawyer advises her client, Phil Phool, that Phil can claim certain tax benefits for his company, Wonky Widgets. Lisa and Phil both know that Wonky Widgets has long been violating the criminal Anti Widget Law. Lisa also knows that her tax position is a bit aggressive but that the risks of detection and prosecution for violating the Anti Widget Law are close to zero.

A few years later, Wonky Widgets is prosecuted for violating the Anti Widget Law and Lisa is prosecuted as an aider and abettor. The “aggressive” tax benefits are thereafter discovered and questioned by the IRS, which goes after Phil for repayment and penalties.

Phil then files a Bar complaint against Lisa.



QUESTIONS FOR HYPO #1Under what circumstances, if any, can Lisa defend the Bar complaint on the ground that:

1) At the time the decision was made, she and Phil actually intended to test the validity of the Anti Widget law?

2) Would the result be different if Lisa suspected but did not “know” that Wonky Widgets was in violation of the Widget Act?

What happens when ethics rules conflict with substantive law?ABA Formal Opinion 85-352 (https://tinyurl.com/ABAFormalOp85-352) Lawyer may advise reporting a position on tax return even where lawyer believes position probably will not prevail, there is no 'substantial authority' in support and no disclosure of the position in the return. Must have:

--Good faith--Some realistic probability of success--Inform client of risk and possible legal consequences

IRS Circular 230 § 10.34Practitioner may not “advise a client to take a position on a tax return” that:

--Lacks reasonable basis (substantial authority must exist)--Is willful understatement, reckless or intentional disregard of rules



SECOND HYPOTHETICAL

While Phil’s Bar complaint against Lisa is pending, the U.S. Supreme Court holds that the Anti Widget Law is either: (a) barred by the doctrine of desuetude (i.e., very long time non-enforcement); or (b) is void for vagueness.

1) Must the Bar dismiss its RPC 1.2(c) case?

2) What if the Supreme Court declared that its ruling was prospective only?

WHERE THE RUBBER MEETS THE ROAD

RPC 8.4(a)(2)

It is professional misconduct for a lawyer to commit a criminal act that reflects adversely on the lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects.

Comment 14 to the ABA Model Rule’s Scope section

The RPCs are rules of reason. They should be interpreted with reference to the purposes of legal representation and of the law itself.



DOES ABA FORMAL OPINION 463 CLARIFY ANYTHING?

• Promotes but does not mandate lawyers as “gate keepers”

• Lawyer is in unique position to monitor, control, or at least influence clients to deter wrongdoing

• Due diligence expectations

• Find the balance point

https://tinyurl.com/ABAFormalOp463

THIRD HYPOTHETICAL

Carol Criminal owns On the Line Laundromat. On the Line gets 20% of its revenue from its wash and fold service and 80% from money laundering.

1) Under what circumstances, if any, may Larry Lawyer give Carol tax advice?

2) May Larry prepare Carol’s tax returns?



FOURTH HYPOTHETICALLawyer prepares the tax returns for Client’s burgeoning pot business and gives Client ongoing tax advice. Client brings Lawyer’s initial retainer of $7,500 in cash that looks and smells to Lawyer like it’s been buried in the dirt. After a few months, Lawyer begins to suspect that Client might be violating Oregon’s recreational pot laws by transferring the drug across state lines to states where it is not legal.

1) What, if any, due diligence must Lawyer engage in to determine if his suspicions are correct?

2) What if Lawyer finds out that although Client is following the law now, the $7,500 retainer was earned by Client through previous illegal pot sales?

RPC 1.2(d)

Lawyer may counsel and assist a client regarding Oregon’s marijuana-related laws. In the event Oregon law conflicts with federal or tribal law, the lawyer shall also advise the client regarding related federal and tribal law and policy.

THE DOs and DON’Ts: RPC 1.2(d)



COMPLICATING FACTORS

• “Knowledge” may be inferred from the circumstances

• How do you document what you don’t know without admitting knowledge?

• Interplay between RPC 1.6 and attorney-client privilege

• Interplay between mandatory and permissive exceptions to confidentiality in RPC 1.6

CONCLUSIONS TO DRAW

• Manage your own risk at least as well as you manage risk for your client

• Conduct ongoing client due diligence regarding your client’s circumstances, business and objectives.

• Don’t be an ostrich. Pay attention to red flags.

• Document that which makes you nervous. A well papered file can be the best defense



FIFTH HYPOTHETICALLawyer has 20 years experience dealing mostly with taxes for nonprofit organizations. He has also filed one or two cases in the past alleging blue sky law violations. The market has been bad, meaning his nonprofit clients are not knocking. New Client calls and says he has $15,000 to pay for a private placement memorandum. Lawyer has never been through the registration process and knows little about it. But, he does recognize that to complete all of his due diligence would require him to incur far more than $15,000 in attorney fees. New Client can't pay more and will go somewhere else if Lawyer does not take the case. Lawyer could really use that fee. Can he take the case knowing that he doesn't have the experience and that he can't afford to "do it right?"

WHAT ARE THE RULES? Competence and DiligenceRPC 1.1: A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. -Duty of competent representation is same regardless of your fee or skill level

RPC 1.4: A lawyer shall not neglect a legal matter entrusted to the lawyer. -Keep this in mind when your fixed/flat fee is spent before you’ve really begun



RISK MANAGEMENT» If you can’t handle it (either from an experience or money

perspective), and you can’t find anyone to help you, there is risk in taking the case.

» Relying on colleagues is ok and may be necessary.

» Consider creative ways to get paid (e.g., alternative fee arrangements) in appropriate cases. ˗ Taking financial interest in a client matter˗ Success fees

» No good deed goes unpunished. Bar complaints are expensive to defend and generally aren’t covered by your malpractice insurance.

Thank you!

David J. ElkanichHolland & Knight LLP

2300 U.S. Bancorp Tower

111 S.W. Fifth Avenue

Portland, Oregon 97204

P. - 503.517.2928

F. - 503.241.8014

[email protected]

@DavidElkanich

Nellie Q. BarnardHolland & Knight LLP

2300 U.S. Bancorp Tower

111 S.W. Fifth Avenue

Portland, Oregon 97204

P. - 503.243.5892

F. - 503.241.8014

[email protected]

22

a day in the ethical life of a tax lawyer · lawyer prepares the tax returns for client’s...

Documents