Lawrence M. Hill, a partner of White & Case in New York, next addressed the Commission. His background includes a stint as Assistant General Counsel of KPMG and as both a Special Assistant U.S. Attorney and a trial attorney with the Internal Revenue Service. As a tax litigator and an IRS practice and procedure advisor he technically competes with the Big Five, although he stresses cooperation over competition.
His clients include the Big Five as well as other international accounting firms that he has represented before unauthorized practice of law committees, the AICPA Ethics Commission, the Director of Practice of the Treasury Department, and in civil and criminal cases and in advisory matters. He’s counseled on such things as the new tax preparer privilege under IRC 7525. The views he presented were his own. Urging the fairness of a level playing field between tax lawyers and tax accountants in the MDP context he mentioned that the legal profession has been slow to react to the proliferation of MDP structures in Europe and Canada whereas the AICPA’s Vision Statement has put that profession at the vanguard of the movement. The accounting profession has leveraged the audit function, which was experiencing slow growth and saddled with huge liabilities, to a global consulting operation and increased dramatically their competitive position.
The National Conference of Lawyers and CPAs was established in 1944 but cooperation between the two professions has waned over the last decade as turf battles have increased over pure economics, UPL, privilege and hiring away of tax lawyers not only from government but also from law firms. He reviewed the Florida Supreme Court’s UPL Advisory Opinion re Nonlawyer Preparation of Pension Plans as well as that of South Carolina and the Texas UPL Committee complaint on Arthur Andersen tax activities. He said these UPL actions were destined to failure because of federal pre-emption and the quixotic nature of attempting to define the practice of law; they smacked of economic protectionism and there was no showing of public harm. He thinks a professional should be judged by his or her level of competency and that competency is determined by the individual professional chosen by the client, not by the profession itself. He said that lawyers are not the only ones with ethical rules or ‘core values’ as he enumerated independence, objectivity and integrity juxtaposed with rules involving conflicts of interest and confidentiality. He doesn’t consider Tax Court Rule 24 (g) to have a much greater effect on lawyers in accounting firms than lawyers in independent law firms as some lawyers in independent law firms would write a tax opinion and then go into Tax Court to defend it, if necessary. He asked the rhetorical question ‘Who does the ABA represent?’, is it lawyers who in the context of accounting firms may have other employment opportunities or law firms? It’s in the best interest of the public that professionals work together for the common good of the client. If one stop shopping is what the clients are going to want then one stop shopping is going to be a reality. Innovation and creativity as opposed to stagnation will drive adjustments in strategy as the market decides between a mom and pop operation, a supermarket, a Walmart, a gourmet shop or a convenience store. The train has left the station and the Bar has taken the wrong course but lawyers can still hop the express and get to and play the game rather than be spectators. The legal profession, however, must modernize its antiquated ethical rules regarding conflicts of interest, imputation and multi-jurisdictional practice in order to be able to maintain its competitive position.
When Professor Daly asked about complaints against an accounting firm for legal advice given, Mr. Hill responded that there have been complaints arising from conflicts of interest, confidentiality and provision of legal advice by nonlawyers. The market will dictate not only what professional the client uses but who will pay from a malpractice perspective. He said the disclosure obligation is that of the company, not that of the accountant. Questioned about malpractice Mr. Hill said that if the individual takes on more of a legal or advocacy role (rather than an advisory role), such as in litigation support, a jury may apply a conflict of interest rule. He considers the accountants’ confidentiality strictures to be very strong and referenced as an illustration IRC 7216, the criminal misdemeanor penalty for revealing tax return information to a third party. Although most accountant rules regulate the individual there are instances where the AICPA, the state boards of accountancy and, at times, the Director of Practice of the Treasury can take action against the firm. Judge Friedman asked the follow-up question, if a lawyer leaves a law firm to go to an accounting firm and says she is not practicing law, to what regulation is she subject? Mr. Hill said that a lawyer in an accounting firm, as her work impacts the firm, is subject to the rules of the accounting profession. Judge Friedman, reiterating the testimony of two earlier witnesses, said lawyers who practice in nontraditional settings will be subject to malpractice and a mark on their reputations. Professor Hazard returned to the question of whether the duty of confidentiality in an accounting firm is as rigorous as a lawyer’s duty of confidentiality. Upon receiving a positive response, and after commenting on Model Rule 1.6’s broad reach of ‘information relating to the representation of a client’, he noted that accounting firms do not recognize the rule of imputation. It’s a factual question for accountants as to whether information has been conveyed within a firm, there being no legally binding rule of imputation that says if A knew something and A is associated with B in a firm, then B is deemed to know it too (in a law firm the imputation of knowledge is automatic and cannot be rebutted). Professor Hazard commented that the difference is the consequence of a rule imposed on the legal profession by itself. He also threw out the notion that a joint letterhead ‘Arthur Andersen and White & Case Working Together for You’ and related promotional materials indicates an informal alliance, an emerging practice that may be a permissible holding out under state law. As many employees in accounting firms are not involved in the regulated practice of accountancy, that is the attest and audit functions, Ms. Garvey asked what rules apply to a consulting practice. There are AICPA rules on consultancy practice but they are not as well defined as in the audit and tax areas. It was mentioned that the cut-off of regulatory oversight may be one reason why Andersen Consulting spun off from the rest of the organization. Mr. Hill clarified that if an audit partner finds something that is damaging and the client, once notified, does not want to reveal it the auditor may have to resign. Disclosure is the obligation of the client. However, the anti-fraud cases under the federal reform act impose certain obligations on what a practitioner for publicly held companies had to do if he or she felt something wasn’t being disclosed (had to report up the chain) and may ultimately require disclosure to the SEC. Mr. Hill thought that Mr. Mundheim’s example of an accounting firm lawyer helping to structure a financial instrument and marketing it to accounting firm clients (i.e., a derivative to help delay payment of taxes) would not be considered the practice of law and that the answer would be the same if the work were done by an MDP lawyer. The marketing of multiple services may confuse the holding out question for regulatory purposes if the work could be construed as legal services. The Chair asked why a lawyer who does the same thing in an accounting firm that she was doing in the law firm is not practicing law. Mr. Hill responded that the practice of tax by accounting firms is authorized by federal pre-emption; he admitted, however, that the advisor would still be subject to ethical rules that don’t conflict with the federal pre-emption. Another distinction would be the availability of the attorney-client privilege. Mr. Hill said there is deemed to be no public harm as the IRS in regulating tax practice before it assures competency. Also, to Mr. Hill’s knowledge, accounting firm lawyers merely draft specimen language for wills or trusts for review by counsel.