Summary of the Testimony of James P. Holden - Center for Professional Responsibility

Summary of the Testimony of James P. Holden
Before the Multidisciplinary Practice Commission

The first witness was James P. Holden of Steptoe & Johnson, who first discussed the new accountant-client privilege in Tax Court. He traced enactment of the statutory privilege to two forces - the AICPA convincing legislators that fairness requires a level playing field for tax practitioners and that consumers of tax services are entitled to assurance that their conversations with their tax advisors, no matter the advisor’s professional affiliation, will not be disclosed to the IRS. The ABA’s late statement to the U.S. Senate identifying technical and policy problems with the legislation had virtually no impact. The new privilege is restricted to tax advice and tax proceedings and is denied with regard to criminal proceedings and certain forms of corporate tax shelters. He described accounting firm handling of the privilege as circumspect with training materials being developed but no overt advertising being done. He surmised that lawyers practicing in accounting firms, while currently working in the tax, corporate and employee benefit areas, are interested in representing firm clients in court. A stumbling block is that accounting firms’ lawyers maintain that they are not practicing law because they are not ‘holding out’ as lawyers.

In face of the economic and professional pressures compelling some form of change, Mr. Holden suggested, as a point of discussion, a federal level commission to regulate professional service entities on an elective or ‘opt in’ basis. Lawyers could remain subject to state regulation and professional conduct rules, or lawyers and professional service providers could elect to become subject to the regulatory jurisdiction of the federal commission. The commission would develop professional responsibility rules applicable to all disciplines within its regulatory jurisdiction; lawyers’ rules could be based on the Restatement of the Law Governing Lawyers (ALI, 1998). Issues such as ownership limitations, services incompatible for a single firm and admission to practice could also be resolved at the commission level. Federal regulation would be effective immediately and uniformly throughout the 51 jurisdictions and would align with the national and international practice of many firms.

He said that he considers only accounting firms as being able to keep auditing separate from the legal/consulting function, and that a self-regulatory scheme authorized at the federal level, such as NASD (National Association of Securities Dealers, Inc.), would work only if it fell within federal pre-emption authorization. He admitted he knew of no instance of state judicial authority being pre-empted by federal legislation. The Chair commented that a federal legislative model would allow Congress to change the regulatory scheme at any time.

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