October 30, 2015

Remarks of Section Delegate Richard M. Lipton Before the ABA House of Delegates Regarding the Tax Section's Withdrawal of Resolution 101

I rise to withdraw Resolution 101. I want to more fully explain why the Tax Section has decided to withdraw this resolution.

This resolution relates to the regulation of tax return preparers under Circular 230, which is published by the Treasury Department. Circular 230 has provided for the regulation of persons appearing before the Treasury for over 120 years. In 1982 and 2009, this House adopted resolutions which opposed federal regulation of lawyers, but there was an explicit exception for pre-existing regulations, which was believed to encompass Circular 230.

The scope and validity of Circular 230 were challenged in the Loving and Ridgely decisions, and the Tax Section believes that it is important to acknowledge this regulatory authority, which is important to the effective functioning of the tax system. Resolution 101 contained two resolved clauses, the first of which called for the regulation of non-lawyers in tax return preparation and the second of which related to the regulation of lawyers under Circular 230.

Three objections were raised to the second resolved clause. The first objection was that lawyers who only occasionally prepare tax returns, such as solo and small firm practitioners, should not be regulated. We find this argument unpersuasive. Indeed, if anything, the lawyer who only rarely ventures into the tax arena is most in need of education and regulation. Following the logic of this argument, if I, an Illinois lawyer, wanted to appear in court in Indiana only once a year, the Indiana courts should not have any authority to regulate me because of the sporadic nature of my appearances in Indiana. If there is to be regulation in tax-related matters, it would need to apply to everyone.

The second argument was that regulation of lawyers in tax-related matters was unnecessary because the state bars regulate lawyers. As we explained in detail in the Report to Resolution 101, this argument does not apply to tax matters because of the confidential nature of tax return information. The federal government is prohibited by law from disclosing any details of a lawyer's malfeasance in a tax matter to the state bar, other than to simply state that the lawyer has been subjected to discipline under Circular 230. This law, which is found in section 6103 of the Internal Revenue Code, was adopted in response to abuses in the Nixon administration, and it effectively prevents the state bars from obtaining tax return information necessary to discipline a lawyer.

On a related note, some people suggested we address this issue by advocating a loosening of section 6103 to allow the federal government to inform the states about tax matters. We would strongly oppose revision to section 6103, which has worked for 40 years to preserve the confidentiality of all tax return information. Moreover, in light of allegations that the current administration has improperly used tax return information, it would be particularly troubling to have this Association support a loosening of those rules.

There was a third objection. Several individuals involved in representing the ABA in matters concerning regulation of lawyers pointed out to us the difficult position that Resolution 101 would place them in because they would be arguing for no federal regulation of lawyers in one area of the law while Resolution 101 proposed federal regulation of lawyers in another area. Even if there were good reasons for the distinction, it would be difficult for the Association to clearly and effectively deliver a consistent message that the ABA is opposed to federal regulation of lawyers.

We found this argument to be persuasive. The Tax Section is proud to be a part of the ABA, and we would never want to propose any action that would undercut other positions which are being maintained by the Association. Therefore, in a spirit of comity, we agreed to withdraw the second resolved clause in Resolution 101.

This would leave the first resolved clause, which calls for the regulation of non-lawyers involved in tax return preparation. Although there was no known opposition to this aspect of Resolution 101 in this House, it would put the Tax Section in a difficult position if the House were to adopt a resolution only related to non-lawyers. The Tax Section works regularly with the American Institute of Certified Public Accountants and other professional organizations in tax-related matters. It would be very awkward for the Tax Section to be urging the regulation of the members of all of these other organizations but not of our own members. Furthermore, we believe that the Treasury Department would not be impressed if the Tax Section was urging the regulation of everyone except tax lawyers. In order to retain our credibility with both the government and other professional organizations, if the second resolved clause must be withdrawn, the entire Resolution must be withdrawn.

Accordingly, the Tax Section withdraws Resolution 101.

A copy of the ABA Resolution 101 Report is available for download here.