The Role of Professional Organizations in Practice and Policy: How Lawyers Overtook Accountants and Economists in the Early 20th Century Tax Field

Abstract

Tax policy and practice are inherently interdisciplinary, involving the close collaboration of lawyers, accountants, and economists. But the presence and strength of the legal profession in a field that was from its start dominated by accountants and economists was not pre-ordained. To no small degree, self-conscious action by the organized profession and effective engagement by its professional associations allowed tax attorneys to establish dominance in an area in which they saw a lucrative future. The American Bar Association (ABA) Tax Committee played an important role in helping to propel lawyers from their poor starting position in the newly created field of federal income tax after the passage of the 16th Amendment to a position of strength in a lucrative practice area with the ability to shape the development of policy.

The story of how tax attorneys came to dominate the fields of tax policy and sophisticated tax practice for much of the 20th century is a success story of strong professional organizations. This Article illustrates how the organization of attorneys focusing on taxation into a specialized group within bar associations has played an important role in making lawyers the central players in tax policy and tax practice in the United States over the 20th century. It places some of the contemporary challenges facing the legal profession in the tax area and questions over its interaction with other disciplines in historical perspective by tracing the early history of the specialization of tax lawyers within professional associations. These associations laid the groundwork for the creation of a tax bar with its own self-identity and ethical guidelines. This Article explores the role played by the bar associations, in particular the ABA, in developing and promoting the practice of tax law among attorneys and the prestige of lawyers as tax practitioners and developers of tax policy.

As part of the effort to map out the expansion of the professional associations of tax attorneys, the Article first sets out the historical background of the growth of professional organizations in the United States. It then examines the development of the U.S. federal income tax law during its first decades, along with the role economists played in that development, followed by a study of the role of the accounting profession in tax practice during this time. An exploration of the role played by a number of prominent attorneys in tax policy and tax practice and of the Association of the Bar of the City of New York sets the stage for consideration of the formation and development of the ABA Tax Committee in the 1920s. The history of the organization and activities of the ABA Tax Committee demonstrates how it became so effective in propelling attorneys to a position of significant influence within the worlds of tax legislation, tax policy, and tax practice.

I. Introduction

Tax policy and practice are inherently interdisciplinary, involving the close collaboration of lawyers, accountants, and economists. But the presence and strength of the legal profession in a field that was from its start dominated by accountants and economists was not pre-ordained. To no small degree, self-conscious action by the organized legal profession and effective engagement by its professional associations allowed tax attorneys to establish dominance in an area in which they saw a lucrative future. The American Bar Association (ABA) Tax Committee played an important role in helping to propel lawyers from their poor starting position in the newly created field of federal income tax after the passage of the 16th Amendment to a position of strength in a profitable practice area with the ability to shape the development of policy.

To some extent, the rise in the strength and dominance of the ABA Tax Committee is the flip story of the decline of the relevance of the National Tax Association (NTA), the first and foremost organization of tax policy in the early 20th century. As described by Ajay Mehrotra and Joseph Thorndike, the NTA, which was at one time “an influential, and interdisciplinary, organization of fiscal experts,” over time became a more insular, scholarly association dedicated to the economic analysis of taxation. As economists became exclusively focused on efficiency and as their interest in tax policy as an instrument of social reform declined, lawyers ultimately filled a gap in the policymaking space. That’s despite the severe ambivalence among the organized legal profession about taking policy positions that could be construed as running counter to the best interests of their clients and their advisory role involving planning for tax savings, also described by Mehrotra and Thorndike.

Like economists, accountants played a foremost role in the development of the early federal income tax laws, the starting point of which is books of account. But like economists, accountants similarly ceded much of their early professional prominence to lawyers, losing an early edge in the practice before the Bureau of Internal Revenue and the newly created Board of Tax Appeals. As with the economics profession, the challenges faced by accountants in asserting their dominance in matters of tax policy and practice in the early 20th century had as much to do with a lack of organization among their professional associations as it did with the inherent nature of tax practice and policy.

In short, the story of how tax attorneys came to dominate the fields of tax policy and sophisticated tax practice for much of the 20th century is a success story of strong professional organizations. This Article illustrates how the organization of attorneys focusing on taxation into a specialized group within bar associations has played an important role in making lawyers the central players in both tax policy and practice in the United States over the 20th century. The history of the organization of tax lawyers demonstrates the extent to which bar associations have played a role in “shaping and defining the larger context within which” the tax lawyer operates, and the ways in which the development and rise to power of the organized tax bar has been instrumental as an agent of change within the tax profession.

But the world is not static, and the past few decades have seen further evolutions in the roles of the different professions in the tax field. The global growth of the large accounting firms has meant that they have become able to play a key role in advising clients that operate globally in a way that law firms cannot, leading the accounting profession to take over a large part of cross-border tax practice and policy. In part, the growth of the accounting firms also has been due to the strong stance taken by the organized legal profession in the United States against multi-disciplinary practice; in practically every country other than the United States, the large accounting firms include some of the largest legal practices as well. In other areas, the legal profession has ceded well-paid areas of practice to economists, such as in the continued fast-growing field of cross-border transfer pricing, which relies on economic rather than legal principles as the key means of allocating profits across taxing jurisdictions. Recent initiatives to derive alternative and minimum taxes from a financial accounting tax base rather than legislatively enacted rules may also propel accountants to a larger policy role. Economists also may be starting to undergo a shift in their policy perspectives, slowly awakening from a century’s singular focus on efficiency as the metric by which to measure policy, toward a greater focus on the role economics can play in advancing social policy and equity.

This Article places some of the contemporary challenges facing the legal profession in the tax area (and questions over its interaction with other disciplines) in historical perspective by tracing the early history of the specialization of tax lawyers within professional associations. These associations laid the groundwork for the creation of a tax bar with its own self-identity and ethical guidelines. The Article explores the role played by the bar associations, in particular the ABA, in developing and promoting the practice of tax law among attorneys and the prestige of lawyers as tax practitioners and developers of tax policy. Tracking the development of the committees within the ABA organized to focus on tax law allows us to follow the successful use of a specialized group within a professional organization to achieve status and power.

As part of the effort to map out the expansion of the professional associations of tax attorneys, Part II of the Article first sets out the historical background of the growth of professional organizations in the United States. Part III then examines the development of the U.S. federal income tax law during its first decades, along with the role economists played in that development. In Part IV, the Article changes focus to examine the role of the accounting profession in tax practice during this time. An exploration of the role played by a number of prominent attorneys in tax policy and tax practice, and of the Association of the Bar of the City of New York, in Part V sets the stage for consideration of the formation and development of the ABA Tax Committee in the 1920s. The history of the organization and activities of the ABA Tax Committee demonstrates how it became so effective in propelling attorneys to a position of significant influence within the worlds of tax legislation, tax policy, and tax practice. Part VI concludes.

II. Organizing for Professional Growth

Professional organizations of lawyers have existed in North America almost ever since there were practicing lawyers. The first bar association in North America, the Suffolk County Bar Association in Massachusetts, was formed in 1758. Professional associations of attorneys formed throughout the 18th and early 19th centuries were not the precursors of the organizations that exist today. The earlier associations declined during the latter half of the 19th century as part of the fallout from the Jacksonian democracy movement, which emphasized the abilities of laymen in direct opposition to ideals of professional knowledge and expertise. Only in the last decades of the 19th century was the legal profession, along with the other professions which rested their claims to authority primarily on assertions of expert knowledge, able to regroup and reestablish its claims to professional authority. The newly resurgent professional organizations had a great deal of interest in distinguishing between qualified professionals—the legitimate inheritors of an established and accepted body of knowledge—and “others,” whom the organized profession attempted to discredit as illegitimate purveyors of knowledge. Within the legal profession, the newly organized bar associations primarily were concerned with composing and enforcing codes of conduct and standards that would regulate the profession, to ensure that “laymen masquerading as lawyers” would be discredited. A significant part of the work of the early bar associations involved defining a professional culture and values that would be adopted by its members, thereby establishing a distinction between qualified professionals and charlatans.

The rise of the professional organization also represented professionals’ attempts to provide a counterweight to large corporations, which were becoming the dominant form of business organization. Attempts to distinguish the legal profession from big business also were a motivating force behind the development of ethical codes in connection with the formation of bar associations. Establishing an ideal of professional independence was key to the effort of creating an elite “of status and social influence distinct from business success, and career paths outside and not subordinate to the new giant corporate hierarchies.” The emphasis on education, in treating law as a science, the revival of bar associations and “political reform activity” all enabled lawyers to develop and pursue an ideal of “professional independence.” The formation of the ABA in 1878 represented the convergence of the trends described above. The need for a national organization was recognized as interstate trade grew “as a result of advances in transportation and communication,” leading to increased frustration with the differences among state laws. Nevertheless, the founders of the ABA also were clear about the self-interest involved in forming such an organization. The ABA was formed by a group of prominent attorneys who were supporters of conservative (but certainly not radical) reform.

As they matured, the focus of the organized bar associations shifted from “professional control and judicial reforms” toward activities that emphasized legal education and advice on legislation and policy. Historians have demonstrated a pattern as the concentration of the organized profession shifted from a focus on “professional upgrading” to an “expansion of committees and expenditure of resources on continuing education and reform efforts.” Sociologist Terrence Halliday has told the story of the growth of substantive law committees in the Chicago Bar Association as it matured and grew. Other scholars likewise have noted how the development of substantive law committees allowed bar associations to expand their membership beyond individuals primarily interested in issues of professional control to those interested in “a promise of continuing education, of keeping abreast of new developments in the law, and of meeting informally peers who one might otherwise meet only in the adversarial context of the courtroom.” In part, this shift arose because of the profession’s success in establishing its monopoly and status as the people’s representatives; once they had attained official government recognition of the established profession and legalized such recognition with accepted control over legal education, bar admission and the illegality of unauthorized practice, bar associations were free to take on a wider range of tasks.

III. The Birth of the U.S. Federal Income Tax Law

A. The Federal Income Tax Law in the 1920s

The rise of professional associations presents only half of the backdrop against which one needs to view the history of the development of the tax bar; the other is the development and changes to the U.S. federal income tax laws in the 1920s. The 1920s was the first full decade of the U.S. income tax, and the first use of the income tax as a significant source of federal revenues, even as the significant revenue needs accompanying World War I receded. Developments in tax policy and tax practice were occurring in the 1920s that undoubtedly would have prompted increased involvement and organization of attorneys characterized as tax specialists, even without the rise in the activities of professional associations.

Throughout the 19th century, the federal government relied on tariffs as its primary revenue source. Academic and public discussions over federal tax policy generally centered on the legitimacy of tariffs and their validity in terms of progressiveness, or lack thereof. The U.S. federal income tax was ratified as an amendment to the U.S. Constitution in 1913, but it was imposed in a limited fashion until the financing needs of World War I drove its expansion. In 1916 and 1917, the pressing financial needs of a country soon to be at war, together with the drive by progressive reformers to use the tax system as a redistributional tool, led to a radical alteration of the U.S. federal tax system and the institution of a highly progressive personal and corporate income tax, along with an expansion of the taxation of excess corporate profits. By 1918, the maximum individual rate was 77 percent, while the maximum corporate rate was as high as 80 percent on excess profits.

A list of the issues under consideration for the reform of contemporaneous tax policy in the 1920s included the following:

1. Abolishing or transferring to another bureau “regulatory taxes” (taxes the primary purpose of which was to regulate business) and prohibition enforcement;
2. Eliminating “trivial” taxes (described as taxes designed to produce revenue but which fail in their objective) and the capital stock tax;
3. Substituting a general turnover tax at a low rate on sales of property, the use of property, choses in action and services for the remaining sales taxes;
4. Eliminating the excess-profits tax;
5. Revising the form of the income tax act, reducing the rates of surtax on individuals, limiting the tax to a flat rate on companies’ undistributed net income, if no better expedient for equalization was discovered, and simplifying the substance of the taxing act toward greater universality and uniformity;
6. Using coordinated forms of returns for income and sales taxes; and
7. Restricting internal taxes to the income, inheritance, and sales taxes.

The excess-profits tax was highly controversial, and discussions of federal tax policy during the second decade of the 20th century centered upon its legitimacy and propriety. A large part of the criticism of the excess-profits tax was driven by complaints that it was complicated to calculate and administer. However, the excess-profits tax also fell prey to the changing politics of the federal government in the 1920s. Under a newly enacted Republican administration and conservative Secretary of the Treasury Andrew Mellon, who generally favored lower taxes, the Revenue Act of 1921 repealed the excess-profits tax. The same act also introduced fundamental concepts of our current income tax system, such as the exemption from income tax for stock dividends, the limitation on the foreign tax credit, source rules for foreign and domestic income, and the concept of consolidated returns.

The expansion of the income tax and its use as the primary financing vehicle of World War I required the creation of a bureaucracy to administer and enforce it. The Bureau of Internal Revenue, created during the Civil War, grew three times larger in the years leading up to 1920, and also underwent extensive reorganizations of staff members’ responsibilities and of its divisions. The complicated excess-profits tax, and the large increase in the number of persons subject to the income tax, presented the Bureau with “monumental problems of administration,” particularly as its staff lacked the necessary educational background and experience to properly evaluate the millions of tax returns now being filed. The difficulties posed by the administration of the excess-profits tax in effect necessitated the development of a modern staff of professionals in the U.S. Treasury Department, including accountants, lawyers, and economists. In some respects, the creation of this bureaucratic corps of experts was an impetus to the debate over federal tax policy that swirled in the 1920s over the merits of the excess-profits tax and possible alternatives, including sales taxes, consumption taxes, undistributed profits taxes, and regulatory taxes.

Although the progressive income tax nominally remained in effect in the inter-war period, the federal income tax became increasingly less progressive through successive tax acts passed during the decade of Republican control of the White House. Republican administrations during the 1920s enacted various targeted deductions and tax exemptions that impacted particular industries, such as deductions for oil and gas depletion allowances. Also introduced during the 1920s was a preferential statutory rate on capital gains. Critics have argued that the Republicans deliberately rejected proposals for a wholesale revision of the tax laws into a more efficient system in order to be able to propose tax breaks to favor privileged groups while maintaining an appearance of progressivity.

The Revenue Act of 1924 made further substantive changes to the income tax laws. Standard and excess-profits rates were both reduced, while taxes on earned income were further decreased, but the estate tax was increased and a gift tax added. Significant changes also were made to the tax treatment of corporate distributions, recognition and calculation of gain and loss from sales, exchanges, and reorganizations, basis rules, and rules governing depreciation and depletion; the 1924 Act also modified the tax rules applicable to capital gains. Most significant of the changes made by the 1924 Act was the authorization for the Board of Tax Appeals. The 1926 Revenue Act further reduced tax rates. The gift tax was repealed, and although the estate tax was retained, its rates were significantly reduced. Corporate tax rates were reduced again in 1928.

As the increased incidence and complexity of the income tax laws in the 1920s resulted in an enlarged federal bureaucracy within the Treasury Department focused on tax matters, Congress felt the need to counterbalance this professionalism and expertise in the executive branch. In 1926, it established the Joint Committee on Internal Revenue Taxation, the precursor to the current Joint Committee on Taxation, to provide tax advice and expertise to members of the House and Senate. As the income tax began to dominate federal tax policy, debates over tax policy grew, and the ability to dole out tax favors became important, resulting in a significant rise in the importance and power of the tax committees of Congress. The Joint Committee represented a mechanism for the House Ways and Means Committee and the Senate Finance Committee “to exert and reinforce their new power.”

Toward the end of the 1920s, what have been described as “tax favors” and privileges resulted in what some characterized as systemic tax avoidance and an ethics of avoidance embedded in the “roaring ’20s” culture.

B. Tax Policy, Economists, and the National Tax Association

Economists were the foremost scholars and activists influential in establishing the foundations of our modern income tax system. In the late 19th century, the ideal of economics as a science was advanced by economists who “believed that their economic expertise would place their ideas and policies above the fray of everyday politics.” Tax policy, as developed by economists, was key to this venture, for characterizing tax policy as a science developed by economists would enable economists to set policy above politics. Historians have extensively described the role of economists as instrumental in creating the framework pursuant to which the U.S. tax system could be portrayed as a scientific endeavor, arguing that in “striving to establish . . . a ‘non-partisan’ Treasury, [Secretaries] Glass and Houston placed heavy emphasis on professional economics.”

A number of writers trace the impact of three prominent economists, in particular, on the formation of modern U.S. tax policy. T.S. Adams, economics professor first at the University of Wisconsin and then at Yale, was the principal Treasury advisor on tax matters from the late 1910s to the early 1920s. Adams also was a key advisor to the congressional tax-writing committees under both Democratic and Republican administrations. Among other accolades, Adams has been referred to as the “founder of the U.S. system of international taxation,” and the father of the 1921 tax law. His prominence is attested to by the length of his advisory tenure, through periods under which both Democrats and Republicans were in control. Meanwhile, Edwin Seligman spent most of his professional career as a professor at Columbia University, dedicating it to the study of fiscal policy, while Richard Ely served on the faculty at Johns Hopkins University, specializing in state and local tax.

Both Adams and Seligman were instrumental in drafting New York State’s 1916 income tax law, and Adams also played a significant role in the development of Wisconsin’s tax law. In addition, both Seligman and Adams were intensively engaged in the debate over the excess profits tax enacted by the federal government in 1917. Discussion of federal tax policy during the second decade of the 20th century often centered on the legitimacy and propriety of the excess-profits tax. It was this debate that engaged economists as a professional class in the development of federal tax policy, and was a key factor in economists’ involvement in the formation of the U.S. federal income tax system. Adams, for example, was hired by the Department of Treasury in 1917 because Treasury Secretary William McAdoo and Commissioner of Internal Revenue Daniel Roper agreed that “professional economic expertise was necessary to frame legislation that accomplished the goals of the excess profits tax, to convince legislators that the new tax would be feasible, and to persuade the business community to accept the tax.”

The prominence and early activities of economists in the field of tax policy was represented by the strength of the NTA, an organization founded by and consisting primarily of economists. Founded in 1907 as the State and Local Tax Association, the NTA was intended to promote the status and influence of economists within government and among the general public. The members of the NTA served as members of tax commissions of local and state governments, and as official and unofficial advisors to local governments in designing and administering their tax systems. Although membership in the NTA was open to all, its annual conference was strictly limited to government officials, academics, and representatives of state associations of certified public accountants. There were only a few attorneys listed as officers and speakers at the NTA conferences in the early 1920s; in 1920, the officers of the NTA included primarily government officials with state tax agencies and public finance economists.

As a reflection of the growing importance of federal income taxes, the State and Local Tax Association changed its name in 1913 to the National Tax Association, “thus permitting the investigation and discussion of federal taxes, wherever the latter comes into vital contact with state and local taxes.” The name change marks both a shift in the coverage of the NTA and the move of the federal government away from the excise tax to the income tax. As the NTA noted:

The work of the Association was confined originally to state and local taxation for the distinct purpose of excluding discussions of the tariff. It is still intended rigidly to exclude the tariff question. But the federal income tax . . . make[s] it evidently desirable to leave room for a discussion of those federal taxes which impinge upon the fiscal operations of the states.

As its more prominent members were called to the service of the federal government in the formation of federal tax policy in the 1920s, federal tax policy began to take up more significance within the NTA. In 1921, the NTA’s Chairman reflected with pride that “men affiliated with us, whom, in a sense, we have produced in the field of taxation, have taken a conspicuous part, during the last four or five years, in the whole question of the framing and the administration and interpretation of federal revenue laws . . . .” The NTA, the breeding ground for prominent players in the field of federal tax policy, was dominated by influential public finance economists. In 1923, for example, T.S. Adams served as president of the organization; other speakers at the 1923 Annual Meeting included W.R. Green, chairman of the House Ways and Means Committee, Congressman Ogden Mills, a member of the House Ways & Means Committee, Judge McKenzie Moss, the Assistant Secretary of the Treasury, and Kingman Brewster, a member of the Committee on Appeals and Review of the Income Tax Bureau.

In professionalizing the field of economics and public finance, part of the NTA’s agenda with respect to federal tax policy was the formation of a group of professionals (economists) within the federal government to develop expertise in matters of tax policy, enabling the government to undertake the “systematic and scientific” consideration of public finance and tax policy issues. Thus, T.S. Adams at the NTA’s 1923 annual meeting called for “the introduction in the federal government, somehow . . . of men with dignified positions, of adequate salaries, who are willing to give themselves for long terms, if not for life, to this very great profession of not only improving the tax service but the tax laws of the nation.”

Economists began to play a less dominant role in the development of tax policy within the federal government after the 1920s, perhaps due to the “victory of ‘progressive capitalism’ after World War I, [after which] the economics profession narrowed the discussion of tax policy to exclude consideration of the social underpinnings of the economy.” The trend in economics toward a more conservative and less socially progressive program, with stronger ties to business and conservative government agendas, also tended to shut out women (who had previously served active roles advocating in public economics) from the development of tax legislation. The vacuum left by economists left a void that attorneys were able to fill.

IV. Accountants, Tax Policy, and Tax Practice

Consistent with the trend in the growth of professional associations in the late 19th century, the first national accounting society representing public accounting practitioners was organized in 1887 as the American Association of Public Accountants (AAPA). Accountants, like economists, were active in the progressive reform movement of the early 20th century, advocating for a scientific approach to reform of government institutions and elimination of corruption and inefficiency. The design of uniform accounting systems represented an important part of efforts to improve efficiency of government at the state and local levels, and accountants served as advisors to numerous federal commissions active in this effort. These activities provided accountants with a growing public voice and rising prominence in the early 1920s.

Service as government advisors in matters of budget and in development of concepts of income and timing meant that accountants were uniquely poised to play a role in the expansion of the federal income tax system. While economists were most prominent in the theoretical debate over the merits of different methods of taxation and the founding principles of the income tax, accountants dominated another theoretical debate of significance in the early years of the income tax. A tax based on income necessarily needed a definition of income, and the articulation and refinement of the concept of income was an intellectual exercise engaged in most prominently by accountants. The perceived expertise of accountants in the area meant that “throughout the early years of the income and profits taxes, accountants had dominated tax practice.” Accountants weighed in on the passage of the excise tax law in 1909, and accompanying regulations, particularly in its definition of net income. By 1909, the organized association of accountants apparently had developed a close relationship with Treasury officials, who relied on their expertise in the drafting of regulations. The role played by the AAPA in the drafting of the 1913 income tax law also was significant in developing recognition and respect of the accounting profession among officials in the federal government. Accountants were not unmindful of the opportunities for self-promotion and professional growth arising from their position as government consultants.

As was the case with the other learned professions, the early years of the 20th century marked a struggle within the accounting profession involving attempts to differentiate the legitimate purveyors of inherited scientific knowledge from unqualified men likely to lower the profession’s prestige. The difficulties involved in this effort were aggravated by the passage of the 1913 income tax law. To a number of established practitioners, tax work seemed to impair their claim to professional status because it undermined the profession’s appearance of independence and objectivity. Many leaders of the profession initially felt that accountants should maintain impartiality in the provision of tax advice, favoring neither the government nor the client’s interest. The president of the AAPA, for one, regularly suggested to his colleagues “that as independent accountants they had a duty to see that all parties, including government, shared equitably in corporate profits.” This position did not become widely accepted, as the first income tax laws increased the demand for accountants who would provide advice that would minimize their clients’ taxes, rather than take an impartial stance.

Despite such tensions arising in the course of the profession’s growth, the early federal income tax laws generally had a positive impact on the accounting profession—the increasing economic burden imposed by the federal income tax rates in the early 1920s and the rising complexities of the tax laws prompted an increasing demand for accountants’ services. Tax work both granted existing accounting firms with a new source of business and provided incentives for new practices to be established. Of perhaps even greater significance, the income tax laws provided an impetus for work outside of the context of the preparation of tax returns; the income tax laws made it clear to small businesses, that otherwise had little motivation to keep comprehensive financial records, that it was imperative that they do so. Because the tax laws provided an incentive to businessmen to improve their financial record-keeping, those laws increased demand for accountants’ services generally.

Thus, the complicated wartime excess profits tax was responsible for increasing the demand for professional accountants’ services in the preparation of tax returns and representation before the federal government. Additionally, and more important for the prestige of the profession, the expertise of accountants was called upon to develop fundamental concepts of the federal income tax, such as accrual and timing of income. George May, a longtime leader of the profession, attributed the success of the income tax regulations promulgated in 1918 and the enactment of Sections 212 and 213 of the Act of 1918, which introduced concepts of income tax accounting to the federal income tax law, to their adoption of the fundamental principles of accounting. Accountants’ input was fundamental in setting out the basic structure of the income tax, determining such concepts as the measurement and timing of income.

In a 1921 article entitled Why Not Lessen the Evils of Present Taxation?, Elijah W. Sells made the case for revising the income tax regime, which he claimed, “with its surtax for individuals and its excess profits tax for corporations, is flagrantly unfair, inequitable and fulfils its purpose with the maximum disturbance of business and of the welfare of the individual.” Sells suggested a three-fold proposal in its stead: to eliminate the surtax and the excess profits tax, to reduce the income tax rate, and to impose “a new tax which will yield the needed revenue with the least possible disturbance of business, whether corporate, partnership or individual.” Sells’s discussion of substantive tax policy tied directly into the role that accountants could (and should) play in the formation of tax policy. He argued that a continued and increasing role of accountants in the formation of the income tax system was necessary, because

[p]ublic accountants are peculiarly fitted to pass judgment on the subject of taxation. They touch every phase and problem of business in some way and are also familiar with the affairs of government, federal, state and municipal. They perceive, at close range, the effect of taxation on business and the great disturbance which it causes. Better than any other class do they know the superior excellence, economy and efficiency of the management of business as compared with that of government and the far-reaching meritorious effect of business upon all interests.

In addition to the theoretical concerns over setting definitional boundaries to the income tax, accountants also were heavily involved in the controversy over procedural practice involving the representation of taxpayers before the government during the early 1920s. In an address to the American Institute of Accountancy, Fred Angevine, Solicitor at the Bureau of Internal Revenue, spoke to its membership on “a matter which the whole treasury department is vitally interested in, and one which I know you gentlemen are vitally interested in, and that is the question of practice and enrollment of accountants, agents and attorneys to practice before the Treasury Department.”

In an article in the 1947 edition of the Columbia Law Review, May noted that “[i]mmediately before the Armistice in 1918 the part played by accounting in our tax system was at a high point.” Editorials in the Journal of Accountancy similarly confirm the rising status of accountants in the early 1920s; a 1921 editorial remarked that “[t]he modern accountant has become financial advisor not only of business men but of governments,” and noted a shift in the public role of accountants beginning with World War I, as accountants were “appointed to positions of great trust and responsibility in governmental, financial and industrial undertakings—positions whose duties did not seem to be solely or even chiefly associated with questions of accounts.”

Concurrent with the rise of professional opportunities for accountants, a battle erupted between two opposing sides of the profession. The American Society of Certified Public Accountants (ASCPA) was established by a group of primarily Midwestern practitioners in December 1921. The ASCPA was formed in order to curb the market in CPA certificates that had developed and “to protect the CPA title as the designation for professional accountants.” The organization soon was engaged in a harsh fight with the American Institute of Accountants (AIA), a fight which to some extent represented rivalry and disagreements between the urban Eastern establishment and rural Midwestern small practitioners. Some argued that the AIA’s 1920 effort to limit advertising, prompted by government pressure and the similar restrictions imposed by bar associations, “effectively undermined any claim the AIA may have had to being the national voice of the profession.” As the representative of the large, established firms, institutional publicity of the type advocated by the AIA gave these firms “a free hand to promote their services. When the AIA moved to ban all personal advertising, it appeared to many to be another effort to limit competition to benefit large firms.”

The rivalry between the AIA and the ASCPA lasted through the 1930s, meaning that in the 1920s there was no unified voice representing the accounting profession to speak to the federal government on matters of practitioner regulation, standards of practice, and tax procedure. The lack of unity within the accounting profession may have contributed to its inability to translate its prominence as government advisors in the early years of the income tax to a later position as influential government consultants. In a 1933 article, Eric Kohler, the editor of the academic accounting journal The Accounting Review, criticized the AIA for its “snobbishness and lack of good taste that have their origin in a real ignorance of the things at stake in the accounting profession” and for a lack of “understanding of the problems that lie ahead” as well as a lack of “appreciation of the newer opportunities.”

V. Lawyers and Their Organizations

The prominence of accountants in tax practice and tax policy in the early 20th century is perhaps most evident in internal discussions among attorneys. In a 1925 address before the New York City Bar Association (NYCBA), J. Gilmer Korner, Jr., the chairman of the newly created Board of Tax Appeals, was harshly critical of what he perceived as the legal profession’s abdication of the field of tax law to accountants. Decrying the lack of interest on lawyers’ part in taxation, Korner stated that while “to a great majority it is uninteresting or even distasteful,” the reason for that lay in the fact that most lawyers were “ignorant of its absorbing interest.” Korner encouraged more lawyers to take up clients and issues with tax concerns and advocated a scientific approach to solving the problems facing the contemporary tax system:

We will all agree, however, that unscientific taxation is an ill and should be approached with the same determination for its eradication as is displayed by the medical profession in stamping out disease. The advance made in curing human physical ills is due to the general and widespread interest of medical men in improving conditions, and their willingness to go studiously into new field of research and practice. If there be ills of taxation it rests with the legal profession to show the same interest and determination in their remedy. The field is a large one and is of vital importance to our civic and business life. The lawyer who enters that field will have his rewards. The practice is remunerative, it is absorbingly interesting and last, but by no means least, there is the satisfaction of contributing professionally to a greatly desired end—namely, wiser tax laws wisely administered.

The prominence of economists in the field of tax policy, and the lower status of lawyers in the field, is reflected in the opening remarks by Hugh Satterlee, previously an attorney with the Bureau of Internal Revenue, who in 1920 addressed the NTA’s National Conference on Taxation as follows:

It is with diffidence that I address this gathering. Face to face with the problem of taxation, at once the most acute and the most chronic of our time, I am all too conscious that I am not an economist, or an accountant, or a financier, or a business man, or, last and most, a tax official of long experience. I am merely a lawyer, and sometimes I am skeptical of that.

By the mid-1920s, however, this perspective was changing. The high excess profits tax and increased income tax rates imposed during wartime made it increasingly obvious to attorneys that “tax practice was a highly lucrative field, and that accountants were enjoying most of it.” The shift is perhaps most evident in the career trajectories of a number of prominent (mostly New York) attorneys active in tax policy and tax enforcement at the federal government level.

A. Wall Street, Treasury, and the NYCBA

The ties between Wall Street law firms and the Treasury Department, noted by a number of historians, were evident by the 1910s and early 1920s. A number of individual lawyers served prominent positions in the federal government in the early 20th century and were thus instrumental in the early development of tax policy. Among them were Arthur Ballantine, Hugh Satterlee, Roswell Magill, and Russell Leffingwell, all of whom combined service in tax roles within the federal government with a Wall Street legal career. Their career paths reflect a trend that, if not beginning on Wall Street, moved from positions of prominence within the federal government to New York City firms. Magill, for example, joined Treasury as a Special Attorney in the Bureau of Internal Revenue in 1923, after teaching at the University of Chicago and working primarily in litigation for a Chicago law firm. Among other tasks, he played a significant role in drafting the income tax regulations for the Revenue Act of 1924. Magill’s active involvement in government service continued through the 1920s and 1930s; in 1933 he was appointed Assistant to the Secretary of the Treasury, working on the Revenue Act of 1934. He became Under Secretary of the Treasury in 1937, “his primary responsibility being the Bureau of Internal Revenue and tax legislation.” After leaving government service, Magill eventually joined the Cravath law firm.

Ballantine, after graduating from Harvard College and Harvard Law School, began his law practice in Boston and then moved to New York City and joined Goodwin, Proctor & Ballantine. In 1917, he was appointed to a three-lawyer committee to advise the Commission on “legal questions stemming” from the excess profits tax and in 1918 was appointed Solicitor of Internal Revenue, the Treasury’s “chief legal officer on tax issues.” Upon leaving government service after World War I, he founded a law firm known for its specialty in tax, as well as general corporate and securities work. Ballantine then returned to Treasury during the 1930s, when he was appointed Assistant Secretary by President Hoover, and soon afterward became Under Secretary, a post in which he continued under President Roosevelt.

Satterlee, a graduate of Yale College and Harvard Law School, began his practice of law in New York City, but in 1918 joined the federal government where he “helped reorganize the legal division of the Internal Revenue Division.” In 1919, he helped draft the income and excess-profit tax regulations. When he left the government, he also joined Cravath, which he eventually left; when he retired, he was counsel at Brown, Hyde, & Dickenson in New York.

Yet another prominent government official with ties to Cravath, Leffingwell was Treasury Assistant Secretary during the World War I period and rejoined the firm after his departure from the federal government. A graduate of Yale College and Columbia Law School, Leffingwell started off his career at Cravath, became a partner at J.P. Morgan & Co. in 1923, and then its chairman in 1948. Leffingwell’s career in finance was preceded by 18 years of law practice, during which time he also served as Assistant Secretary of the Treasury from 1917 to 1920 concentrating on financial, rather than tax, matters.

Tax work became an important part of the work of elite Wall Street firms during the 1920s. As noted in a history of Cravath, “[b]y 1920, tax work had taken on importance as a specialty requiring constant attention;” this was evidenced by the hiring in 1919 of Satterlee from the Treasury Department to specialize in tax matters. Cravath was not necessarily unique in this regard. During the years 1918–1933, approximately half of the fees of the precursor to today’s Covington and Burling arose from tax engagements.

The primary professional organization for most of the men whose careers were outlined above was the Association of the Bar of the City of New York (the NYCBA). Magill served as chairman of the NYCBA’s Committee on Taxation. In 1926, Ballantine was the chairman of the NYCBA’s Special Committee on Taxation; other members of the Special Committee included Satterlee, Stuart Chevalier, and Walter Orr. But the NYCBA was primarily an elitist organization, rather than a unifying force for the legal profession at large. A number of writers have described it as an exclusive and elitist organization in the late 19th and early 20th centuries. (As such, it also was typical of many early bar associations.) While other bar associations that began as exclusive societies soon transformed into more open organizations, the NYCBA was unique in that it “remained a selective, upper-class organization into the post-World War II period.” In his study of the NYCBA, Michael Powell describes how the ethical code of the NYCBA was used to “exercise control” over the New York bar and restrict practice and access by immigrant practitioners of Eastern European, Jewish, or Catholic backgrounds. Ethnic discrimination, in particular against Jews and Catholics, was significant during this period.

The first “Special Committee to Consider the Amendment of State and Federal Income Tax Laws” appears in the NYCBA Yearbook of 1922; its members included Satterlee and Ballantine, along with Mark Eisner, Edward Green, Walbridge Taft, and Frederic Kellogg (the Chairman). The formation of a committee to consider issues relating to taxation is consistent with the trend within the NYCBA, and bar associations generally, in the 1920s toward an increasing focus on substantive professional activities (as opposed to politics, corruption, and social activities). However, the interest in the matters of taxation also is consistent with the NYCBA’s focus on progressive reform.

In 1923, the NYCBA Tax Committee submitted a report to the NYCBA, with its accomplishments for the year described as studying the existing federal income tax law, “with a view to submitting at such time as might be most appropriate, suggestions as to its amendment.” The NYCBA Tax Committee declined to submit current recommendations, “until such time as Congress shall indicate an intention to reconsider the present law with a view to its amendment.” In 1924, after 18 months of study of the “Federal Income Tax and Estate Tax Statutes,” the NYCBA Tax Committee drafted a report to the Executive Committee with its results. By 1925 the NYCBA Tax Committee had divided itself into two groups—one to deal primarily with questions related to the New York State Income Tax Law and the other with the Federal Income Tax Statute. In 1927, the NYCBA Tax Committee shortened its name, and in 1929, it became a permanent committee of the NYCBA.

B. Tax and the ABA

In contrast to the professional organizations of economists and accountants, national lawyers’ organizations focused on taxation at a relatively late date. The precursor to the current Tax Section of the American Bar Association was the Special Committee on Internal Revenue and its Means of Collection, formed by the ABA in 1921. This organization was, in turn, the successor to a Standing Committee on Taxation formed in 1905 but abolished in 1916. Organization of the ABA Tax Committee does not appear to have been prompted by, or to have gained the attention of, the attorneys active in tax policy at the federal level. The chair of the ABA Tax Committee from 1921 to 1925 was Charles Henry Butler; George Morris served as Secretary. The historical record does not indicate that these men were otherwise especially prominent attorneys or active in the fields of income tax policy.

The formation of the ABA Tax Committee in 1921 represents both the reaction of attorneys to the burgeoning field of tax practice and issues arising from the federal income tax, and the next step in the evolution of the ABA. As discussed above, the maturation of professional associations has tended to be associated with a change in focus from goals of professional protection and regulation to more substantive concerns, relating to education and legislative reform. The formation of the ABA Tax Committee may be seen as part of a movement of transformation and maturation within bar associations that resulted in greater specialization in those associations. In addition, the history of the ABA Tax Committee followed a pattern similar to the ones historians have traced for bar associations generally. With regard to the Chicago Bar Association, for example, Halliday describes how its earlier years were marked by a “structural commitment to self-regulation,” efforts to consolidate its official position in the state, and attempts to position itself for monopoly power. Similar agendas of staking a claim to, and ensuring monopoly over, an area of expertise also is evident in the early days of the ABA Tax Committee. As Mehrotra and Thorndike explain, concerns over tightening controls over the practice of tax law, of “demarcat[ing] more precisely the boundaries of legal practice,” and of extending “the regulatory reach of the profession” over the practice of tax law, were paramount among the concerns of the early members of the ABA Tax Committee.

Unlike both the economists and the accountants, who appeared to be primarily concerned with resolving fundamental issues at the heart of a new income tax system, the founders of the ABA Tax Committee appear to have been motivated primarily by issues of procedure and the administration of the income tax laws, in particular, the disorganized and uncoordinated process of resolving tax disputes arising from the Revenue Acts of 1917 and 1918. As articulated by its founders, the impetus for the formation of the ABA Tax Committee lay in the concerns of standards of practice before the Bureau of Internal Revenue and the Treasury Department’s regulation of such practice. Thus, the stated purpose of the ABA Tax Committee at its formation was “to obtain a modification of some of the rules and regulations of the Treasury Department, the Internal Revenue Bureau, in regard to the status of attorneys.” Attempts to modify government regulations imposing standards of practice were a key early concern of activists within the ABA Tax Committee. Consistent with the view of historians of bar associations that one of the first agenda items of bar associations was raising practice standards and professional standing, achieving “recognition and protection” for attorneys as taxpayer representatives was one of the primary goals articulated by the ABA Tax Committee’s founders. The focus on status, government regulation, and control over professional practice and independence all are evident in the stance taken by the ABA Tax Committee on Treasury regulations promulgated in 1922. The committee argued that

attorneys practicing before the Department should not only be subject to the pains and penalties which are in the regulations, but they should also have the privileges of attorneys, and that the rule that when an attorney appeared properly qualified to represent a taxpayer, thereafter the attorney should be the sole channel of communication with the client, and the attorney should not be embarrassed by having notices and decisions sent direct to his client without in any way notifying the attorney who had appeared before them and who was responsible for the conduct of the case.

C. Practice Standards and Procedure

One of the first orders of business taken up by the new ABA Tax Committee involved comments to Circular 230, issued by the Treasury Department on April 25, 1922. The Committee noted that Circular 230 subjected attorneys and agents to “very stringent—and undoubtedly proper—regulations.” The Committee was concerned because despite the stringent standards to which attorneys were subject, “very little provision” was made by the Treasury Department “for their protection.” The Committee believed that “regulations should be issued containing reasonable and proper provisions for the recognition and protection of attorneys and agents representing taxpayers before the Treasury Department” and in that regard specifically recommended

the promulgation of additional regulations to the effect that once a duly qualified attorney or agent has filed the requisite power of attorney to act for a taxpayer thereafter said attorney or agent be regarded and treated as the sole channel for communications between the department and the taxpayer in so far as the power of attorney filed permits, to the end that an attorney before the department may receive the same recognition and have the same rights that he enjoys before a court of record.

Other submissions made by the ABA Tax Committee to Treasury in 1922 show similar concern for standards of practice and professional self-regulation. The Committee requested from Treasury that the government state, in writing, all subjects of appeal; that the basis of government decisions affecting a taxpayer be communicated in the final opinion; that separate conference rooms be established for each of the divisions of the Income Tax Unit; and that a procedure be adopted for court review. The Chairman’s Report in 1923, which presented an argument for the continued existence of the Committee, demonstrated the ongoing concern of its members with respect to standards of practice and the status of attorneys:

There are many other things that remain to be done. For instance, in the administration, we are trying to have the powers of attorney properly recognized and so filed . . . .

Another issue regarding standards of practice taken up by the Committee in 1923 related to a 1923 Treasury Order that required attorneys representing clients on a contingent-fee basis to disclose such arrangements to government officials. The matter was not resolved by the Committee; after internal discussion, the issue was thought better left to the jurisdiction of the Special Committee on the Relationship of Attorneys to Government Departments. Yet another procedural concern of the Committee in 1923, also relating to procedural concerns of taxpayers, involved obtaining waivers for the statute of limitations for filing refund claims. The Committee Report contains a self-congratulatory summary of the passage of the bill, noting that “the passage of this act, in addition to being in the interests of justice for all taxpayers, was particularly valuable to the members of this Association and the Bar generally.”

In 1924, the Committee’s Report continued the same theme, relating to its attempts to improve standards of practice and the status of attorneys with respect to practice before the Bureau of Internal Revenue. The 1924 Report also reflects early tensions between the legal and accounting professions with regard to the representation of taxpayers, as attorneys attempted to distinguish themselves from their more established competitors:

The limitations upon attorneys, which are the same as they are on agents and accountants and others, should be removed. The fact that a man is an attorney and counselor at law makes him responsible to the court which has admitted him and in which he is practicing, in the way in agents and accountants are not held to responsibility, but that difference is not yet recognized in the Treasury Department.

This committee has had a number of interviews, and to some extent has succeeded in having the practice made a little less cumbersome, and a practicing lawyer can now appear in the Treasury Department and if he knows the Chief of that division can take his partner, if it is necessary, or perhaps even take the taxpayer himself without getting special power of attorney.

These underlying tensions between the two professions, along with attorneys’ early successes in imposing legal practice standards upon the accounting profession, are evident in a speech given to the accounting profession by Fred Angevine, assistant solicitor of the Bureau of Internal Revenue, regarding “the qualifications and the activities of men who appear on behalf of taxpayers before the treasury department and particularly before the bureau of internal revenue.” Angevine made clear that accountants would be held to the same criteria as attorneys in representing taxpayers before the government and that the rules governing advertising of professional services should, and would, apply to accountants as well:

I think I am safe in saying on behalf of the secretary of the treasury and the commissioner of internal revenue, that regulations in the near future will be promulgated which will require an accountant and an agent who has business before the treasury department to get that business and to carry it on in the same high plane of ethics which governs the other learned professions. . . . An agent or an accountant, to my mind, has no more right to go out and solicit business from a taxpayer on a contingent fee than would a lawyer to do the same thing. . . . [A] new regulation which will embody somewhat the following idea will be adopted within the immediate future . . . :

“No advertising descriptive of services to be rendered or setting forth the capacity and ability to render such service by agents and attorneys enrolled to represent claimants before the treasury department is permitted . . . .”

Angevine encouraged the professional accountants’ association to adopt practice standards similar to those adopted by attorneys on the advertising and contingent-fee issues; he noted that the ABA had adopted a resolution “to the effect that the committee on enrolment and disbarment of the treasury department might feel free at any time to call upon the state and local bar associations to answer inquiries relative to the fitness and qualifications of any applicant applying for admission to the Treasury Department.” Angevine was explicit in his recommendation that the accountants adopt a similar standard.

In the early 1920s, the ABA Tax Committee also was involved in consolidating its presence within the ABA as the focal point for members’ concerns about federal tax issues, as it stated as one of its missions:

To continue to act as a clearing house for all members of the association and the bar generally who have complaints or suggestions to make relative to the administration and procedure of the Treasury Department in the collection of taxes.

Primarily concerned in its early days with matters of professional control, the Committee specifically declined to “take up legislative matters”; legislative matters were perceived as being within the province of the Association at large. This tendency continued through the 1920s. Although issues of practice standards dominated the early days of the ABA Tax Committee, there is the beginning of evidence of a focus on substantive tax policy. In 1923, the ABA Tax Committee formed a subcommittee to “study the desirability of differentiating between earned and unearned incomes as a basis for taxation, and to investigate the feasibility of incorporating that principle in the federal tax laws.” The Committee’s success in such areas, however, was not as great as its success in the areas of practice and procedure. In 1924, the Chairman’s Report noted that

after meeting at Minneapolis . . . mention had been made as to relief of taxes in regard to earned income as differentiated from unearned income. That started off very well indeed, and this committee was to some extent responsible for the work that was done in the Treasury Department.

You will remember that Secretary Mellon endorsed that principle without any limitation. It went into the act as proposed by Mr. Mellon, and the House limited it to $20,000, and the Senate cut it down to $10,000.

While we were not able in that respect to get as much relief as we desired and hoped to get, still the principle was accepted and Congress has recognized that there is a distinction between earned income and unearned income.

By the 1930s, one sees evidence of the beginnings of a focus on matters of education and legislative reform that dominate the professional bar today.

D. The Board of Tax Appeals

Within the ABA Tax Committee, the focus shifted in 1925 from questions of regulating professionals to the establishment of procedures for the newly created Board of Tax Appeals (BTA). Practice and procedure before the BTA was one of the most significant issues facing taxpayer representatives in the mid-1920s. Pushing to have the BTA’s procedures resemble more closely procedures in other courts, attorneys positioned themselves to become stronger players in this area. In 1926, the ABA Tax Committee reported that it was successful in advocating improvements in this matter and that it had, “working in conjunction with certain other members of the Association, submitted recommendations to the Ways and Means Committee and the Senate Finance Committee which eventually evolved in improvements in the procedural side of the collection of Federal taxes and in the structure of the United States Board of Tax Appeals.” The recommendations of the ABA Tax Committee regarding the composition and procedures before the BTA were detailed.

The NYCBA Tax Committee, like the ABA Tax Committee, spent much of its energy and focus in the mid-1920s on improving practice and procedure before the BTA. In 1925, the NYCBA Tax Committee recommended that the jurisdiction of the BTA be clarified (an issue which the Committee felt had seen some progress through the Revenue Act of 1924); that provisions be enacted discouraging “the filing of trivial appeals and appeals without merit”; that there be an increase in the salaries of, and a lengthening of the terms of, the members of the BTA (another area where the members felt they had achieved some success with enactment of the 1926 Revenue Act); and that restrictions placed upon members of the BTA from practicing before the BTA after they left government service be removed.

A proposal initially included in the Revenue Bill in 1926, which would have confined a taxpayer’s relief from contested remedies to proceedings before the BTA, and would have taken away the right to contest the tax and sue for recovery in the district courts, was of significant concern to the NYCBA Tax Committee. It subsequently said it was “gratified to find that Congress finally receded from the drastic position originally taken and under the law as finally passed left the taxpayer the option of having his case tried either before the Tax Board with appeal to the courts on questions of law only or in the Federal Courts as heretofore after payment of the tax.”

The NYCBA Tax Committee’s report on the federal income tax, submitted to the Joint Congressional Committee on Internal Revenue Taxation, contained a number of recommendations with respect to “improvements in the procedure before the Internal Revenue Bureau and the United States Board of Tax Appeals.” The recommendations included proposals that the NYCBA considered to be taxpayer friendly, intended to ensure “the simplification and clarification of the federal tax law with reference to the Statute of Limitations and the computation of interest on additional assessments and upon refunds.” The Committee recommended that the BTA be authorized to decide questions of law in advance of questions of fact, and weighed in against the proposal to give district courts jurisdiction in tax cases “concurrent with that of the Board of Tax Appeals.”

The members of the ABA Tax Committee perceived the BTA to be an organization over which they held unique jurisdiction:

The United States Board of Tax Appeals is an organization which we feel falls peculiarly within the province of the committee of the American Bar Association for fathering, so to speak. No other organization we know of is intimately interested in questions of procedure and in questions of the production of that Board. The only people who seem to be very much interested outside of ourselves are the members of the Board and the United States Treasury Department.

This singular view contradicted with the reality of the involvement of other professional groups in practice before the BTA.

Practice and procedure before the BTA were the areas in which attorneys and accountants interacted in the struggle over control of tax practice. The initial appointment of members to the newly constituted BTA was met with considerable displeasure by the accounting profession. While a majority of the appointees to the BTA were lawyers, accountants (and engineers) had constituted a majority of the members of the Committee on Appeals and Review, the precursor to the BTA. Accounting organizations had “actively petitioned for the selection of accountants and engineers to the BTA.” The initial appointments to the BTA included seven individuals from private practice and five members from the Bureau of Internal Revenue. Of the seven individuals who came from private practice, five were lawyers, one being both a lawyer and an accountant. One was an accountant who previously had been director of the New York State Income Tax Bureau. Others included a former “newspaper man” and executive officer of the Kansas State Farmers Union. Of the five members appointed from the Internal Revenue Bureau, all were lawyers, while J. Gilmer Korner was both a lawyer and an accountant.

In 1924, the rules for admission to practice before the BTA provided that both admitted attorneys at law and certified public accountants would be permitted to practice before it. Admission to practice before the BTA was another point of controversy within the accounting profession between the AIA and the ASCPA. The BTA’s rules admitted only lawyers and CPAs to practice before it; the AIA, which included a large number of non-CPAs, argued for the inclusion of “members of any professional society of accountants . . . .” The BTA rejected this argument. In general, however, admission to practice before the BTA was seen as a positive step for the accounting profession. Nevertheless, as the BTA took on more similarities to a judicial court in process and procedure, it was increasingly felt that the “training of a member of the court . . . should be essentially legal.” And by focusing on matters of procedure, lawyers succeeded in solidifying their presence in an area that previously had been dominated by other professionals. In an address before the NYCBA Tax Committee, J. Gilmer Korner argued that lawyers should take a larger role in tax practice:

One justification I have heard advanced by lawyers for their neglect of the practice of tax law, is that in the Treasury Department their work is largely before men who are not lawyers and who do not comprehend their presentation of their client’s cases. They allege that the Government conferees pay slight attention and give little weight to carefully prepared legal arguments. Whether this is true or not I cannot say. . . . But if this is true, or is true to any extent, I would again mention the fact that the Board of Tax Appeals was created, and functions, for the purpose of giving you and your client a hearing different from the round table conferences of which some of you complain. In my estimation the practice before the Board should offer an attractive field to the lawyer who desires to make tax work a specialty and who desires to conduct such practice along the lines for which his training fits him.

Korner’s address provides a snapshot of the professional status of attorneys vis-à-vis accountants at the early development of the field of tax practice, and Korner was clearly advocating for a larger role for attorneys in the field. Nevertheless, he did not argue in favor of a complete overtaking of practice before the BTA by lawyers, instead expressing support for joint presentation before the Board by lawyers and accountants, stating that the “two elements are so mixed in tax cases as to be mutually interdependent.” Korner evidently felt that the procedures developed by attorneys in other courts of law would ensure the better operation of the BTA. In arguing for procedures before the BTA that would more closely resemble those of other courts, attorneys would obviously be poised to become the stronger players in the area of taxpayer representation.

Accountants understood the ramifications to their profession of having the primary means of review of taxpayer appeals be a legal proceeding. In the 1930s, the ABA made an unsuccessful attempt to have CPAs excluded from practice before the BTA. In 1947, the accountant George May reflected upon the development of the BTA; his comments are indicative of contemporary attitudes that the BTA improperly took over from the accounting profession something that should have been within their jurisdiction:

If, as Mr. Justice Jackson said in the Dobson case, one of the evils of our present system is treating as questions of law what are really disputes over proper accounting, it is obviously not a remedy to grant greater power to a Bureau and a Tax Court which have played a major part in creating the defect. Some way must be found of insuring that the Bureau and the Court will treat accounting questions as such. Great recognition should be given to accounting and accountants in the Bureau. The Tax Court should be so constituted as to possess a special competence in this field.

May bemoaned the role played by the BTA in formalizing procedure and relying on complex legal submissions, noting that prior to the institution of the Board cases were “being settled on broad lines” by the Excess Profits Tax Reviewers.

E. Government Advisor

One of the ways the organized bar helped shape and define the future course of the legal profession was by maintaining close ties to government officials and taking on a role as expert advisor to government. The importance of this role in the development of the ABA Tax Committee is evident. One of the first orders of business of the ABA Tax Committee was to call upon various government officials, including the Commissioner of Internal Revenue. As the ABA Tax Committee’s officers explained to the government officials, the Committee’s purpose was “to further the cooperation of the members of the Bar and the officers of the Treasury Department in the enforcement of the federal tax laws and the regulations issued thereunder.”

The interaction among members of the bar association and government officials was most evident in the area of tax administration. In that regard, William Moorehead, the Chairman of the Tax Simplification Board, delivered an address at the 1923 ABA meeting for the sole purpose “of saying how this Association can help the Treasury Department in simplifying procedure and practice.” Moorehead’s address essentially represented an appeal to the ABA Tax Committee to help press for measures that would provide for simplification of tax administration. He appeared to assume that the ABA had the resources to do effective lobbying in this regard, stating in his final plea: “This Association and its members will be influential in the course of future legislation. May I, therefore, again impress on you the importance of giving careful consideration to tax administration in any future tax legislation.”

The ABA Tax Committee’s success in developing relationships with the various branches of government involved in the formulation of tax policy is evident throughout the 1920s. In 1924, the Chairman’s Report noted that the Committee had been somewhat successful in working with the Treasury Department and Secretary Mellon to achieve tax relief “in regard to earned income as differentiated from unearned income.” In 1925, the Committee remained active in advocating for legislation on extending a waiver for claiming a refund, working with “officials of the Treasury Department, Chairman Green of Iowa, and Mr. John M. Garner [of Texas] of the Ways and Means Committee of the House of Representatives and Senators Smoot and Simmons of the Finance Committee of the Senate . . . .” In 1926, the Committee’s Report noted that in advising the government on certain provisions of the Revenue Act of 1926 regarding procedure, “most of the work, . . . was so well done that it elicited the commendation of the Chairman of the Ways and Means Committee of the House, and the Chairman of the Finance Committee of the Senate . . . .” The Committee also noted its success in achieving improvements to “the procedural side of the collection of Federal taxes and in the structure of the United States Board of Tax Appeals” by means of the submission of recommendations to the Ways and Means Committee and the Senate Finance Committee. Its procedural expertise was able to translate into the ability to influence government policy in substantive areas of tax policy, and by the second half of the 1920s, government officials were turning to it for expertise in tax policy.

The Committee’s success in advocating for improvements to tax procedure, and its growing reputation among government officials, apparently led to a wellspring of interest in participation in the work of the Committee. One member noted that subsequent to the ABA Tax Committee’s activism in 1926, “[r]equests for appointment to the Committee poured in.” As a result, the Committee could afford to be selective in admission, and restricted membership to “a small number of carefully selected men experienced and well-known within the tax field.” The Committee also was able to recruit prominent practitioners to its slate of officers, such as Satterlee, “who, as an attorney in the Treasury, had been principal author of the precedent-making Regulations 45;” Satterlee served as chairman through 1931.

The increasing success and visibility of the ABA Tax Committee in pressing a legal agenda upon the government’s tax officials is evident from its Chairman’s 1927 Report:

[I]n May, Judge Green, Chairman of the Way and Means Committee, and also Chairman of the Joint Committee on Taxation of the Senate and House, asked four different organizations to attend a meeting of this joint committee which was formed for the purpose of considering a revision of the revenue legislation. . . . This was to The American Bar Association rather a compliment, because there are literally scores of organizations that wish to give advice on tax legislation, and we were one of the four or five selected, on what may be vulgarly called the principle that we have “no axe to grind.”

Similarly, the Committee noted in 1927 that the newly formed Joint Committee on Internal Revenue Taxation, “requested our committee to take up specifically the matter of procedure before the Board of Tax Appeals, especially with a view to formulating a plan for expediting the disposition of cases, and both Mr. Hamel and the Joint Committee’s assistant counsel, E.H. McDermott, have asked members of our committee for specific suggestions and criticisms and have met with our committee in informal discussion of proposed changes in the tax laws.”

In 1929, Satterlee noted the involvement of the ABA Tax Committee, at the invitation of the Treasury Department, in the formulation of consolidated return regulations. He documented the process by which the ABA Tax Committee was able to serve as an influential advisor in these matters:

At the time of the first formal meeting of the committee conferences were had with Mr. E. H. McDermott, the counsel to the Congressional Joint Committee on Internal Revenue Taxation, and with Mr. E. C. Alvord, Special Legislative Representative of the Treasury Department, for the purpose of discussing present and future projects before the Joint Committee, and of assuring them of this committee’s desire to be helpful to the Congressional Joint Committee and to the Treasury Department. Close relations with the Congressional Joint Committee, and consequently with the members of Congress interested in initiating tax legislation, and also with the Treasury Department, and consequently with the government officials interested in the administration of the tax laws, have been maintained throughout the year.

In his report, Satterlee also noted that members of the ABA Tax Committee had hosted a dinner in honor of the retirement of the Commissioner of Internal Revenue in 1929, at which event were present the Chairs of the Senate Finance Committee, the Way and Means Committee, and the Board of Tax Appeals, and the General Counsel of the Internal Revenue Bureau. As Satterlee recognized, “[s]uch a gathering cannot but help to smooth the path to the common goal of orderly, efficient and equitable tax legislation and administration.” In 1930, although the Committee was not very active because of the lack of any pending tax legislation, it continued to see as an important part of its role maintaining “[c]lose touch . . . with the Board of Tax Appeals and the Treasury Department.” Social relationships were key. The organization noted how “some of the members of the committee, in honor of recently retiring members of the Board of Tax Appeals, arranged a dinner at which most of the old and new members of the Board and several officers of the Treasury Department were present.”

The ABA Tax Committee continued to see its role primarily as an advisor and advocate on matters of procedure and practice standards, as opposed to substantive policy. In presenting an account of its activities in 1927, it said that “[t]he work of the Association . . . has concerned itself wholly with matters of procedure and matters of administration.” Its leadership emphasized that they had

carefully avoided getting into questions of political or economic policy with regard to federal tax legislation, feeling . . . that there would be a great difference of opinion among the members of the Bar and of this Association in accordance with their political affiliations and in accordance with their economic ideas. Therefore we have confined ourselves to these subjects in which the ordinary citizen is but little interested, namely, matters of procedure and administration, but which vitally affect the practical application of the tax laws.

Nevertheless, in developing close ties with leading government figures, and influencing the development of tax procedure and practice to ensure it conformed with legal protocols, the tax bar was poised to take over from both the accountants and the economists the role of influential government advisor on matters of substantive tax policy.

V. Conclusion

The role played by attorneys in the arena of tax policy and tax practice for much of the 20th century was neither pre-ordained by the structure of the legal or tax fields nor was it mandated by the nature of the work of tax policy and tax practice. Instead, the central role played by attorneys may be seen as an exercise of successful use of professional organizations to establish prominence. The first decades of the establishment of tax committees within the organized bar associations were marked by the increasing prominence of attorneys in the fields of tax practice, tax rulemaking, and tax policy, areas in which, prior to the establishment of these committees, the role of attorneys was secondary to that of accountants and economists. The formation and growth of the tax committees, in conjunction with the rise to power of attorneys within the tax field, leads to the conclusion that the successful organization of professional committees played a significant role in attorneys’ ability to dominate the field. This achievement may be attributable to the tax committees’ success at pushing for internal and external standards and codes of conduct that would recognize the importance of attorneys in the representation of taxpayers before the tax authorities, and that would cement their role as the intervenors between taxpayers and the government, as well as advocating for standards that would be most favorable to attorneys. The second area in which the tax committees were successful was in building close relationships with members of government organizations, thereby establishing the role of attorneys as primary advisors to the federal government in the area of tax policy.

Satterlee’s report to the ABA in 1928, which seeks to justify the continuing existence of the ABA Tax Committee, provides a useful comment on the mission of the committee at that time, and its achievements in its first decade:

The subject of Federal Taxation is, of course, one that will probably continue to be of legal importance for some years. There are at least three ways in which our committee can be of service in the situation. In the first place, the Board of Tax Appeals is a quasi court now, as you know, of outstanding importance. Its members are feeling their way in working out procedure and practice, and they welcome suggestions from members of the Bar, and particularly from such a medium for furnishing suggestions as is your Committee on Federal Taxation.

In the second place, the relations of the committee at the present time with the Treasury Department are most cordial, and we have already been told by representatives of the Treasury that when the regulations under the new act are formulated, to some extent they will want our cooperation in working them out, so far as we can properly give such cooperation.

In the third place, where, as during this last year, general legislation is pending, there is plenty of opportunity for service; and even in periods when there is no general legislation, bills are continually coming before Congress affecting some phase or other of taxation, and the policy of watchfulness is necessary at all times to forestall freak measures at some time.

Concerns with practice and procedure, development of a relationship with government and its officials, and a nascent interest in advising on tax policy mark the Committee’s accomplishments and agenda for the second decade of its existence.

The tax bar’s significant influence on legislative and regulatory policy throughout the 20th century may be traced to the early efforts of the initial members of the ABA Tax Committee to develop relationships with government officials and demonstrate their talents and willingness to act as a government advisor on matters of tax administration and procedure. In short, in the early 20th century the ABA Tax Committee was extraordinarily successful in “build[ing] an organizational vehicle to carry its influence to government in the various spheres.”