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Practicing law without a license?


Guest TrustMe401k

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Guest TrustMe401k

I need some help from those of you in NC. Rumors are flying that there is an issue about TPA's who sponsor their own protoype document. (Prototype written by major document provider) Has there been / is there any definite answer to whether or not NC law would consider this practicing law?

It seems that this would have been dalt with years ago if it were true but I have heard that it is being discussed again and some TPA's may have rec'd some sort of letter regarding this issue. I have bot seen the letter and do not know if it comes from the attorney who is upset , the Bar Assoc, the State, etc. Any thoughts? Comments? Is this just more stupid scuttlebut that gives me something to do besides restatements?

Thanks for any comments

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In every jurisdiction where this has been tried the state has lost because a plan is a federal thing.

However, note that the trust and resolutions have to be correct under state law. Since the trust is part of the document it has not been a problem, but technically the preparation of resolutions for a client (not marked draft!) could be construed as practice of law. I have not heard of anyone getting in trouble for this, yet.

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First, note that only state Bar Associations can bring a challenge in court of someone practicing without a license. An attorney or other individual cannot bring this action.

In the 1980s, the Florida bar brought it against actuaries in the state writing plan documents. The actuaries won (Florida Supreme Court) but only because actuaries are listed under ERISA as being able to perform a number of duties. The court felt that it gave them enough power to do at least the "drafts", given their expertise and sanctions to do some things under ERISA.

I am not aware of any challenges to TPAs that do not have actuaries involved (that doesn't mean there hasn't been any - I generally haven't paid attention to TPA issues).

I don't think the federal vs. state jurisdiction has anything to do with it. Any federal law needs lawyers under state bars to perform legal services in conjunction with it. There is no federal bar. If that were the case, anyone could practice law under any federal law (how about the tax code?) and never be challenged as practicing without a license.

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This issue has been around for years. I do not know of any case where a tpa/consultant/actuary has ever been sanctioned for the unauthorized practice of law, even though it is fairly clear to me that the preparation of a plan document establishing legal duties, obligations and rights is the practice of law. That said, I believe that most tpas, consultants and actuaries, in order to protect themselves, note that they are not lawyers and the documents are "drafts" prepared for review by counsel.

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While all state have laws prohibiting the practice of law by non lawyers, the limitaton of the practice of tax and related laws to lawyers has not been enforced because of several obstacles. First non lawyers such as enrolled actuaries, accountants enrolled agents can practice before the IRS without violating state laws. Second there is a question of whether adiminstrators, TPAs banks, trust co practice law in the course of their professional activites merely becuase they provide documents to clients for review and administer plans in accordance with the provisons of the IRC and ERISA. Thirdly there is a question of whether an action commenced by a state bar association to restrict qualfied plan work to lawyers would be a violation of federal anti trust laws--- Bar associations are private associations who can be held liable for restraint of trade, e.g. forcing customers to pay more because of a monopoly on the services. The last attempt to restrict qualfied plan work to lawyers was brought by the Fla bar in the 80s-- It was not aimed just at actuaries but at all providers of prototype plans, trust companies and consultants. It was rejected because of the anti trust issues it raised as well as first amendment issues.

mjb

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  • 5 months later...

I just found out a few hours ago that I passed the bar exam and I've had an epiphany. This is a great thing that the N.C. bar association is trying to do. Hopefully every state does this and maybe even expand it to cover all phases of adminsitration.

Its amazing how much wiser I have gotten in just a few hours.

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Others will disagree.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Me thinks that R. Butler has hit the nail on the head. I'm not sure whether the comment about passing the bar is correct, but if it is congratulations are in order.

In any event, this is about a turf war. And the folks fighting for more turf are the state bars, or in this case, the NC state bar. It is an attempt to take turf from the federal authorities, who have seen fit to enable more than attornies as representatives.

What makes this situation different from Florida, where this issue has already been decided?

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I can see a case being "dropped" or abandoned because one of the parties realize that they could be opening a can of worms that might not be in their favor, BUT, there is no way that a case could be "rejected because of the anti trust issues it raised as well as first amendment issues. "

Rejection is usually the perogative of an appellate level court. Lower level courts dismiss.

Anti trust and first amendment issues would not be causes for rejection.

R. Butler and any other lawyers,

Please comment and clarify.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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The issue of the unauthorized practice of law is currently alive and well in many states including Florida. The areas that are being targeted most of the time involve Estate Planning and other Financial Planning and involve wills, trusts etc. However, there are still other areas that are also still under attack.

Ask the Advanced Markets legal support dept of any major life insurance company and you will get an earful. If you also ask aany of the major TPAs or Actuaril firms you will find out that for years they have been using in house lawyers so as to avoid any action being taken against them. The use of "disclaimers" or labeling the documents "proof" or "sample" will probably not help any TPA etc .

Here is a recent Press Release on the NC issue:

http://www.401khelpcenter.com/press_pre200...spa_121702.html

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns- see the Memorandum from ASPA on the legal issues. Since non laywers can appear and practice before federal agencies, e.g. a CPA can represent a client in applying for a determination letter, non lawyers can advise clients on completing qualified plan documents necessary to get an IRS determination letter.

mjb

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mbozek,

The Memo from ASPA is at it says, It is an amicus brief filed in support of one of the parties, stating the ASPA opinion. It is not law or even authority of any sort, You could also write an amicus brief, and it would serve the same purpose and have the same validity. ASPA makes vague references without explanation to "similar" cases in Florida and Virginia etc, however, its claim that as a result benefits professionals are allowed to perform certain functions is a misrepresentation of the court decisions and needs clarification. I suggest that you look up those and other more recent cases to see exactly what the courts actually said was permissable.

The fact that some non-lawyers are allowed (subject to Dept approval) to represent clients in some areas (limited by each Agency) does not provide carte blanche the right of non-lawyers or even lawyers to represent any and every client in every any any issue with any and every federal agency.

The Director of Practice of the IRS can deny (with reason, even minimal) a CPA the "right" to represent a client or even to prepare a tax return. If neede they will and have gone to Court to enforce the Director's right to do this. In any case a CPA, an EA and many lawyers can only represent a client up to certain levels in certain IRS dispute, for example if the CPA etc is not admitted to the Tax Court they cannot represent a client in Tax Court. Tax issues are handled in many different venues under different jurisdictions, some issues are Treasury issues, some are IRS issues, some go to IRS Appeals, some go to TAX Court, some to Federal District Court, some to the Federal Court of Claims, some become Appellate issues even to the US Supreme Court. I do not think that there are very many people even lawyers who can represent a client at many of these venues.

The "right" to represent is conditional, selective and definitely not an absolute right.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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See IRS form 2848 - A CPA can represent a taxpayer before the IRS without restrictions as well as an enrolled agent, enrolled actuary and yes, an unenrolled return preparer. This includes filing of a determination request. I am not aware that the director of practice has ever opposed the right of a CPA or other person authorized under form 2848 to file a 5300 series form on behalf of a taxpayer. In addition Federal law has expanded the rights of taxpayers to be representied by non lawyers before the IRS be allowing confidentiality and privledge in tax matters by non lawyers.

mjb

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My understanding of the NC situation (and previously Florida) is that the act of representing a taxpayer before the government is not what the bars are objecting to. Where the objection comes in is the consulting that borders on legal advice. In particular, providing alternatives for plan design and then assisting with drafting language for amending the plan. This includes restatements for GUST, etc.

In making the argument that some of this activity is allowable, the Florida court and ASPA have pointed to the related issue that some practitioners are allowed to represent the client before the government. And, therefore, how can the practitioners do their job if they cannot have anything to do with the documents that underly such representation.

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That is the point, representation before a Government agency is not necessarily or even usually the practice of law and has nothing to do with the issue.

As the courts have pointed out there are some things that are allowed and some that are not, and have pointed out which is which.

Form 2848 is simply a Power of Attorney form, it does not grant the right to represent the taxpayer at all levels and does not even have to be accepted. Read the Form and the governing Circular 230. I certainly hope that you do not think that it allows representation in Tax Court or District Court etc.

Filing a 5300 is an irrelevant issue.

Even if Federal Law was expanded to allow representation of taxpayers before the IRS, that still has nothing to do with the practice of law. Explaining the IRC is not the practice of law.

Explaining the taxation of a deceased property is not the practice of law it is the practice of taxation, however, explaining and expounding on the merits of a will, designing or drafting a will etc is the practice of law.

Explaining the benefits of a section 125 plan is the practice of taxation, drafting the legal documents to implement one is what is being regarded as the practice of law.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest jgordon

How is explaning the taxation of deceased property not the practice of law? To explain the taxation a person must review the Internal Review Code which is a collection of laws. To explain the taxation of deceased property a person must interpert these laws which is the practice of law.

I guess I do not understand the distinction of the practice of taxation as opposed to the practice of law.

Explaining laws, whether such laws regard taxation or immigration, is the practice of law.

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Guest b2kates

jgordon,

under your rationale, all taxpreparers are practicing law; since they are interpreting the Internal Revenue Code in order to determine the correct tax treatment of transactions.

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Every state licenses CPAs to represent clients and render opinions on the tax law because it is inherently part of an an accountant's expertise. The CPA exam has a section on tax law. Accounting firms not only prepare tax returns but represent individuals and corporations before the IRS and state tax authorities which involves the rendering of written opinions on the tax law as well as advocacy before the tax authority. Accounting firms are also authorized to practice before the SEC and render opinions on accounting matters subject to the securities law. I have reviewed many documents and materials on financial products which have tax opinions written by accountants. Accountants also prepare estate and gift tax returns under federal and state law which requires knowledge of property ownership under state law including the law of trusts. The accountant cannot draft a trust or a will or appear in a court of law on behalf of a client. However accounting firms can sponsor a prototype plan document or volume submitter plan with a trust that is approved by the IRS.

mjb

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Guest jgordon

Indeed all taxpayers are practicing law when they prepare tax returns - if they are preparing them on their behalf then they are acting "pro se" which is allowed. If an accountant is preparing them, then the accountant is practicing law. However this is an area which Bars have "given up". Since the preparation of a return is the interpertation of laws it is indeed practicing law - which is allowed.

I was just making a distinction between the term "practicing taxation" and "practicing law". I am in no way making a determination on whether it is right, wrong or indifferent, I am just being exact that the interpertation of law for a fee on behalf of a client is "practicing law" not "practicing taxation"

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The US Supreme Court delared way back in the 1950s that the preparation of tax returns and the interpreting and advising on the IRC was not the practice of law. This case involved H&R Block and was the case that opened the door for non-lawyers to sign tax documents etc.

I guess the rationale was that the tax laws were part of a "Code" wheras other things were "Statutes". I have not reread that decision in 40 years.

I have never seen or heard of any Bar that has even bothered to think of attacking this since the 1950s decision.

mbozek,

These is NO state that licenses "CPAs to represent clients and render opinions on the tax law". Whether or not a CPA decides to practice in the area of taxation or any other area is of no concern to any state.

Tax law is not inherently part of any CPAs expertise and in fact it is a minor enough part of the CPA examination that it is possible and reportedly quite frequent that the tax section is failed but the exam is passed. The CPA exam is only 15 1/2 hours long, on the second day 60% of the morning section is devoted to taxation. If you fail but not too badly it is possible that a good B on the remaining 40% can get you a passing grade on that morning section. You can check with Wiley, Micro Mash or any of the exam prep services for further info on this.

The vast majority of CPAs do absolutely no tax work and make no claim to any such expertise. You can verify this with the AICPA and by reading the Vision 2000 Project along with the then Chairman's statement that CPAs do not do what the public thinks that they do.

By contrast an LLM is a 32 hour exam and the EA is 28 hours, both on taxes ONLY. Total tax exam time for a CPA is less than 2 1/2 hours.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I think I used the words inherently part of a CPAs expertise since the CPA exam does test for taxation knowledge unlike the bar exam which is devoid of income tax questions- Yet all lawyers are deemed competent to represent clients in tax matters before the IRS and in tax court if admitted in any state without regard to the LLM degree.

mjb

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Which bar exam are you referring to, mbozek? I can assure you the Ohio bar exam includes federal income tax questions, as does Virginia's (or at least they did in 1985 and 1988, respectively).

The question posed here is not whether the interpretation of tax code sections is the practice of law (one can argue both sides of that rather persuasively), but rather whether the advice given in structuring a retirement plan and the drafting of the documents to give effect to the resulting design can effectively be segregated. Mere tax code interpretation would make virtually any business consultant, or really any business person, guilty of the unauthorized practice of law - many business decisions (if not all of them) take into consideration the tax implications of that decision. Clearly the drafting of the plan documents is a function of the practice of law; where the disagreement comes in, and where I understand the crux of the argument in N.C. and elsewhere is, is whether you can "consult" on the design of the plan, and advise appropriately, without considering how that design translates into the legal documents. N.C. and others argue that the two aspects of the business are inseparable, and hence, the practice of law is engaged in at anytime the end result is the production of legal plan documents. Others (mostly in the business) argue that designing a plan is a wholly separate activity from the production of plan documents, and therefore not the practice of law. So far, in most jurisdictions, the issue has been resolved in favor of those in the business, and not the bar.

IMHO, it is a rather specious argument on behalf of those in the bar (and I count myself among those). It of necessity relegates the lawyers to the position of scrivener only, and not of a legal business advisor. That is, in order to make the argument that the consultations are meaningless without the end result of legal plan documents, we perpetuate the myth that only lawyers can write legal documents (presumably because of the training necessary to use those "magic words" that give effect to arcane legal concepts). That is a ridiculous argument considering well over 90% of all business transactions in this country still occur only on a handshake. Further, the argument could be used against lawyers to the extent that the outcome of a discussion is not something "exclusively" within the practice of law and hence the "exclusive" province of another professional (like a CPA - where the unauthorized practice of accountancy can be an issue as well).

As a lawyer, and a consultant, and hopefully as a trusted advisor, I like to see my clients issues from a variety of perspectives, and to gather information from all of them prior to forming an opinion, or giving advice, and in doing so, I believe I can give better service, as part of a team of professionals, than any one of us could give alone.

Just my two cents worth....

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My reference is to those states that only require that applicants pass the multistate bar exam which tests 6 core subjects. Even those states that test on other subjects do not require any knowledge of tax law.

I think there is an issue as to why is a professional who advises clients on the design of a retirement plan is different from other professions in which non lawyers are allowed to intrepret legal principles without engaging in the practice of law. For example, an architect must apply and interpret zoning laws, planning laws, building codes, fire codes and municipal law in the design of a building to be legally approved for construction. Yet no one regards this activity as practicing law. Why is advising on the appropriate type of a pension plan that complies with the tax law different? Secondly any person who is authorized to act as a representative under an IRS power of attorney can submit legal documents interpreting the plan provisions and the tax law to the IRS to get the plan approved.

mjb

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