Unauthorized practice of law question

[card]

Can an attorney licensed only in State A review NQDC plan documents for clients in State B in connection with a 409A rewrite, if the review deals only with federal tax and ERISA issues, and anything state related (for example, a rabbi trust document) is provided on a specimen basis only?

(Assume the lawyer has not applied for admission to any federal courts.)

[Guest mjb]

While lawyers are governed by state laws there is little guidance on your question where the matter involves federal law. As a general principle clients are entited to select counsel of their choosing and can retain tax counsel with offices in another state to review federal tax matters since under IRC rules for practice an attorney only needs to be admitted in any state, not the state where the client is located. It would be strange to require that tax counsel be a member of the bar in the state which the client is located when Circular 230 permits federal tax advice to be given by non lawyers such as enrolled agents or CPAs who are not licensed in the state. Attorneys and accountants are also authorized to practice before the SEC without regard to the state where the client is located. I do not know if law firms consider ERISA advice to require admisson to a state bar where the client is located since it is uniform in all states and most firms do not have offices in all states where clients are located. (Some CPA firms provide advice under ERISA to corporate clients.)

There is a separate issue of whether a law firm that does not have an office in the state where the client resides can collect fees for legal services if the client refuses to pay. A few years ago the CA Supreme Ct. held that a prominent NY law firm could not enforce a retainer agreement to collect a fee from a CA client for representation on an employment discrimination matter before the EEOC because the firm did not have an office in CA and was engaged in the unauthized practice of law.

[E as in ERISA]

I think I would agree. Part of the role of an attorney is to advice the client of the likelihood of their facts succeeding on the merits in a court of the highest jurisdiction. You have to be licensed in the particular jurisdiction in which the matter would be litigated. So those who practice contract law, litigation, etc. must obviously be licensed in the state in which they are practicing. But some law firms don't seem to care if the ERISA lawyers are licensed in the state in which their offices are.

[Ron Snyder]

While I generally agree with mjb's response, I would note that 409A is not part of ERISA.

I would choose not to provide documents suited to a state in which I am not licensed to practice even if they are labelled "specimen". If clients needed such specimen documents, they should be labelled as being provided "for use of local tax counsel".

[GBurns]

I thought that is was already well settled that the giving of tax advice, tax planning and opinions on the IRC and Treas Regs, was not the practice of law. I did not think that it mattered what qualification the individual had.

However, it could be that there are Bar rules apply to lawyers regarding tax matters even if other rules do not.

In this case there is the additional issue of the document/contract which could create 2 separate issues. 1 issue being the document review itself and the other being the tax aspect. The document aspect might fall under the practice of law even if the tax advice does not.

[Guest zora]

Non-attorneys are doing it without regard to the unauthorized practice of law, why should attorneys be held to a different standard (other than voluntarily)? I can't see that any UPL committee would go after anyone for any benefits work, whether it be involves tax, ERISA, HIPAA, state law privacy, federal or state securities laws, federal or state labor laws, state contract laws - the list goes on. I think UPL committees have willingly turned a blind eye so that anything that arguably falls under benefits is not the practice of law. I've even seen judges let benefit consultants who are not attorneys argue in court on behalf of clients.

[Kirk Maldonado]

GBurns:

You have made some of the most outrageously erroneous statements I've ever heard, but this one was a record even for you.

[Guest zora]

Mr. Maldonado

I think the practicality of GBurn's point is true. UPL Committees have implicitly, if not expressly, taken the position that "benefits consulting" is not the practice of law. A lot of lawyers figured out a long time ago that they are at an economic competitive disadvantage if they let the issue hamper their business. I'm not saying its right, and I'm not saying the public is not being hurt because of the UPL going on out there. In fact, I've found it is very easy to make a pretty good nickel suing employers for mistakes caused by good and bad consultants who don't know what they are doing and who are giving wrong advice. If you think about it, there is simply no reason why any employer should ever lose an everyday. abuse of discretion (or what should be an abuse of discretion) ERISA case. Yet it happens all the time not only in the reported opinions but in settled cases as well, and almost always because the employers either get no advice or bad advice from their consultants. Right or wrong, outrageous or not, it seems to me to be a reality that benefits consulting is not considered the practice of law.

[GBurns]

Kirk

As usual you state that I make erroneous or otherwise postings, but you never state what is wrong, why it is wrong nor what is correct. Is it that you are afraid to state your facts because someone might show that you are wrong?

Is it that "the giving of tax advice, tax planning and opinions on the IRC and Treas Regs, was not the practice of law"? If that is the case, How do you account for CPAs, EAs, KPMG, E&Y, Jackson Hewitt etc etc.?

Is it that "there are Bar rules apply to lawyers regarding tax matters "?

Is it that I saw that "the document/contract which could create 2 separate issues"?

Come on, Have some guts and state your position instead of making your usual cowardly type of attack. At least this one is not like the many others that the moderators have had removed..

[Kirk Maldonado]

My point is that violations of the law do not invalidate the law. The fact that most people drive faster than 65 does not mean that the speed limit isn't 65.

I admit that there is exceedingly little enforcement of the rules against the UPL, but to say that because there are no prosecutions that such conduct is not the UPL is intellectual dishonesty, to say the least. To say that no prosecutions mean that it is settled law that it is not the UPL is an absurdity.

[Guest TCW]

1. Play nice folks.

2. NQDC Plans have state law implications. Even if you argue you are legally advising a client with respect to IRS compliance and tax issues I think you are necessarily practicing law in that state jurisdiction - just my opinion.

3. I missed the memo on why giving tax advice and tax planning isn't the practice of law, ... so from ignorance I'll say that stikes me as pure crazy talk. Anyone who is doing this as a living and doesn't have a specific license that exempts them and protects them from the unauthorized practice of law statutes should have a suitcase of money buried in the backyard...IMHO.

[Guest mjb]

TCW: Under your analysis CPAs, enrolled actuaries, tax preparers and enrolled agents who are permitted to represent clients before the IRS (see IRS Power of attorney form) and provide tax opinions (see circular 230) are subject to presecution for practicing law when they represent clients. My understanding is the the the Bar associations have not tried to enforce UPL laws against non lawyers who provide tax advide ever since the New York State bar association was prohibited from prosecuting a non lawyer, Norman Dacy, from publishing a book on estate planning called How to Avoid Probate. There is also the problem that prosecuting non lawyers for giving tax advice by Bar Associations is regarded as a restraint of trade under the anti trust laws by the US justice dept.

[Guest b2kates]

The is a more interesting US supreme court case that overruled Florida on an UPL issue.

Facts were individual was admitted to US Patent Bar, subject to US Supreme Court but never admitted to Florida bar. He opened for practice in florida for patent work only. florida prosecuted and convicted. US Supreme overruled.

It apppears were federal government, i.e. internal revenue, DOL or any agency specifically authorizes non attorneys to represent then by definition it is not UPL.

[Guest zora]

I still say it comes down to enforcement. Nothing in the Internal Revenue Code, including Circular 230, or ERISA permits anyone to practice law if they are not a member of the bar. In fact, Circular 230 specifically says that. The bottom line is there is a lot of UPL going on out there, even by attorneys who practice across state lines, and nobody - even the UPL committees who are the only ones who matter - seems to care. The clients are sophisticated, billion dollars entities who don't need the UPL protections, so why should benefits consulting be regulated by UPL committees? Who cares if one or two small beneficiaries lose the protections of federal law and have no effective remedy? It's a macroeconomic cost-benefit bottom line analysis, isn't it?

[Guest mjb]

The supremacy clause of the constitution allows Fed agencies to determine whether non lawyers can practice law, e.g, labor consultants can represent clients before the NLRB, accountants and Enrolled agents can practice tax law before the IRS (and the tax court). Most states recognize this exception, see Auerbacher v. Wood, 53A2d 800 (1947) where the NJ supreme ct held that state is without power to regulate non lawyers who represent clients before a federal agency. You seem to be unaware that State agencies regulating lawyers have resisted attempts by the bar to limit the practice of employee benefits laws to attorneys. About 10 yrs ago the FLA Sup ct denied a request by the FLA bar association to restrict the giving of advice on pension plans to attorneys. Also Arizona allows paralegals to provide legal advice to clients.

[Guest zora]

I am perfectly aware of those cases. But those cases deal specifically with the federal law at issue: tax law, etc. They do not deal with the practice of state law. I am also aware of the Supremacy Clause. But if Circular 230, which is the regulation whereby the IRS permits non-lawyers to practice law, specifically says it does not authorize anyone to practice law if they are not a member of the bar, how can you say it does?

If it does not, then what does? Where in ERISA or any regs does it permit non-lawyers to practice state law? Where in ERISA or any regs does it permit non-actuaries to practice any law? Where in ERISA or any regs does it permit actuaries to practice anything other than actuarial services? Where anywhere does anything permit someone who is not a CPA, actuary, enrolled agent, or lawyer, e.g., a "benefits consultant," to practice any law?

It all boils down to lack of enforcement.

[TCWalker]

This is TCW, back with my correct handle:

No mjb, I think we are mixing apples, oranges and pears in these examples.

CPAs, real estate agents/brokers, licensed insurance professionals, tax preparers, enrolled agents and many others have special licenses and exemptions for lawyer-like functions of their jobs. For example, CPAs routinely advise clients on tax issues, I agree. From what I see, they stop short of advising a client whether they can might prevail in a tax court dispute or from accepting professional liability for the soundness of their legal / regulatory analysis and advice - without suggesting a legal review. The Florida case involving the Patent Office is interesting, but keep in mind the US Patent Office maintains a certiifcation course that both attorneya and non-attorneys must pass to practice before the agency - I might agree it just isn't a State Bar issue for Florida.

Representing a client of a non-legal professional service in front a federal agency on a distinct issue might well be non-UPL, but that's not equivalent to a non-lawyer going into business of "giving of tax advice, tax planning and opinions on the IRC and Treas Regs," to the general public.

Legislative and agency accommodations, and universal non-enforcement have made it all very muddy, and there has been momentum from advocates to gut these UPL statutes in the name of cheapening and broadening access to representation. I just don't see any grants given to non-lawyers of the right to practice what has traditionally been legal services, other than these very narrow accomodations reflecting the maturing of certain regulated professional services industries or federal agency activites.

So I say, these narrowly drawn accommodations and exceptions don't offer much protection if a local DA or the damaged client's plaintiffs attorney decides to employ the UPL statute in a prosecution against a non-lawyer selling legal services.

[Locust]

In NC the authorized practice committee, which oversees practice of law issues, initially sent cease and desist orders to a bank's consulting operation, and 2 recordkeepers for preparing 401(k) plan documents using IRS-approved prototypes. After hearing from the bankers' and insurance associations and ASPA, the committee withdrew the letters, saying that it couldn't regulate practice before the IRS, that the persons were entitled to practice before the IRS, and therefore they could complete IRS-approved prototypes for clients.

The question is how far does this go to allow nonlawyers to practice benefits law. Does it allow nonlawyers to prepare nonprototype documents, such as an ESOP or a defined benefit plan? Can they give legal opinions about ERISA? Does the person who actually gives the legal advice have to be eligible to practice before the IRS, or does that person simply have to be associated with such a person, or under that person's supervision? Does the right to practice before the IRS give nonlawyers rights to give legal advice about any benefits issue?

Practically speaking, the horse is out of the barn, and everyone and their mother-in-law is already practing law (perhaps within the law to some extent). Sometimes they do an ok job, sometimes they suck, as is the case with lawyers I suppose. You get what you pay for.

But you have to wonder if this principle were applied outside of the benefits area, whether there would be any limits on nonlawyers? For example, does the fact that some estates have to file federal tax returns mean that nonlawyers can draft wills?

[Guest mjb]

I dont know how UPL limits the practice of law to the laws of the state where the lawyer is admitted. It is common for a NY law firm to advise a DE corp on the application of CA law without the NY firm having offices in the other states or employing lawyers admitted in those states. I am interested in any opinion holding that an attorney admitted in NY is engaged in UPL because he advises an out of state client on ERISA as well as a UPL case restricting the interpretation of DE corp law to lawyers admitted in DE.

In tax and benefit practices non lawyers routinely advise clients without risk of prosecution under UPL. Many CPAs and EAs prepare PLR requests and represent clients before the IRS. Many benefits consulting firms prepare documents and determination requests for qualified plans with their employees signing POAs even though corporations cannot practice law. If you check the yellow pages you will see that national tax preparation firms hold themselves out to the public as tax consultants, representatives and advisors regardless of UPL. There is a business reason why UPL is not enforced against tax/benefit advisors- If DAs and Bar associations prosecuted tax and benefit consulting firms for UPL the companies would just move to another state with a resulting loss of tax revenue to the jurisdicton that prosecuted them.

TCW-I dont where you came up with the idea that CPAs do not provide tax advice or render tax opinions which clients can rely on (All CPA firms carry malpractice coverage for tax advice) since one part of the CPA exam requires a demonstration of proficency in application of the tax laws. I dont know of any bar exam that requires an attorney to demonstrate proficiency in tax law.

[Guest TCW]

TCW-I dont where you came up with the idea that CPAs do not provide tax advice or render tax opinions which clients can rely on (All CPA firms carry malpractice coverage for tax advice) since one part of the CPA exam requires a demonstration of proficency in application of the tax laws. I dont know of any bar exam that requires an attorney to demonstrate proficiency in tax law.

As a former practice manager in one of the world's largest accounting firms; that might be where. Accounting firm tax advice, analysis & opinion come with caveats, recommendations for review by corp. counsel, and sometimes with the separate legal opinions of independent law firms. And talking about representation in audit / examination in front of the IRS v. representation in court are different things. When it hits the fan, CPAs are often running the farthest, fastest. We'll see what SOx ~ POAB changes in the long run.

The fact that taxation isn't on bar exams is meaningless. The bar exam serves a different purpose. As I recall, tax attorneys get LLBs in tax. Do accountants? Doesn't the life and welfare insurance agents exam has a section on tax proficiency too...let's invite them to the party too.

Generally, I agree with your view it's damn blurry and no one is in much of a hurry to do much about market practices - especially when they are efficient and serve a genuine need & economic interest. To point something that may be overlooked in this scan, think about civil claims that have a worthy UPL component ~ I think they get quietly (and expensively) settled.

[Guest mjb]

I know many accountants, enrolled agents and Enrolled actuaries who issue tax opinons and represent clients in tax matters and their position is that they can practice tax law as part of their qualifications. The large accounting firms use law firms for two practical reasons: they need the law firms as feeders for tax/auditing business and secondly it would be a conflict of interest if they are selling products for which they will get % of the tax savings (tax shelters) to render the opinion that the product does not violate the tax law. Benefit consultants prepare plan documents and determination requests for clients including POAs without regard to whether this is the practice of law. The lack of UPL enforcement in the tax area is due to the uncertainty of what it encompases, the lack of support from regulatory authorities (e.g., failed attempts in FL/NC to restrict benefits matters to attorneys) as well as concern that enforcement may be a restraint of trade. The NY attorney general is suing H & R Block for 250M not for offering tax advice on IRAs to customers whose tax returns were prepared but for selling expensive IRA products with hidden costs.

Most attorneys who practice tax, estate planning and benefits do not have LLMs in tax law and there is no state requirement for giving such advice. Many state bar associations prohibit attorneys from advertising that they specialize in taxation or estate planning.

[TCWalker]

Well between us I think we've covered the subject. I appreciate your thinking.

My bottom-line caution remains: if someone is giving legal advice ( and I include tax ) to the public and she/he is not a licensed attorney in that jurisdiction, she/he is one attractive defendant for the plaintiffs' attorney who intakes the malpracticed client. In this scenario I would be interested to see what the non-attorney's E&O would pay, if anything.

[Guest mjb]

Many ins co cover tax advice by non lawyers, e.g., financial planners, enrolled agents, etc. to clients. The large tax preparation firms that hold themselves out as tax consultants in the yellow pages have blanket coverage. Also in many states tax advice is not considered to be malpractice if the advice is not rendered by a person considered to be a professional under state law, e.g., in NY an ins agent is not a professional for malpractice purposes (which not good for the agent because the s/l is 6 yrs insted of 3 yrs).

[Guest FLMaster]

The answer to your question depends upon the Unauthorized Practice of Law committee which differs from State to State. In Florida, the Supreme Court took the position that if you are licensed to practice before a Federal agency, they cannot deny your ability to practice beofre that agency. For example, accountants and enrolled actuaries are licensed to practice before the IRS and hence are allowed to draft documents before the Service. If you are not licensed, for example an insurance agent, you would be engaging in UPL. In an NQDC arrangement if the attorney from California is not licensed before the Tax Court or the State of Florida, it is quite possible the atttorney would be cited for UPL in Florida. The enrolled actuary in California would not be fined due to the license before the Federal agency. Different states may have different rules. Some states have rules and do not enforce them. Think of the lack of enforcement in the immigration law area.

[Guest FLMaster]

Please see: "In Re Florida Nonlawyer preperation of Pension Plans" 571 So.2d 430 (1990) and the State of North Carolina attempting to assert UPL against nonlawyer preperation of documents recently conceded the issue adopting the Florida standard.

[Guest FLMaster]

Vebaguru made a statement that 409A is not part of ERISA. I think that even though this may be technically true (as it was drafted after ERISA) nonqualified plans are governed under ERISA (see ERISA section 3(2) which encompass any benefit oreiented toward retirement). ERISA section 3(36) also refers to excess benefit plans which can be exempt from Title I if not funded. Top Hat plans can also be exempt from most of Title I if not funded. These are still ERISA plans, but exempt from the Title I vesting and participation standards. Top Hat plans are still subject to Title I disclosure and reporting provisions. It appears that the DOL and the IRS has concurrent jursidiction over these plans and if you are licensed to practice before these agencies you are not subject to UPL from the state.