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Tax Conflicts

Submitted by Rosebella Nyonje on Tue, 07-22-2014
Long title
Tax Practitioners Conflicts of Interest
Dzienkowski, John S. and Peroni, Robert J.
Author(s)' contact information
University of Texas at Austin, USA
Conference title
International Legal Ethics Conference VI
Conference location
City University London
United States
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The U.S. Treasury Department regulates the practice of lawyers and other professionals who represent clients before the Internal Revenue Service (IRS) in Treasury Circular 230. Before amendments made in 2002, Circular 230 contained a one-line prohibition against an attorney or other tax professional representing conflicting interests before the IRS, unless all directly interested parties consented after full disclosure. The 2002 amendments brought the conflicts of interest provision in line with ABA Model Rule 1.7 (amended by Ethics 2000 in February 2002). And, the IRS Office of Professional Responsibility has taken the position that it has the power to sanction lawyers who represent clients with an impermissible conflict of interest. This paper argues that it is a serious mistake for Circular 230 to empower the IRS, a collection agency, to regulate conflicts that lawyers may have with their clients as part of the regulation of federal tax professionals. Tax practice needs its own standard for conflicts of interest, which reflects the IRS’s appropriate governmental interests in regulating conflicts of interest in tax practice before it. The conflicts of interest rules in the legal profession, by contrast, were developed in the context of judicial disqualification and bar disciplinary action. Such rules vary from court to court and whether applied in the context of litigation or discipline. The paper argues that the IRS should have retained its old standard and developed interpretive notes as to the types of conflicts that arise in tax practice. The tie to the rules of disqualification and bar discipline opens the door for many adverse consequences.
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