Notre Dame Law Review

Volume 26 | Issue 4 Article 1

8-1-1951

Statement of Principles of Federal Income TaxPractice by Lawyers and Certified PublicAccountantsJohn Philip Goedert

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Recommended CitationJohn P. Goedert, Statement of Principles of Federal Income Tax Practice by Lawyers and Certified Public Accountants, 26 Notre Dame L.Rev. 599 (1951).Available at: http://scholarship.law.nd.edu/ndlr/vol26/iss4/1

NOTRE DAMELAWYER

A Quarterly Law Review

VOL. XXVI SuMMER, 1951 No. 4

STATEMENT OF PRINCIPLES OF FEDERAL INCOME TAx PRAC-

TICE BY LAWYERS AND CERTIFIED PUBLIC ACCOUNTANTS

THE promulgation of a Statement of Principles Relatingto Practice in the Field of Federal Income Taxation by

the National Conference of Lawyers and Certified PublicAccountants constitutes a major step in an effort to minimizethe jurisdictional disputes between the two professions thathave been unreasonably prevalent over the past twentyyears. This Statement of Principles was approved by theHouse of Delegates of the American Bar Association at theend of February and by the Council of the American Insti-tute of Accountants at its meeting in May.

In general, the Statement of Principles reflects sound andwell considered conclusions of the conference members fromthe two organizations. It sets forth very clearly principlesto which all qualified attorneys and certified public account-ants should readily agree; it attempts to establish a basisfor rationalizing the more controversial phases of tax prac-tice. The Statement points out the desirability of lawyersand certified public accountants collaborating in the hand-ling of tax work, restates the propriety of either lawyers orcertified public accountants preparing federal income tax re-turns, delimits broadly the areas of practice which are re-stricted either to lawyers or to certified public accountants,

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and attempts to resolve the conflict as to which professionis to render advice concerning the tax consequences of pro-posed transactions. If the Statement succeeds in accomp-lishing its objectives, as it should, it will be a major land-mark in the relations between the professions.

I.

The History of Income Tax Practice

Before specifically examining the points set forth in theStatement of Principles, it seems desirable to consider brieflythe history of federal income tax practice from its inception.

The Changing Character of Income Tax Practice:

When the Sixteenth Amendment was adopted in 1913,followed by the enactment of the income tax law in thesame year,' the determination of net income, which was thefundamental basis for measuring tax liability, was primarilyand entirely an accounting function involving the applica-tion of accepted accounting techniques. In fact, the law sostated.2 The intricacies and exceptions that have developedsince that time were not then a problem. As a result, the re-sponsibility for the determination of the elements of incomeand expense that gave rise to the data necessary to preparetax returns was undertaken by members of the accountingprofession as a matter of course. By training and experiencetheir qualifications were so far superior to those of anyother professional group that there was just no question ofthe right of accountants to assume full responsibility for thepreparation of the tax return as part of the services rend-ered their clients.

As succeeding revenue acts and judicial determinationsintroduced complications into the computation of net tax-able income, the accountants, as a professional group, keptpace with the developments and continued to enlarge their

1 38 STAT. 166 (1913).2 38 STAT. 166-81 passim (1913).

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activities in federal tax practice. From the assembly ofbasic accounting data and the preparation of tax returns,their work expanded into the field of analyzing and advis-ing clients of the tax effects of proposed transactions, andhandling disputes at all levels within the Treasury Depart-ment. Meanwhile, some attorneys became cognizantof the specialized field that was rapidly developing. Ascomplexities in the law became more numerous, the public'sneed for individuals trained in interpreting confusing por-tions of the law became more pronounced. Increases in taxrates multiplied the instances in which taxpayers feltwarranted in disputing conclusions of the Treasury Depart-ment, with a resultant flood of tax controversies and litiga-tion. These developments obviously increased substantiallythe number of lawyers handling federal tax matters. Forthe most part, however, apparently there was general recog-nition that certain tax problems were best handled byaccountants, such as the assembly of basic accounting data,while, on the other hand, certain matters were best handledby attorneys, such as all forms of litigation. Between thesetwo extremes, however, there obviously existed a wide areain which both accountants and attorneys felt qualified byexperience and training to practice on a more or less equalbasis.

The Advent of Professional Conflicts:

The activities of both professions continued substantiallyon this basis until about 1932. At that time it became evi-dent that certain committees of the American Bar Associa-tion, as well as of local bar associations, were endeavoringon both a national and local scale to restrict practices ofaccountants which the committees felt encroached on thepractice of law. Action was taken, for example, to restrictthe practice of accountants before the Board of TaxAppeals because of the expressed belief of attorneys thatthe incompetent conduct of cases by men not trained in legal

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trial practice was injuring many taxpayers, and was there-fore contrary to the public interest. Over a period of years,attempts were made to enact legislation in a number ofstates setting forth and defining what constituted the prac-tice of law and limiting such practice to attorneys. Theseattempts were resisted by certified public accountants I inall instances in which it appeared that their legitimate rightto practice was being usurped.

The Original National Conference:

It soon became evident that some attempt at cooperationbetween the two professions was necessary. Early in 1942,representatives of the American Institute of Accountantsmet with members of the Unauthorized Practice Committeeof the American Bar Association. This was the first of manymeetings that were to be held between representatives of thetwo groups until 1944, culminating in the formation in thatyear of the National Conference of Lawyers and CertifiedPublic Accountants. A public announcement of the creationof the Conference indicated that it was established as ameans by which lawyers and certified public accountantscould discuss mutual problems affecting the interests ofbusiness and the general public. Representatives of theAmerican Bar Association at the Conference included amember of its Board of Governors, the vice president of itsTax Section, a representative of its Administrative LawCommittee, and two members of its Unauthorized PracticeCommittee. The American Institute of Accountants' repre-sentatives numbered the chairman of its Committee on Co-operation with the Bar Association, a past president andmember of its Ethics Committee, the chairman of its Tax

3 The use in this article of the term "accountant" or "certified public ac-countant" has reference only to those professional individuals who have met thestringent requirements set forth in each of the states as a condition precedent tothe issuance of the degree "Certified Public Accountant," and who have main-tained their professional standing by appropriate ethical conduct. No attempthas been made to evaluate the position of laymen or non-certified accountantsin income tax practice. The Statement of Prindples deals only with certified publicaccountants.

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Committee, a member of its Executive Committee and thechairman of its Committee on Cooperation with the Securi-ties and Exchange Commission. At the first meeting of theConference it was agreed that its basic objectives were tofurther the development of professional standards of bothprofessions; to encourage cooperation between the profes-sions; to examine misunderstandings involving fundamentalissues between the two professions and recommend meansfor disposing of them; to devise ways and methods of ex-panding the usefulness of both professions to the public; toseek means of protecting the public against practice of theserespective fields by persons not qualified to serve the public.Subsequent meetings of the group gave every indication thateventually an agreement in principle would result definingthe respective scope of practice of the professions.

The Bercu Case:

Meanwhile, Bernard Bercu, a New York certified publicaccountant, sued a client, Croft Steel Products Company,Inc., for a fee for tax advice. The case was dismissed on theplea of the defendant's counsel that Bercu was practicinglaw without a license. Apparently Bercu intended to appealbut later decided to the contrary. With the matter in thisstate, the members of the National Conference of Lawyersand Certified Public Accountants felt it unnecessary to takeany action in the matter. Subsequently, however, the NewYork County Lawyers' Association brought injunction andcontempt proceedings against Bercu for having engaged inthe illegal practice of law. The trial court held that Bercuhad not engaged in the unauthorized practice of law inrendering the services in issue.4 On appeal, the AppellateDivision of the New York Supreme Court reversed thefinding of the trial court and held Bercu guilty of unauthor-ized practice of law for giving tax advice to a taxpayer who

4 In re Bercu, 188 Misc. 406, 69 N.Y.S.(2d) 730 (Sup. Ct. 1947).

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was not a regular accounting client.5 The court distinguishedbetween giving an opinion on tax matters to one for whomthe accountant did not render regular accounting or audit-ing services, and giving advice as incident to regular ac-counting services. The decision of the Appellate Divisionwas affirmed without opinion by the Court of Appeals.'

Reactivation of the National Conference:

During the years 1945 through 1949, antagonisticactivities engaged in by both attorneys and certified publicaccountants precluded the possibility of any significant ac-complishments by the National Conference of Lawyers andCertified Public Accountants. Both professions, throughtheir respective organizations, were far more occupied inpropounding their own viewpoints than in objectivelyevaluating the basic issues that were involved. Under thesecircumstances little could be accomplished. It was not untilthe end of 1949 that informal meetings of representativesof the American Institute and the Bar Association finallyresulted in the reactivation of the National Conference.

A press release at that time announced that representa-tives of the two organizations had revived the NationalConference to deal with problems involving the two pro-fessions. It was to be the endeavor of the newly activatedConference to formulate a Statement of Principles which, asa substitute for litigation or legislation, would serve as aguide for resolving jurisdictional disputes. The release fur-ther indicated that at the earliest possible date the Confer-ence would attempt to formulate specific recommendationsor principles for lawyers and certified public accountants inall phases of tax practice.

It was entirely as a result of the activities of this Confer-ence that the cuTrent Statement of Principles was eventually

5 Application of New York County Lawyers Ass'n, 273 App. Div. 524, 78N.Y.S.(2d) 209 (1st Dep't 1948).

6 In re Bercu, 299 N.Y. 728, 87 N.E.(2d) 451 (1949).

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submitted to the governing bodies of the American BarAssociation and the American Institute of Accountants, andultimately approved by them.

II.

Analysis of the Statement of Principles

The Statement of Principles, the full text of which is setforth in the appendix, states nine principles ranging fromgeneral statements of what actions are desirable undercertain conditions to specific prohibitions.

Accounting Problems or Legal Questions:

The first three principles attempt to promote collabora-tion between lawyers and certified public accountants. Theyset forth, in general, the desirability of lawyers encouragingtheir clients to seek the advice of certified public account-ants whenever an accounting problem arises and, on theother hand, the desirability of certified public accountantsencouraging their clients to seek the advice of lawyerswhenever a legal question is involved. The second principlespecifically refers to the need for the assistance of a certifiedpublic accountant when a question of accounting arises inconnection with a lawyer's preparation of a tax return, andthe converse thereof when a question of law arises in areturn being prepared by a certified public accountant. Thethird principle outlines the scope of activity of both law-yers and certified public accountants in situations involvingthe ascertainment of probable tax effects of transactions.

All three principles purport to be specific outlines of thefunction of certified public accountants in dealing with ac-counting problems and lawyers in resolving legal questions.Nowhere, however, is there a definition of exactly when aproblem involving the determination of income ceases to bepurely one of accounting and becomes one of legal import,and, on the other hand, when a legal question becomes anaccounting question.

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It would seem that the members of the National Confer-ence sensibly recognized that the accounting and legalaspects of federal income tax practice do and of necessityoverlap. They, therefore, felt it inadvisable or impracticableto attempt to draw any fine line of demarcation betweenthe two. Accordingly, it was only logical that they adopteda viewpoint which seeks complete cooperation between at-torneys and certified public accountants within the spiritof the principles promulgated.

The Preparation of Tax Returns:

The intertwining of legal and accounting questionsthroughout the entire field of federal taxation is particularlyobvious in the preparation of tax returns. If a certified pub-lic accountant may prepare a federal tax return (and thatis agreed in the second principle), then at what point inthe preparation of that return do his activities cease to in-volve matters of accounting and become questions of law?For example, a premium paid on insurance on the life of anofficer of a corporation, where the proceeds of the policyare payable to the corporation, is deductible as a businessexpense as a matter of accounting, but is specifically pro-hibited as a deduction for federal income tax purposes.' Isthe application of the section of the Code prohibiting thededuction a matter of accounting, or is it a legal question?In other words, must the certified public accountant at thispoint stop and suggest to the taxpayer that he engage theservices of an attorney, or can he, in connection with hiswork of preparing the tax return, make his own determina-tion based upon the exact language of the Code? Obviously,the particular question presented is so clear-cut that the de-termination of the treatment is almost automatically han-dled by the certified public accountant as a matter of course,as it should be.

7 INT. REv. CODE 24(a) (4); Treas. Reg. 111, 29.24-3.

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On the other hand, it cannot be denied that provisions ofthe Code and regulations frequently require an interpreta-tion of the law as applied to a particular set of facts. Itcannot be the intention of the drafters of the Statement ofPrinciples to hold that a certified public accountant mayprepare a tax return only so long as the determination ofnet income is in accord with generally accepted accountingprinciples. If that is not the intention, just how does thecertified public accountant ascertain the distinction betweenthose simple matters of statutory provision or regulatoryinterpretation, which he should automatically recognize andapply, as distinguished from those which should requirethe assistance of an attorney?

If a lawyer is preparing a tax return, the second principledeclares that he should advise the taxpayer to enlist theassistance of a certified public accountant when problemsof accounting arise. Such a question clearly exists, for ex-ample, in matters of inventory valuation, amortization ordepreciation, factors in almost every business operation. Itwould therefore seem that the determination of net incomein the first instance is a matter of accounting which ordinar-ily involves the application of basic accounting principles,particularly if the taxpayer is engaged in the operation ofa business. Should a lawyer never assume responsibility forthis initial determination of net income even in the simplestcases? Should this function be restricted entirely to thecertified public accountant?

The Statement of Principles does not explicitly answerthese questions, but it is doubtful that they require an ex-plicit answer. If either a lawyer or a certified publicaccountant may prepare a tax return, the only sensibleimplication is that either may resolve the ordinary mattersnecessary to the application of the statute and regulations.When doubt on a particular point arises, or the question isclearly one in controversy, the advice of a member of theother profession should be sought.

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Tax Advice on Proposed Transactions:

The impossibility of drawing a line becomes even morepronounced in the third principle which governs the render-ing of advice as to the probable tax effectstransactions. This principle, in part, provides:

When such ascertainment raises uncertainties as to theinterpretation of law (both tax law and general law), or un-certainties as to the application of law to the transactioninvolved, the certified public accountant should advise thetaxpayer to enlist the services of a lawyer. When such as-certainment involves difficult questions of classifying andsummarizing the transaction in a significant manner and interms of money, or interpreting the financial results thereof,the lawyer should advise the taxpayer to enlist the servicesof a certified public accountant.

Who determines whether an uncertainty exists either asto the interpretation of the law or as to the application ofthe law to the transaction? If the certified public accountantis advising the taxpayer in the first instance, what standardof certainty should be followed? If the accountant has re-solved the question of interpretation and application tothe point where he feels certain of the results, a literalinterpretation of the third principle ostensibly precludesthe necessity of the services of a lawyer. It would appear,therefore, that the test of uncertainty must be a relativeand subjective one having as its basis the capabilities andattainments of the individual certified public accountantin each instance.

A similar situation is presented when the advice is beinggiven by a lawyer. The principle refers to "difficult ques-tions of classifying and summarizing transactions in asignificant manner and in terms of money, or interpretingthe financial results thereof." When this is the problem,it is recommended that the services of a certified publicaccountant should be enlisted. But who determines whetherthe question of classifying, et cetera, is difficult or simple?If the lawyer makes this determination, such as on a ques-tion of depreciation or inventory pricing, is he then assum-

FEDERAL INCOME TAX PRACTICE

ing a full knowledge of all the accounting principles thatmight have a bearing on the issues? Here again the test isobviously a subjective one, looking specifically to the capa-bilities and attainments of .the individual lawyer. If, in hisopinion, the issue is clear-cut and simple, regardless of hisqualifications from an accounting standpoint, there wouldseem to be no requirement that he advise a taxpayer toenlist the services of a certified public accountant.

The Preparation of Financial Statementsand Legal Documents:

The restrictions of the fourth principle that only lawyersmay prepare legal documents and only accountants mayadvise in the preparation of financial statements or account-ing systems require no comment. They are so clearly astatement of accepted practices guiding all competent prac-titioners, both attorneys and certified public accountants,that there can be no valid disagreement. It should be noted,however, that the principle provides that only an account-ant may advise as to the preparation of financial statementssubmitted with tax returns. From this it appears that theassistance of an accountant would be required, for example,on every tax return requiring a balance sheet.

Self-Designation as Tax Expert:

The fifth principle prohibits accountants or lawyers fromdescribing themselves as "tax consultants" or "tax experts."This also requires no comment. The lack of an objectivestandard for measuring competency in federal tax practicemakes any such self-designation without merit and com-pletely meaningless.

Treasury Department Practice and Refund Claims:

The problems of representation of taxpayers before theTreasury Department are dealt with in the sixth principle.Here again the question of what is a legal question and

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what is an accounting question is presented without anyspecification of the actual distinction that should be recog-nized. The eighth principle involving the preparation ofclaims for refunds is subject to the same limitation. Thisprinciple mentions the possible existence of a "controversiallegal issue" and the consequent need for the services of alawyer. Just what is a "controversial legal issue" and whodecides when it exists? The volume of tax litigation thathas reached the courts since 1913 might lead a lawyer tocontend that practically every phase of the Code or theregulations is subject to controversy. Moreover, the contro-versial aspect is not always settled by a decision of theSupreme Court. What in the opinion of the certified publicaccountant is settled, requiring no further consideration,might in the eyes of the lawyer be a highly disputatiousmatter, suggesting further litigation. Furthermore, ex-cept in those instances where the particular point is pres-ently subject to a controversy that has reached the courts,a certified public accountant may be inclined to resolve anydoubts in favor of the taxpayer without further concern atthe time of preparing the claim as to whether or not theservices of a lawyer are required. In other words, the prin-ciple must necessarily depend on the subjective test, indi-vidually determined, of what is a "controversial legal issue."

In this area, as in the rendering of tax advice, onlyreason, common sense and a due regard for the ethical. ob-ligation of competeiice, can guide the individual of eitherprofession. It is unreasonable to suggest that every sectionof the regulations or Code that has been the subject of liti-gation is controversial; it is equally unreasonable to supposethat a claim involving a retroactive wage adjustment or acarry-back of a loss is controversial, even though it mayultimately be allowable in a lesser amount than thatclaimed; and it is absurd to hold that the usual accountingquestions which the certified public accountant can resolvein preparing a return cannot likewise be dealt with by him

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in the preparation of a claim. Of course, this works bothways. The same degree of competence that justifies a law-yer's preparation of a tax return including incidentalaccounting matters also should qualify him to prepare aclaim for refund embracing the same questions.

Tax Court Practice:

If legal proceedings are contemplated after the receipt ofa formal deficiency notice a lawyer should be consulted.This recommendation is adopted by the seventh principlebecause the best interests of the taxpayer demand that anattorney choose between the courses of action that arepossible at this point. There should be little disagreementwith this. It can hardly be contended that certified publicaccountants are in any position to adequately advise ataxpayer of the relative effects of one choice of legal remedyor forum as against another. The principle also, very prop-erly, recognizes the desirability of utilizing the combinedskills of both the lawyer and the certified public accountantin the trial of a case, whether before the Tax Court or inTreasury Department proceedings.

Criminal Tax Investigations:

The ninth and final principle advocates that a certifiedpublic accountant advise his client to secure the services ofa lawyer to protect the client's legal and constitutionalrights when he learns that the client is being specially in-vestigated for possible criminal violation of the income taxlaw.

There can be no question whatsoever of the need foradequate legal advice when criminal fraud is in issue. Theremay be difficulty, however, in some cases in determiningwhether or not a particular examination is being specially di-rected to ascertaining the existence of criminal fraud. Anobjective criterion would, of course, exist when the taxpayerreceived a notice from the Penal Division of the Chief Coun-

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sel's Office of the Bureau of Internal Revenue announcingthat an indictment for criminal fraud is being considered andsuggesting the submission of pertinent data before appropri-ate action is taken. At that point there is no question butthat an attempt will be made to find the elements of crim-inal fraud, and under those circumstances no certified publicaccountant would have any right to jeopardize the positionof his client by not insisting upon the advice and aid of anattorney.

III.

Conclusion

From a review of the principles set forth by the NationalConference of Lawyers and Certified Public Accountants it.appears that the major achievement for both professions isthe implied agreement that it is impossible to draw a cleardistinction between a legal question and a matter of ac-counting. This implied agreement gives rise to the furtherconclusion that the two professions must of necessity co-operate in the field of federal income tax practice. This issubstantial progress.

In evaluating the Statement of Principles there is,however, a factor that assumes major importance. Thisfactor is competence. The American Institute of Account-ants would not contend that the certification of a publicaccountant upon the fulfillment of certain requirementsautomatically qualifies that individual to effectively handleall matters of federal taxation. Neither would the AmericanBar Association contend that the admission to the bar of astate of an individual automatically qualifies him to ade-quately handle questions involving the application of so-called "legal principles" in the field of federal taxation.Therefore, the ethical obligation of competency is vital tothe public interest. It would be as unrealistic for a certifiedpublic accountant to insist that all members of his pro-

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fession should be considered as having equal abilities inmatters of federal taxation, as it would be for lawyers tocontend that all individuals who have been admitted to thebar are automatically qualified to advise clients on mattersof federal taxation. In this regard the lawyers are in asomewhat more dubious position than the certified publicaccountants because of a wide diversity between the statesin their standards for admission to the bar. The certifiedpublic accountants, on the other hand, have achieved adegree of standardization through almost universal use ofuniform examinations designed by the American Instituteof Accountants.

There is no doubt but that the Statement of Principlesrepresents a long step forward in the eventual clarificationof the differences between lawyers and certified publicaccountants. At the very least it represents a statement ofan intention to agree rather than disagree. It sets up thecriteria which can be used by reasonable men in rationaliz-ing specific issues within the spirit, if not within the letter,of the principles. It outlines the framework of a programof voluntary cooperation between the two professions, withthe objective of utilizing the knowledge and skills of bothto the best advantage of the public.

To most accountants and lawyers there is nothing newin the Statement. Reputable members of both professionshave been cooperating in tax practice for many years tothe benefit of their clients. Practically no certified publicaccountant ever drafts a will or trust instrument. Very fewcertified public accountants consider themselves qualifiedto handle the trial of a case before the Tax Court eventhough they might be admitted to practice. No sensiblelawyer would attempt to draft a balance sheet or incomestatement for credit purposes, nor would he assume fullresponsibility for the propriety of a reconciliation of surplusto be incorporated in a federal income tax return.

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There are, of course, extremists in both professionswhose unenlightened self-interest causes them to be attract-ed by the lucrative possibilities of a closed field. TheStatement of Principles should, to some extent, restrict theactivities of these self-seekers by its recognition of the ex-tent to which a coordination of the skills of both professionsis required. The more enlightened attorneys and certifiedpublic accountants recognize the complete futility of eitherprofession competing for what amounts to a "spoils sys-tem," which in the final analysis can only result in a sub-stantial disservice to taxpayer-clients.

John Philip Goedert*

*Practicing Certified Public Accountant, and Attorney. A.B., 1935; J'.D, 1939,Loyola University; C.P.A., 1946, University of Illinois. General Partner, Alex-ander Grant & Company, National Firm of Certified Public Accountants, since1946; Member of the Bar of fllinois. Member, American Bar Association, IllinoisBar Association, Chicago Bar Association, American Institute of Accountants,Illinois Society of Certified Public Accountants. Contributor to The Illinois Cer-tified Public Accountant.

Appendix

STATEMENT OF PRINCIPLES. RELATING TO PRACTICE IN THE

FIELD OF FEDERAL INCOME TAXATION PROMULGATED

BY THE NATIONAL CONFERENCE OF LAWYERS AND

CERTIFIED PUBLIC ACCOUNTANTS

Preamble

In our present complex society, the average citizenconducting a business is confronted with a myriad of gov-ernmental laws and regulations which cover every phase ofhuman endeavor and raise intricate and perplexing prob-lems. These are further complicated by the tax incidentsattendant upon all business transactions. As a result, citizensin increasing numbers have sought the professional servicesof lawyers and certified public accountants. Each of thesegroups is well qualified to serve the public in its respectivefield. The primary function of the lawyer is to advise thepublic with respect to the legal implications involved in suchproblems, whereas the certified public accountant has to dowith the accounting aspects thereof. Frequently the legaland accounting phases are so interrelated and interdepend-ent and overlapping that they are difficult to distinguish.Particularly is this true in the field of indome taxationwhere questions of law and accounting have sometimes beeninextricably intermingled. As a result, there has been somedoubt as to where the functions of one profession end andthose of the other begin.

For the guidance of members of each profession theNational Conference of Lawyers and Certified Public Ac-countants recommends the following statement of principlesrelating to practice in the field of Federal income taxation:

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1. Collaboration of Lawyers and CertifiedPublic Accountants Desirable

It is in the best public interest that services and assistancein Federal income tax matters be rendered by lawyers andcertified public accountants, who are trained in their fieldsby education and experience, and for whose admission toprofessional standing there are requirements as to educa-tion, citizenship and high moral character. They are requiredto pass written examinations and are subject to rules ofprofessional ethics, such as those of the American BarAssociation and American Institute of Accountants, whichset a high standard of professional practice and conduct,including prohibition of advertising and solicitation. Manyproblems connected with business require the skills of bothlawyers and certified public accountants and there is everyreason for a close and friendly cooperation between the twoprofessions. Lawyers should encourage their clients to seekthe advice of certified public accountants whenever ac-counting problems arise and certified public accountantsshould encourage clients to seek the advice of lawyers when-ever legal questions are presented.

2. Preparation of Federal Income Tax Returns

It is a proper function of a lawyer or a certified publicaccountant to prepare Federal income tax returns.

When a lawyer prepares a return in which questions ofaccounting arise, he should advise the taxpayer to enlistthe assistance of a certified public accountant.

When a certified public accountant prepares a return inwhich questions of law arise, he should advise the taxpayerto enlist the assistance of a lawyer.

3. Ascertainment of Probable Tax Effects of Transactions

In the course of the practice of law and in the course ofthe practice of accounting, lawyers and certified public

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accountants are often asked about the probable tax effectsof transactions.

The ascertainment of probable tax effects of transactionsfrequently is within the function of either a certified publicaccountant or a lawyer. However, in many instances, prob-lems arise which require the attention of a member of oneor the other profession, or members of both. When suchascertainment raises uncertainties as to the interpretationof law (both tax law and general law), or uncertainties asto the application of law to the transaction involved, thecertified public accountant should advise the taxpayer toenlist the services of a lawyer. When such ascertainmentinvolves difficult questions of classifying and summarizingthe transaction in a signficant manner and in terms ofmoney, or interpreting the financial results thereof, thelawyer should advise the taxpayer to enlist the services ofa certified public accountant.

In many cases, therefore, the public will be best served byutilizing the joint skills of both professions.

4. Preparation of Legal and Accounting Documents

Only a lawyer may prepare legal documents such asagreements, conveyances, trust instruments, wills, or cor-porate minutes or give advice as to the legal sufficiency oreffect thereof, or take the necessary steps to create, amendor dissolve a partnership, corporation, trust, or other legalentity.

Only an accountant may properly advise as to the prep-aration of financial statements included in reports orsubmitted with tax returns, or as to accounting methodsand procedures.

5. Prohibited Self-designations

An accountant should not describe himself as a "taxconsultant" or "tax expert" or use any similar phrase. Law-

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yers, similarly, are prohibited by the canons of ethics of theAmerican Bar Association and the opinions relating thereto,from advertising a special branch of law practice.

6. Representation of Taxpayers BeforeTreasury Department

Under Treasury Department regulations lawyers andcertified public accountants are authorized, upon a showingof their professional status, and subject to certain limita-tions as defined in the Treasury rules, to represent taxpayersin proceedings before that Department. If, in the course ofsuch proceedings, questions arise involving the applicationof legal principles, a lawyer should be retained, and if, inthe course of such proceedings accounting questions arise,a certified public accountant should be retained.

7. Practice Before the Tax Court of the United States

Under the Tax Court rules non-lawyers may be admittedto practice.

However, since upon issuance of a formal notice of de-ficiency by the Commissioner of Internal Revenue a choiceof legal remedies is afforded the taxpayer under existinglaw (either before the Tax Court of the United States, aUnited States District Court, or the Court of Claims), it isin the best interests of the taxpayer that the advice of alawyer be sought if further proceedings are contemplated.It is not intended hereby to foreclose the right of non-lawyers to practice before the Tax Court of the UnitedStates pursuant to its rules.

Here also, as in proceedings before the Treasury Depart-ment, the taxpayer, in many cases, is best served by thecombined skills of both lawyers and certified public account-ants, and the taxpayers, in such cases, should be advisedaccordingly.

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8. Claims for Refund

Claims for refund may be prepared by lawyers or certifiedpublic accountants, provided, however, that where a con-troversial legal issue is involved or where the claim is tobe made the basis of litigation, the services of a lawyershould be obtained.

9. Criminal Tax Investigations

When a certified public accountant learns that his clientis being specially investigated for possible criminal violationof the Income Tax Law, he should advise his client to seekthe advice of a lawyer as to his legal and constitutionalrights.

Conclusion

This statement of principles should be regarded as tenta-tive and subject to revision and amplification in the lightof future experience. The principal purpose is to indicatethe importance of voluntary cooperation between our pro-fessions, whose members should use their knowledge andskills to the best advantage of the public. It is recommendedthat joint committees representing the local societies of bothprofessions be established. Such committees might well takepermanent form as local conferences of lawyers and certi-fied public accountants patterned after this conference, orcould take the form of special committees to handle aspecific situation.