James M. McCauley
Ethics Counsel, Virginia State Bar

In recent years, the "Big Six" accounting firms(1) entered into the legal services market overseas by establishing, acquiring, or forming ties with law firms around the world. Unlike the United States, many European countries do not prohibit partnerships and fee splitting arrangements between lawyers and nonlawyers. The February 1998 issue of the American Bar Journal published an article entitled "Squeeze Play" describing a turf war between the major accounting firms and lawyers practicing law in Europe. KPMG Peat Marwick, Arthur Anderson, Ernst & Young, Price Waterhouse, and Coopers & Lybrand and other accounting firms offer a bundle of services such as appraisals, litigation support, alternative dispute resolution(2), estate planning, business planning and "international tax practice." These services are often rendered by attorneys who are employees of the non-lawyer accounting firm and some argue that such activity is the unauthorized practice of law. How so? A lay corporation cannot employ attorneys to provide legal services to its customers without engaging in unauthorized practice. Richmond Ass'n of Credit Men v. Bar Ass'n of City of Richmond, 167 Va. 327, 189 S.E. 154 (1937)(3). Some of the services offered by these big accounting firms involve the giving of legal advice and drafting of legal instruments, activities regarded by the legal profession as solely within its purview, subject to some limited exceptions. The ABA Journal article sounds a battle cry for the legal profession to oppose this encroachment by the accounting profession.

The ABA Journal article reported, for example, that the accounting firm of Deloitte & Touche has several hundred lawyers on staff in the United States. Can a lawyer ethically split legal fees and be in partnership with non-lawyers? Of course not. Such conduct violates Disciplinary Rules 3-102 and 3-103 [and also ABA Model Rules 5.4(a), (b)].(4) What do the accounting firms say about this? They glibly respond: "We do not practice law - we give tax advice." The accounting firms point to the legal profession's own UPL rules for support.

The giving of tax advice necessarily involves many branches of law and requires a familiarity with many non-tax legal principles on which the tax issues are based. Legal and accounting aspects of "tax practice" are interrelated and overlap, sometimes to the point they cannot be distinguished. Va. S. Ct. R., Pt. 6, I, UPC 5-1 (1998). Generally speaking, tax advice or planning is not considered to be the unauthorized practice of law. Va. S. Ct. R., Pt. 6, I, UPC 5-4 (1998). Thus, under our own rules and definitions, it is difficult to distinguish "tax advice" from "legal advice."

While the UPL rules and the definition of the "practice of law" may differ in some respects from state to state, all jurisdictions agree on the purpose of UPL enforcement - to protect the public against the rendition of services by unqualified persons. See Comment [1] to ABA Model Rule 5.5. However, very few disciplinary or UPL complaints are made by the business clients served by these accounting firms. The accounting firms point to this as evidence that the legal profession's concern about "public protection" is purely rhetorical, and overshadowed by self-interest and "turf protection."

There is more clarity in the document preparation area. Accounting firms, for example, are prohibited from drafting articles of incorporation or wills and trusts for their clients. UPL Op. #67 (1984), UPL Op. #73 (1985). However, it is not UPL to sell or distribute an unexecuted sample form or document, as long as the nonlawyer does not assist the member of the public in completing the document. Specimen forms for leases, wills, deeds and other legal instruments are readily available in bookstores and on the Internet and the sale of such documents to the public cannot be enjoined by UPL enforcement. UPL Op. #73 (1985). While nonlawyer accountants may be called upon by their clients to provide specimen language for legal instruments, they customarily turn over such work to a client's legal counsel for review. Ronald E. Friedman, J.D., Ernst & Young, LLP, "Multidisciplinary Partnerships: Attorneys Working in Professional Service Firms" 24th National Conference on Professional Responsibility (1998). As long as the work of a nonlawyer consultant is reviewed by a licensed attorney, who determines what to pass on to the client, the activity of the nonlawyer is not UPL. UPL Op. #107 (1987).

Preemptive Effect of Federal Law

Many federal agencies permit nonlawyers to represent parties before that particular agency.(5) The Supreme Court of Virginia's UPL rules expressly defer to such agencies. Nonlawyers may provide advice or services under circumstances that require the use of legal knowledge or skill in the application of any law, federal, state or local, or administrative regulation or ruling, provided the rules of such agency permit the activity and the nonlawyer is acting within the scope of his or her practice authorized by such agency. UPR 9-102. Indeed, a state bar cannot restrict or interfere with practice rights conferred under federal law. See, e.g., Sperry v. Florida, 373 U.S. 379 (1963) (non-lawyer practitioner before Patent & Trademark Office improperly enjoined by Florida Bar).

Thus, attorneys who work for CPA firms assert that they do not practice law, but rather practice tax. The practice of tax, they argue, is distinct from the practice of law because the federal government has mandated that capable and qualified non-lawyers be permitted to represent taxpayers, both before the IRS and the Tax Court. 5 U.S.C. 500; 31 U.S.C. 330; 31 C.F.R. 10.33; 26 U.S.C. 7452 and Tax Court Rule of Practice and Procedure 200. CPA firms are permitted to draft opinion letters for clients which interpret and apply the Internal Revenue Code and other pertinent tax authorities. 31 C.F.R. 10.33. In addition to the preparation of tax returns, nonlawyer practitioners may represent taxpayers and practice before the IRS in administrative matters such as tax examination and appeals. CPA firms routinely prepare private letter ruling requests, requests for 9100 relief, requests to change accounting methods and other forms of administrative relief. In many instances, accountants are better qualified and proficient to handle this work than lawyers.

Section 7452 of the Internal Revenue Code provides that taxpayers shall be represented according to the rules of practice prescribed by the Tax Court and that no person shall be denied admission to practice because he or she is not a member of any profession. Tax Court Rule 200 permits the following individuals to practice before the Tax Court: an attorney (without examination) or non-lawyers (if they pass a written and/or oral examination).

Back in the USA

Meanwhile, the organized bar in this country continues to enforce the UPL rules against the big accounting firms. Texas recently launched a UPL investigation of Arthur Anderson and Deloitte & Touche, on allegations that they are paying lawyers on their staffs to provide legal services and advice to clients in Texas. Wall Street Journal, May 28, 1998 at B15. The Texas Bar also charged that the lawyers in these firms were sharing their legal fees with nonlawyer partners. But the rules are violated only if the lawyers have formed a partnership with nonlawyers for the purpose of practicing law, which the accounting firms deny. Moreover, they assert that the fees charged and collected for work performed by in-house counsel are not "legal fees." Ultimately, Texas dropped the charges that Arthur Anderson had engaged in UPL. Wall Street Journal, July 29, 1998 at A1. The skirmish between Texas and Anderson underscored the overlap of tax-advisory services that have been offered traditionally by both lawyers and accountants.

The intent of the big accounting firms with respect to legal business in the United States seems apparent. The legislation in Congress to overhaul the IRS, which President Clinton recently signed into law, included a provision lobbied for by the accounting firms that would extend the attorney-client privilege to communications between a taxpayer and a federally authorized tax practitioner.(6) This newly created privilege removes one advantage lawyers had over accountants in dealing with their respective clients. Prior to this, because attorneys working for accounting firms do not "practice law," a taxpayer/client's communications with them were not protected by the attorney-client privilege under federal law. United States v. Arthur Young, 465 U.S. 805 (1984).(7)

UPL enforcement against this "assault" on the legal market by the accounting profession may prove quite challenging. These "multidisciplinary" professional service firms offer a blend of expertise in legal, accounting and business matters that many business clients find attractive. The dichotomy between "legal advice" and "tax advice" is vague at best, making criminal enforcement of the UPL rules all the more difficult. We live in a rule-based society where virtually every phase of our lives is government regulated and virtually all forms of advice, discussion and consultation have legal components. Vigorous UPL prosecution of other nonlawyer professionals for providing advice to clients within the scope of their expertise raises commercial speech infringement and unfair trade restraint issues.

Moreover, the "public protection" argument which favors UPL enforcement is muted by the fact that the employees of these professional service firms, lawyers and accountants alike, are professionals holding advanced degrees, are regulated and licensed by the state, subject to discipline for misconduct and typically covered under some form of malpractice or professional liability insurance. Also, because the likelihood of harm caused by nonlawyer professionals dealing with legal questions within the context of their own area of professional expertise is quite remote, UPL prosecutions by the organized bar may trigger public and legislative scrutiny of the bar's motives.

Instead of enforcing the prohibition against unauthorized practice, bar regulators should consider the Code of Professional Responsibility and the Model Rules of Professional Conduct. In addition to the ethical prohibitions against fee sharing and partnerships with nonlawyers, there are other serious ethics issues. Lawyers who participate in such professional service firms, despite arguments to the contrary, remain subject to the applicable rules of professional conduct of the jurisdiction in which they are admitted to practice law. While accounting firms are subject to their own professional regulation and rules of professional conduct, their rules concerning conflicts of interest and preservation of client confidences and secrets are substantially weaker and do not protect the client as well as the ethics rules governing lawyers. Thus, lawyers employed by these professional service firms may nevertheless find themselves subject to discipline for breaches of legal ethics, even though their conduct may have comported with applicable ethics standards for the accounting profession. In addition, lawyers employed by such firms cannot allow the influence of nonlawyers to influence or compromise their independent professional judgement. In the next issue of the Virginia Lawyer Register I will address some of these ethics issues in greater depth.


1. The Big Six accounting firms were Arthur Andersen L.L.P. ("Andersen"), Coopers & Lybrand L.L.P. ("Coopers"), Deloitte & Touche L.L.P. ("Deloitte & Touche"), Ernst & Young L.L.P. ("Ernst & Young"), KPMG Peat Marwick L.L.P. ("KPMG"), and Price Waterhouse L.L.P. ("Price Waterhouse"). See The 1997 Accounting Today Top 100 Tax and Accounting Firms, Acct. Today, Mar. 17-Apr. 6, 1997, at 25 (Big Six refers to six accounting firms with highest revenues per year). The "Big Six" will now become the "Big Four" upon completion of the Coopers /Price Waterhouse merger and the KPMG Peat Marwick/Ernst & Young mergers.

2. Mediation and arbitration are not per se the "practice of law." Legal Ethics Opinion 1368 (1990); UPL Op. #92 (1986). One need not be lawyer to serve as a mediator in Virginia. Virginia Code 8.01-581.21; 8.01-576.4.

3. More recent decisions have upheld the general rule that a nonlawyer corporation cannot employ staff attorneys to provide legal advice or services to its customers. See Lawline v. American Bar Ass'n, 738 F. Supp. 288 (N.D. Ill. 1990), aff'd 956 F.2d 1378 (7th Cir. 1992), cert. denied 510 U.S. 992 (1993). A limited exception is granted to liability insurance companies permitting the employment of in-house staff counsel to defend insureds in civil litigation. UPL Op. #60 (1985).

4. The District of Columbia stands out alone with a unique rule permitting non-lawyers to hold a financial interest or managerial position in a law firm, provided the sole purpose of the partnership is to provide legal services to clients; that the nonlawyers abide by the rules of professional conduct governing lawyers; and that lawyers accept responsibility for the actions of the nonlawyers. D.C. Rule 5.4(b).

5. A partial list of some federal agencies allowing "qualified representatives" (non-lawyers) to act on behalf of a party before that agency includes:

a. Department of Treasury, Internal Revenue Service and Tax Court -- 31 U.S.C. 330; 5 U.S.C. 500; 31 C.F.R. 10.33; IRC 7452 and Tax Court Rule of Practice and Procedure 200.

b. Immigration and Naturalization Service -- 8 C.F.R. 3.1(d)(3) (extremely limited).

c. Department of Energy -- 10 C.F.R. 205.3.

d. Social Security Administration -- 20 C.F.R. 416.1400

e. Drug Enforcement Agency -- 21 C.F.R. 1316.50

f. National Labor Relations Board -- 29 C.F.R. 102.38

g. Equal Employment Opportunity Commission -- 29 C.F.R. 1601.7

h. Health and Human Services -- 45 C.F.R. 205.10 (a)(3)(iii).

6. Internal Revenue Service Restructuring and Reform Act of 1998, HR 2676, Pub. L 105-206 (July 23, 1998). Section 3411 of the Act extends the attorney-client privilege to communications between a taxpayer and a federally authorized tax practitioner.

7. Communications between an accountant and a client would often be treated as privileged if the accounting firm was engaged by the client's attorney, but not if the accountant was hired independent of any legal representation. United States v. Kovel, 296 F.2d 918 (2d Cir. 1961); Bernardo v. Commissioner, 104 T.C. 677 (1995).