Ethical Issues in Advertising for Tax Attorneys

• Publication year: 2016
• Author: By Kevan P. McLaughlin

Ethical Issues in Advertising for Tax Attorneys

By Kevan P. McLaughlin¹

I. INTRODUCTION

Advertising is a way of life, for attorneys and all types of businesses alike, notwithstanding some institutional resistance from the former. But, before a lawyer decides to freshen up his or her website to boast accomplishments online, launch a billboard campaign, or use a lead generating or referral service, they must be conscious of unique ethical standards specific to tax attorneys.

Most California attorneys will, or at least should, already be familiar with ethical restrictions on advertising and solicitations. California, as with other states, has adopted professional ethical standards that address such activities. More specifically, Rule 1-400 (D) provides in relevant part that advertisements "shall not: (1) Contain any untrue statement; or (2) Contain any matter, or present or arrange any matter in a manner or format which is false, deceptive, or which tends to confuse, deceive, or mislead the public; or (3) Omit to state any fact necessary to make the statements made, in the light of circumstances under which they are made, not misleading to the public; or (4) Fail to indicate clearly, expressly, or by context, that it is a communication or solicitation, as the case may be; or (5) Be transmitted in any manner which involves intrusion, coercion, duress, compulsion, intimidation, threats, or vexatious or harassing conduct."² This, however, is far from the end of the restrictions imposed on a tax attorney. Instead the law, with varying degrees of overlap, imposes greater ethical considerations on our practice area when it comes to advertising.

This article presents an analysis of three important and unique ethical criteria tax lawyers must consider when advertising by reviewing and comparing overlapping rules in Title 31 CFR, Subtitle A, Part 10 ("Circular 230"),³ the California Rules of Professional Conduct, and other federal rules.

A. Circular 230 Section 10.30

Section 10.30(a)(1) of Circular 230 provides the general rule related to restrictions on advertising and solicitation, but in actuality encompasses two sub-components.

First, Section 10.30(a)(1) is the rule familiar to most attorneys, in that no communication or solicitation can contain a "false, fraudulent, or coercive statement or claim; or a misleading or deceptive statement or claim." On its face Section 10.30(a)(1) appears similar to California Rule 1-400(D)(2)⁴ and (5),⁵ American Bar Association ("ABA") Model Rules 7.1⁶ and 7.3,⁷ and section 6157.1 of the California Business & Professions Code.⁸ The striking similarities then beg the question - to what extent can a tax lawyer rely on comments to the California Rules and ABA Model Rules for guidance on Circular 230? In September 2012, the Internal Revenue Service ("IRS") proposed a series of changes to Circular 230.⁹ Among those changes, Section 10.35's covered opinion standard was eliminated from Circular 230, opting instead for a rule almost identical to ABA Model Rule 1.1.¹⁰ Aside from the more recent amendments, other provisions of Circular 230 are almost mirror images to the ABA Model Rules.¹¹ With this growing trend towards Circular 230's conformity with ABA Model Rule provisions, a practitioner may find some additional guidance in the latter's comments.¹²

As such, the terms of "false" or "misleading" are undefined in Circular 230, thus a practitioner may be in need of clarification. A tax attorney, or any Circular 230 practitioner for that matter, may consider drawing from the comments of ABA Model Rule 7.1 to help define what is a "false" or "misleading" statement.¹³

Comparing and considering California Rule 1-400(D) and the ABA Model Rules also is important for tax attorneys, because Section 10.30(a)(2) provides that a practitioner's solicitation for employment is impermissible if it violates a Federal or state rule - effectively incorporating by reference these standards.

The second sub-component of Section 10.30(a)(1) contains additional restrictions, including those on Enrolled Agents ("EA's"), Registered Tax Return Preparers ("RTRP's"), or Enrolled Retirement Plan Agents ("ERPA's") from using the term "certified" in their advertisements. Beyond the restrictions on using "certified," EA's, RTRP's, and ERPA's are also prohibited under Section 10.30(a)(1) from implying they have an employer/employee relationship with the IRS.¹⁴

Section 10.30 can be broken into two further sub-parts: (1) uninvited solicitations; and (2) fees. First, Section 10.30(a)(2) provides that no practitioner can "make, directly or indirectly an uninvited written or oral solicitation of employment in matters related to the IRS". Furthermore, Section 10.30(c) prohibits a practitioner from persisting "in attempting to contact a prospective client if the prospective client has made it known to the practitioner that he or she does not desire to be solicited." These provisions are analogous to ABA Model Rule 7.3(b)(1).¹⁵

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Second, Section 10.30(b)-(c) controls what, and how, fee information can be advertised. Practitioners are permitted under Circular 230 to advertise their fees, so long as they are fixed fees for specific routine services, hourly rates, a range of fees for particular services, or fees charged for an initial consultation. Practitioners also must be conscious of other restrictions on fees. While Section 10.30(b)-(c) discusses what and how fee information can be communicated, Section 10.27 contains other restrictions. Importantly, Section 10.27 prohibits a practitioner from charging an "unconscionable fee," but does not define the term. Similar to the reliance on ABA Model Rule 7.1's comments for purposes of Section 10.30(a)(1), a tax attorney could consider California Rule 4-200 for guidance.¹⁶

Advertisements about fees can nevertheless be made in professional lists, telephone directories, print...