The Sarbanes-Oxley Act of 2002 does not prohibit auditors from offering tax services to audit clients.

• Author: Roberts, Richard Y.

In their article, Auditor Independence, Sarbanes-Oxley, and Tax Services, Mark Oates and Daniel Goelzer argue that the Sarbanes-Oxley Act of 2002 significantly restricts the non-audit tax services that accountants can provide to their audit clients. See Mark A. Oates and Daniel L. Goelzer, Auditor Independence, Sarbanes-Oxley, and Tax Services, THE TAX EXECUTIVE (Sept.-Oct. 2002). Public companies are left with the implication that they should call lawyers to provide these services instead.

Messrs. Oates and Goelzer's blunt assertion that the Act "restricts an Auditor's ability to perform for Issuers a number of tax services allowed under the SEC rules" (Page 404) is incorrect: The Act does not change the tax services that accountants may offer their audit clients under the existing SEC rule. Indeed, near the end of their article, Messrs. Oates and Goelzer back away from their original assertion and only speculate that "non-audit tax services previously permitted to be performed by Auditors for Issuers now may well be prohibited." (Page 415.) Saying that services "may well be" prohibited--depending on future interpretations by the SEC--is obviously very different from opining that the Act itself inflexibly imposes that prohibition.

Messrs. Oates and Goelzer's self-contradiction undermines their entire analysis, and their individual arguments do not fare much better. Messrs. Oates and Goelzer make three main points. First, they argue that the Act's prohibitions on certain non-audit services silently eliminate the SEC's existing guidance for tax services under the SEC's current rule. Second, they contend that the ban on legal services applies more broadly than the SEC's current rule, extending to some tax services. Third, they suggest that the Act's restrictions on expert services could also extend to tax services.

In fact, the statutory text and legislative history of the Act contradict Messrs. Oates and Goelzer's views and demonstrate that Congress intended not to reject, but to adopt, the definitional guidance set forth in the SEC's 2000 auditor independence rule--including the rule's definitional exceptions for tax services. As an initial matter, it is undeniable that Congress, in adopting its list of prohibited services, did not include definitions of those services in the statutory text. That does not mean--as Messrs. Oates and Goelzer argue--that Congress prohibited a set of technical accounting services without knowing what those services meant and without providing any guidance, either to the SEC or the courts, about how to interpret the statute. Congress clearly legislated against the backdrop of the SEC's current rule, and closely followed the SEC's list of prohibited non-audit services--even keeping the services in the same order as they appear in that rule. That alone is strong evidence that Congress meant to incorporate the defined terms in the SEC's rule. See McDermott Int'l, Inc. v. Wilander, 498 U.S. 337, 342 (1991) ("In the absence of contrary indication, we assume that when a statute uses such a term [of art], Congress intended it to have its established meaning."). Moreover, the legislative history is clear that Congress--after considering and rejecting alternative definitions--chose to leave the SEC's definitions in place.

1. Tax Services Are Not Included in the List of Prohibited Services

   The Sarbanes-Oxley Act establishes two categories of non-audit services. First, the Act sets forth a list of enumerated, prohibited non-audit services. See Sarbanes-Oxley Act, § 201. It is unlawful for an auditor to provide these services to an audit client. Significantly, tax services do not appear on this...