215
(March 31, 2014)
Issued by UPLC March 21, 2014
COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW
Appointed by the Supreme Court of New Jersey
The Committee received an inquiry asking whether enrolled agents who are licensed by
the United States Internal Revenue Service (IRS) may, like lawyers and certified public
accountants (CPAs), prepare and file New Jersey Transfer Inheritance Tax returns for clients.
While the preparation and filing of New Jersey Transfer Inheritance Tax returns is the practice o
law, the Committee finds that it is in the public interest to permit licensed enrolled agents to
engage in this conduct provided that the client is notified in writing before the enrolled agent
begins work on the return that "review of the return by a qualified attorney may be desirable
because of the possible application of legal principles in the preparation of the tax return."
Deciding whether an activity is the unauthorized practice of law is a two-step process.
First, the Committee decides whether the activity is the practice of law. Second, the Committee
decides whether it is in the public interest to permit a nonlawyer to engage in that activity. "[I]n
cases involving an overlap of professional disciplines we must try to avoid arbitrary
classifications and focus instead on the public's realistic need for protection and regulation."
In re Application of New Jersey Society of CPAs, 102 N.J. 231, 237 (1986).
The Committee previously found, in Opinion 10 (1972), that preparation and filing of a
New Jersey Transfer Inheritance Tax return is the practice of law and only lawyers may perform
this task. The New Jersey Society of CPAs challenged this decision. In re Application of New
Jersey Society of CPAs, supra, 102 N.J. 231. The Supreme Court agreed that preparation and
filing of a New Jersey Inheritance Tax Return is the practice of law but held that a licensed CPA
may engage in this activity if the client has been notified that review of the return by a lawyer
would be advisable. Id. at 241-42. The Court state that this requirement of notification was
"essential for the protection of members of the public who might otherwise be willing to rely
entirely on the skill of the accountant to protect their interest." Id. at 242.
The Court noted:
[T]he complexity of any Inheritance Tax Return will depend on numerous
factors including the size of the estate, the domicile of the decedent, the nature
of the assets constituting the estate, and the plan of disposition. It is
indisputable that many estates are sufficiently simple, both with respect to the
nature of the assets and the dispositive scheme, that a trained certified public
accountant could prepare the Inheritance Tax Return without the assistance of
counsel. By contrast, an estate with substantial and diverse property and
business interests that uses relatively complex instruments of disposition, such
as trusts and powers of appointment, to convey fee and contingent interests to a
large group of beneficiaries of varying degrees of consanguinity will doubtless
require competent legal advice in the preparation of the return. Between these
extremes lies a myriad of estates, varying in complexity and requiring varying
levels of professional sophistication in the preparation of the Inheritance Tax
Returns.
[Id. at 240.]
The Court reviewed the regulatory framework governing certified public accountants,
noting that there is a written examination in accounting, auditing, and other related subjects
(N.J.S.A. 45:2B-7), procedures for certification (N.J.S.A. 45:2B-8), and disciplinary action
by the New Jersey Board of Certified Public Accountants for unlawful acts (N.J.S.A. 45:1-2.1 to 27).
Id. at 241. The Court concluded:
Many certified public accountants are qualified, both by training and
experience, to prepare Inheritance Tax Returns for most estates. Recognition of
the skills possessed by a substantial number of certified public accountants
compels the conclusion that the public interest would best be served by
permitting certified public accountants to prepare and file Inheritance Tax
Returns without the supetvision of an attorney, subject to the condition that the
client be notified in writing, before the certified public accountant commences
work on the return, that review of the return by a qualified attorney may be
desirable because of the possible application of legal principles to the
preparation of the tax return. Notification to clients concerning the possible
need for review of the return by a qualified attorney is essential for the
protection of members of the public who might otherwise be willing to rely
entirely on the skill of the accountant to protect their interest. Such notification
is also consistent with the professional obligation of accountants to perform
their services subject to a standard of care commensurate with the skill and
knowledge normally possessed by members of their profession in good standing.
Levine v. Will & Co. 97 N.J. 242, 246 (1984) (citing Restatement (Second)
of Torts Sect. 299A (1965)). An accountant's failure to consult counsel
or to advise a client of the need to obtain legal advice with respect to certain
Inheritance Tax Returns could constitute a deviation from the accountant's
standard of care and result in civil liability. Cf. Rosenblum v. Adler, 93 N.J.
324, 344 (1983) (accountant engaged in performing services as independent
auditor required to exercise normal professional skill and care). We assume
that ceidified public accountants will be aware of the boundaries of their own
professional skills and will recommend consultation with counsel whenever the
complexities of particular Inheritance Tax Returns indicate that legal advice is
desirable. Cf. Rosenberg by Rosenberg v. Cahill, 99 N.J. 318, 333 (1985)
(standard of care applicable to chiropractors imposes a duty "to examine and
diagnose a patient to determine whether a condition is appropriate for
chiropractic treatment, and, if it is not, to refer the patient to another kind of
medical practitioner.").
[Id. at 241-42.]
Following the Court's decision, the Division of Taxation amended its regulation to
provide that it will accept Transfer Inheritance Tax returns only fiom the personal representative
of an estate, an heir or other real party in interest, lawyers, and CPAs provided the CPA has
notified the client of the desirability of consulting with a lawyer. N.J.A.C. 18:26-12.2(a)1.
Inquirer claims that enrolled agents are comparably qualified and should also be
permitted to prepare and file New Jersey Transfer Inheritance Tax returns. To obtain an enrolled
agent license from the IRS, the applicant must not have engaged in prior misconduct and must
successfully complete a three-part IRS test on individual and business tax returns (or have an
unblemished record as a former IRS employee). 31 U.S.C. sect. 330; 31 C.F.R. sect. 10.4. Licensed
enrolled agents must complete continuing education courses every three years. 31 C.F.R. sect.
10.6(e); see generally www.irs.gov/tax-professionals/enrolled-agents. Enrolled agents are bound
by IRS Circular 230, are monitored by the IRS Return Preparer Office, and are subject to
discipline by the IRS Office of Professional Responsibility, 31 C.F.R. Sects. 10.1 and 10.50.
The Committee considered whether it is in the public interest to permit licensed enrolled
agents to prepare and file New Jersey Transfer Inheritance Tax returns. In assessing whether the
public needs to be protected, the Committee balanced the relevant factors, including "the
likelihood of any demonstrable harm to the members of the public who employ the services of
the alleged unauthorized practitioners, the cost savings accruing to those members of the public
the voluntary nature of the decision to accept legal seivices from a person other than a lawyer,
and the extent of the service recipient's knowledge of the risks involved in proceeding without a
lawyer." Michels, New Jersey Attorney Ethics, Section 39:4, p. 950 (Gann 2011).
The Committee considered the guidance provided by the New Jersey Supreme Court in
In re Application of New Jersey Society of CPAs, reviewed the licensing standards, continuing
education requirements, and regulatory and disciplinary framework for licensed enrolled agents,
and also made informal inquiry of tax professionals, tax lawyers, and tax regulators. The
Committee finds that, like CPAs, qualified enrolled agents are generally capable of handling this
type of tax return for less complex estates and, if the enrolled agent notifies the client in writing
that review of the return by a lawyer may be advisable, the public interest is protected. The
Committee cautions that when the disposition plan of an estate is complex, preparation and filing
of the return requires the discretion and judgment of a lawyer and an enrolled agent may violate
his or her professional responsibilities if the enrolled agent does not consult with counsel.
In sum, while the filing of New Jersey Transfer Inheritance Tax returns is the practice of
law, the Committee finds that it is in the public interest to permit licensed enrolled agents to
engage in this conduct provided that the client is notified in writing before the enrolled agent
begins work on the return that "review of the return by a qualified attorney may be desirable
because of the possible application of legal principles in the preparation of the tax return."