Compliance counseling is like a box of chocolates – “You never know what your gonna get” – Circular 230 vs. the fiduciary duty to the client

The Isaac Brock Society is becoming a interest place to “hang out”. At least this is true for many U.S. citizens living abroad who are desperately attempting to ensure that they are in U.S. tax compliance Many people are grappling with how to be compliant on a “going forward” basis. Others are trying to figure out to deal with “past compliance issues”. There are of course a number of ways to come into compliance. What all these people have in common is a desire to be U.S. tax compliant. Yet, the IRS seems hell bent on continuing on treating U.S. citizens living abroad as though they are tax cheats. For many U.S. citizens living abroad the emotional strain is such that they are driven to renounce U.S. citizenship. This is the price of a good nights sleep.

So, what’s a poor U.S. citizen living abroad to do? Well, they consult a “cross border professional” where they get advice that comes in all shapes, sizes and perspectives. The advice is so varied that it reminds me of the line in Forrest Gump:

Life was like a box of chocolates. You never know what you’re gonna get.”

When it comes to “compliance counseling” – You never know what you’re gonna get.”

One would expect a lawyer to exercise professional judgment on the facts. That’s why one can reasonably expect advice that is – “different strokes for different folks”.

“Different strokes for different folks” is all well and good. That said, the question is, whose interests should the lawyer treat as paramount, in giving this advice? What level of  “practitioner responsibility” should be required? This issue has been the subject of a fascinating comment thread on a recent post at the Isaac Brock Society. Let’s begin with an excerpt from one comment which sets the stage for the debate:

On the issue of practitioner responsibility. You say that:

“It does seem to me, that a practitioner has a first responsibility to their client and not the IRS! They should present all the various options available for compliance and the risks associated with each, depending on their client’s facts. This doesn’t necessarily mean that they have to covertly compel the client to choose the IRS favorite route over another to reach a compliance objective. I don’t see it as an attorney’s obligation to tell the client they have to join the OVDI, as the only approved route for offshore compliance.”

You are absolutely right. Some lawyers have admitted that they feared being accused of “Circular 230″ violations if they did NOT advise clients to go into OVDI. Really? So, OVDI lawyer – let me get this straight: You are advising a client to enter OVDI, because you are believe that if you don’t, that you are in violation of IRS rules of conduct. What about the ABA rules of professional responsibility? Don’t they require you to disclose all legal options to the client? Don’t they require you to represent the interests of the client? If a client comes to you, who do you think you are representing? The client, the IRS or yourself?

Let me put it this way:

Any person with a license to practise law, who does not educate and counsel the client in terms of all legal options is NOT ACTING AS A LAWYER SHOULD!

The first post I wrote for the Isaac Brock Society was on this very point – that is specifically whether the “cross border professionals” could be trusted.

This particular post is now up to 120 comments. In focusing on the question of the OVDI vs QD issue: whose interests is the lawyer  there to protect? On the one hand, lawyers feel bound bound by Circular 230 obligations to the IRS. On the other hand,  lawyers have a fiduciary obligation to their clients. This fiduciary obligation is imposed by both the common law of agency and and the codification of these rules in codes of professional responsibility. Although a lawyer has clear obligations to both the process and the client, the question is where lies the primary obligation?

Should Circular 230 govern – in which case many lawyers believe that they must advise clients to enter OVDI?

Should the fiduciary obligation to the client govern – in which case the lawyer may or may not recommend OVDI?

These issue is canvassed in the following exchange of comments to this post.

An important question:


May 27, 2012 at 11:54 pm

Very interesting conversation. It seems the debate here is really why would a practitioner advise OVDI and opt-out vs quiet disclosure vs just go forward, for cases that they think are not criminal, but know that they’ll opt-out because of the huge in-lieu of penalty that the taxpayer will never agree to.”


I think that is part of the issue, but not the real debate here. The real debate is what kind of obligation does the lawyer have to the client to objectively explain and analyze all compliance options.

Here is the problem as I see it:

Some lawyers are interpreting circular 230 (part of he rules for practicing before the IRS) to mean that they should stream people into OVDI. I believe that this conflicts with a lawyer’s duty to the client. A lawyer’s duty to a client is a “fiduciary” duty. This means that the lawyer must have total loyalty to the client (obviously within the law). A lawyer’s loyalty to the client clearly is the primary consideration and should override most any other consideration. (Obviously the lawyer cannot condone or facilitate illegal behavior.) A lawyer is a professional who provides counseling in the law.

Bear in mind the following:

– the client is not required by law to enter OVDI
– the client is not required by law to amend tax returns
– there is no law that says that a client cannot make a quiet disclosure
– a client who now has knowledge of his tax and FBAR requirements must (at the very least) comply on a “going forward” basis

My thoughts on this:

In my opinion, a lawyer who feels that his Circular 230 obligations to the IRS should override his fiduciary obligation to his client, should NOT encourage the client to enter OVDI. The lawyer should simply say that under the circumstances he (lawyer) cannot meet his required fiduciary obligation to the client and NOT act for the client at all. But the reason communicated to the client is NOT that the client must enter OVDI. The reason is that the lawyer cannot meet his ethical obligations to the client which include exploring all legal options.

Would be interested in people’s thoughts on this aspect of this discussion.

I would also be interested in our resident lawyers answering the following question:

What is your ethical obligation to the client who consults you to help with tax compliance issues? If you believe that Circular 230 is the dominant consideration, please explain why it should override the fiduciary obligation to the client.

An interesting response:

Michael J. Miller

@Christophe, great points, I agree completely, as you might well have suspected from my prior posts. In my view, if a tax adviser honestly believes (for whatever reason) that Circular 230 precludes him from providing his client with complete guidance as to all legal options, based on the interests of the client (as opposed to the lawyer), then the correct answer is that the attorney simply ought not practice in the area. Advising a client in a way that either conceals a permissible course of action, or discourages that course of action for reasons having nothing to do with the interests of the client, ought never be an option.

You are paying huge legal fees – whose interests do you believe your lawyer should treat as paramount?



2 thoughts on “Compliance counseling is like a box of chocolates – “You never know what your gonna get” – Circular 230 vs. the fiduciary duty to the client

  1. Carol Sadler

    The comments re Michael Miller above are spot-on. Consider also the AICPA (American Insititute of Certified Professional Accountants) advises us accountants Circular 230 requires us to provide a client or potential client with all the options under the law and risks of each (preferably in writing) . Our client is to choose his/her option or course of action and we can then choose to assist with that option or decline that engagement.

  2. Chip Spradley

    You want to get Congress to repeal the law. Elect Tea Party Republicans and educate them on the problem as you campaign for/with them. Also passing the Fairtax ,HR 25, will do the trick. Go to
    I am the 7th District Director in Georgia. To know it is to demand it!


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