Sharing Fee from Tax Appeal with Nonlawyer [2013 Formal Ethics Opinion 7]

A law firm may not share fees earned in a tax appeal with a nonlawyer tax representative, unless the nonlawyer representative is legally permitted to represent claimants before the applicable authority.

View formal ethics opinion in full here

This opinion prohibits a law firm from sharing fees earned in a tax appeal with a nonlawyer tax representative, unless the nonlawyer representative is legally permitted to represent claimants before the applicable authority.

According to the inquiry, the nonlawyer representative has contracted with a company to work on reducing the company’s tax assessment.  Pursuant to the contract, the nonlawyer is to receive a portion of the company’s eventual tax savings.  Over the course of the relationship, the nonlawyer must hire a licensed lawyer in order to pursue an appeal to the North Carolina Property Tax Commission.  Though the contract authorizes the nonlawyer to obtain counsel, it also specifies that the company will not pay any additional amount for representation should this be necessary.  Thus, the nonlawyer must compensate the hired lawyer out of the nonlawyer’s own share.

At issue is Rule 5.4 of the North Carolina Rules of Professional Conduct, which concerns the professional independence of a lawyer.  With five limited exceptions, none of which apply in this matter, “[a] lawyer or law firm shall not share legal fees with a nonlawyer.”  The policy of this rule, according to Comment 1, is to “protect the lawyer’s professional independence of judgment.”

According to the opinion, “[u]nless nonlawyers are legally permitted to represent taxpayers/claimants before any taxing authority, and to be awarded fees for such representation, the proposed arrangement constitutes improper fee sharing in violation of Rule 5.4(a).”  Indeed, the situation in this opinion is distinguished from those of two previous ethics opinions.  Both 2003 Formal Ethics Opinion 10 and 2005 Formal Ethics Opinion 6 involved a nonlawyer’s representation of a disability claimant before the Social Security Administration (SSA).  In each of those instances, sharing compensation with nonlawyers was ethically appropriate because the SSA permits nonlawyers to represent disability claimants.

In this case, however, it is not ethically permitted for the lawyer to share fees with the nonlawyer tax representative (because here the nonlawyer is not otherwise legally permitted to represent claimants before the North Carolina Property Tax Commission).  Per the opinion, the lawyer should negotiate his/her fee directly with the company seeking tax representation.

If you wish to respond or otherwise offer a guest contribution discussing this formal ethics opinion, please contact the ethics editor at cu***********@em***.edu.

Avatar photo
About Tripp Huffstetler, Senior Staff Writer (57 Articles)
Tripp Huffstetler served as the Senior Ethics Staff Writer for the Campbell Law Observer. He is originally from Cherryville, North Carolina. In 2011, Tripp graduated from the University of North Carolina at Chapel Hill with a bachelor’s degree in Philosophy as well as Political Science. During his undergraduate studies, Tripp spent summers assisting at a practice in his hometown of Cherryville. During law school he interned with the Hon. Kris Bailey, District Court Judge; Judge Paige Phillips, Wake County Magistrate; the Hon. Paul C. Ridgeway, Superior Court Judge; and the Wake County District Attorney's Office. He also assisted a local attorney in drafting a guide to interlocutory appeals, which will be published by the North Carolina Bar Association. Tripp graduated from Campbell Law School in May 2014.
Contact: Email