[Many readers living outside the U.S. who are not IRS compliant, have sought advice from tax attorneys on whether they should or should not enter into a lifetime of IRS compliance, and what would be the “cost”. Maybe your tax attorney living in Canada etc. is also an Enrolled Agent of the U.S. IRS, possibly affecting the nature of the interaction between attorney and you the client. What were the options suggested and especially disclosures made to you by your attorney? Attorneys must adhere to the professional and ethical standards of their law societies. See discussion below:]
In a recent post I mentioned the situation of a “Caroline” who seeks advice from a Canadian tax attorney (let’s say in B.C.) regarding a question of (IRS) tax compliance with a country foreign to Canada.
How should the Canadian tax attorney advise this frightened Canadian citizen– specifically, regarding the disclosure of relevant options she (or any Canadian) should consider before entering, or not entering, into tax compliance with United States Internal Revenue Service?
What information should (must) the attorney disclose to the Canadian to comply with professional standards and ethical obligations of an attorney?
USCitizenAbroad suggests that the Canadian tax attorney needs to disclose two relevant facts:
“It seems to me that the first thing that a Canadian lawyer (I note that the rules of B.C. Professional Conduct are included in this post) might be to say:
1. You are living in Canada. There is NO Canadian law (no matter who you are) that requires you to comply with U.S. tax laws. Canada may [find] it amusing. But Canadian law does not require compliance.
2. The Canada U.S. Tax Treaty means that Canada will not assist the IRS in collection on Canadian citizens”
In other words, must the Canadian tax attorney say something like this to Caroline in order to comply with professional and ethical codes of conduct?:
“Caroline, you have come to me for advice on whether you, a Canadian resident for 50 years, and a Canadian citizen, should enter into a lifetime of compliance with the IRS. Well, I’m going to talk to you about the US laws that I think are relevant, but I also need to disclose to you, because I must alert you to all the relevant facts, that there is no law in Canada requiring you to be compliant with the U.S. IRS, and at present Canada will not assist the IRS in tax collection for Canadian citizens. By the way, even though I am a tax attorney in Canada, I must also disclose to you that I am an enrolled agent of, and have obligations to, the IRS — and this represents a conflict of interest that you need to know…”
By not making this disclosure, are these Canadian tax attorneys in violation of their law society’s (the governing body) Professional Code of Conduct? For example. the British Columbia Professional Code seems to be pretty clear on disclosure of facts and options:
“A [Canadian] lawyer should obtain sufficient knowledge of the relevant facts and give adequate consideration to the applicable law [This must include Canadian law — correct?] before advising a client, and give an open and undisguised opinion of the merits and probable results of the client’s cause…”
Similarly, the Rules of Professional Conduct of the Law Society of Upper Canada say:
“The lawyer’s duty to the client who seeks legal advice is to give the client a competent opinion based on a sufficient knowledge of the relevant facts, an adequate consideration of the applicable [including Canadian] law, and the lawyer’s own experience and expertise. The advice must be open and undisguised and must clearly disclose what the lawyer honestly thinks about the merits and probable results.”
It would also seem that any Canadian tax attorney who is an “enrolled agent” with the IRS must disclose that significant conflict of interest (additional loyalty) to the client. Yes? See:
“A lawyer should disclose to the client all the circumstances of the lawyer’s relations to the parties and interest in or connection with the controversy, if any, that might influence whether the client selects or continues to retain the lawyer. A lawyer must not act where there is a conflict of interests between the lawyer and a client or between clients.”
Do these issues of “reasonable disclosure” need to be brought up with the law societies? Could someone from one of the Canadian provincial law societies please respond and address these questions?
More on interacting with a Canadian tax attorney who is an IRS-approved “enrolled agent”:
According to Circular 230, this Canadian tax attorney who is an enrolled agent of the IRS appears to be obligated by IRS to inform an IRS non-compliant client of the consequences of IRS non-compliance, but there seems to be no obligation to generally represent the total interests of the Canadian client (i.e. what a good (e.g., family) attorney is supposed to provide even if this involves disclosure of an option of non-compliance to a foreign state):
“§ 10.21 Knowledge of client’s omission. A practitioner who, having been retained by a client with respect to a matter administered by the Internal Revenue Service, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided under the Code and regulations of such noncompliance, error, or omission.”
There is in Circular 230 a section on conflict of interests, but there is no mention of a conflict of interest that will occur because of competing loyalties (U.S. IRS vs. a sovereign Canada):
“§ 10.29 Conflicting interests. (a) Except as provided by paragraph (b) of this section, a practitioner shall not represent a client before the Internal Revenue Service if the representation involves a conflict of interest…”
So, do Canadian (etc.) Tax Attorneys advising Canadian Clients on United States IRS compliance typically comply with the “Professional Code of Conduct” of their law societies? What is your experience?