The Nebraska Supreme Court has the authority to determine what is the practice of law (State of Nebraska ex rel. Comm’n on Unauthorized Practice of Law v. Tyler, 283 Neb. 736, 2012). The Supreme Court Rules on the Unauthorized Practice of Law define the “practice of law” as “the application of legal principles and judgment with regard to the circumstances or objectives of another entity or person which require the knowledge, judgment, and skill of a person trained as a lawyer” (Rule § 3-1001). Of key importance to the topic of state tax matters, the Nebraska Supreme Court (Rule § 3-1001) states the following: “Whether or not they constitute the practice of law, the following are not prohibited: (H) With respect to tax laws: (2) Nonlawyers representing other persons, entities, or organizations before … the Nebraska Department of Revenue … to the extent permitted by such agency or taxing authority.” [Emphasis added]. Nebraska Taxing Authority Regulation So, the Nebraska Supreme Court allows the Department of Revenue to create the rules regarding when to permit nonlawyers (including CPAs) to represent others before the Department. The Department’s rules on this are expressed in its overall Practice and Procedure Regulations in Title 316, Chapter 33 of the Nebraska Administrative Code. Our focus in this article are those regulations that govern whether and when a CPA can represent a taxpayer with respect to the protest (in the regulation, usually referred to as a “petition”), in response to a Notice of Proposed Deficiency Determination for income taxes, sales and use taxes, and tax incentives. Key Points Two key points are shown below. First, this question turns on whether the initial or amended protest/petition contains a request for a formal hearing. Second, when it does, the Department’s regulation returns the question of CPA representation right back to the regular, overall Supreme Court “practice of law” rules (rather than adopting a relaxed standard, which the Department could have instead opted for, but officially did not). Should a Request for Hearing Be Included in the Protest/Petition? The first question for the taxpayer and its representatives in protesting any Notice of Proposed Deficiency is to decide whether to include a request for formal hearing in the protest/petition. Department Regulation 33-003.01 states that the protest/petition “shall” (among other things) include “a request for hearing if one is desired.” Department Regulation 33-003.05 states that a petition “shall not be presumed to be a request for a hearing.” It goes on to state that the “tax commissioner shall grant a petitioner an opportunity for a hearing if the petitioner so requests in his or her petition or if the petitioner amends his or her petition and requests a hearing.” So, What Does This Tell Us? First, you can file a protest/petition without a request for hearing and later change your mind and add a request for hearing. Second, if you later add the request for hearing—and if the tax commissioner has not already ruled on your petition—the tax commissioner must give the taxpayer a formal hearing. Third, the tax commissioner does not need to wait for a taxpayer to amend the protest/petition to request a hearing, if one was not previously requested. This is a critical point. Once the protest/ petition is filed—if no request for hearing is included—the tax commissioner can promptly proceed to immediately deny the protest/petition—without waiting for further communication from the taxpayer (or can do so without advance notice right after an informal conference). If that occurs, the taxpayer’s only further recourse (regardless of the merits of the tax commissioner’s denial) would be to proceed to Nebraska District Court within 30 days of such denial. (Note that reserving the right in your protest/petition to later request a hearing doesn’t help, since that is the same as not yet requesting a hearing.) The huge risk to the taxpayer at this point is that there is no record of the facts needed to win the dispute. The protest/petition will typically include statements or allegations of the facts, but not include all the necessary evidence to sustain the taxpayer’s position. Further, the taxpayer is not provided with an opportunity in District Court to submit this evidence or testimony. Instead, the District Court will simply look at the evidence record in the case at the Department of Revenue. The hearing is the place where this evidence (documents, testimony, etc.) is provided. In the absence of a formal hearing, there would be no evidence to support the case in District Court. (See Neb. Rev. Stat. § 84-917(5).) This is not a happy result for a taxpayer or for the CPA. Importance of a Hearing Request From the Beginning Just as important is to set the right “attitude” for the protest/ petition from the beginning. When a request for a formal hearing is included in the initial protest/petition, this sends a critical signal to the Department that the taxpayer intends to do what is needed to win, which is important both to winning and to the chances of negotiating a favorable settlement. We can’t think of a reason why a taxpayer or its representative would bother to file a protest/ petition and start this out by looking weak. For these reasons, our advice to clients and CPAs who ask is to always include a request for formal hearing in the protest/petition, from the beginning. In this way, you absolutely can have a hearing (and the submission of actual evidence), if the case is unable to be settled or otherwise resolved informally before that. And you make it clear to the Department from the beginning that you intend to do what is needed to actually win. Continued on page 22 ► 21 www.nescpa.org
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