2. Selection, drafting, or completion for another entity or person, of legal documents which affect the legal rights of the entity or person; 3. Representation of another entity or person in a court, in a formal administrative adjudicative proceeding or other formal dispute resolution process, or in an administrative adjudicative proceeding in which legal pleadings are filed or a record is established as the basis for judicial review; 4. Negotiation of legal rights or responsibilities on behalf of another entity or person; or 5. Holding oneself out to another as being entitled to practice law as defined herein. [Emphasis added]. While Nos. 1, 2, 3, and 4 may all typically also apply with respect to a protest/petition that challenges a Department Notice of Proposed Deficiency, it is sufficient, for the scope of this article, to simply look at No. 1. Except perhaps for those petitions that might involve simply the correction of calculations or providing documents to support an undisputed legal position, most protests/petitions will involve the representative in “giving advice or counsel” to the taxpayer as to the “legal rights” of that taxpayer. Therefore, practically every taxpayer who engages an outside professional with respect to preparing and pursuing a protest/ petition does so to receive “advice or counsel” as to the “legal rights” in defending against the Department’s Notice of Proposed Deficiency. (Of interest is the fact that a protest/petition must be filed with the “Legal Section” of the Department of Revenue.) Department Officially Adopts “Practice of Law” Standard This is extremely notable. The Nebraska Supreme Court provided huge discretion, in state tax matters, to the “agency or taxing authority.” This provided the Department with a broad range of options. Interestingly, rather than adopt a relaxed standard for CPAs, the Department went right back to essentially the same “practice of law” standards required by the Nebraska Supreme Court under normal (nontax) circumstances. Conclusion This means that, other than in rare situations, a taxpayer is required to be represented by an attorney in the preparation of a protest/ petition and in seeking the resolution of that case. The exception would be when the protest/petition does not request a hearing, which we believe would send the wrong signal (if obtaining an optimal settlement is desired) and also constitutes a risky approach because the Department could deny the protest/petition before the taxpayer or CPA has the opportunity to provide evidence supporting the taxpayer’s case. (We leave it here for the nonlawyer to professionally decide his or her comfort in drafting any protest/ petition, which is a legal document—with or without a hearing request—because a protest/petition must state “all material factual allegations” (Reg. 33-003.01A(3)), and, to determine what facts are “material,” the protest/petition drafter needs to determine and advise on precisely what the legal issues actually are.) Is the Department’s Unofficial Action Different? Some may ask why the Department’s attorney handling a protest/ petition (that has a hearing request in it) doesn’t object when a CPA is representing a taxpayer. Perhaps they see an advantage. Perhaps they believe it is the CPA’s job to address the professional standards. Perhaps they believe protests/petitions don’t deal with a taxpayer’s “legal rights” (even though the Department requires all protests/petitions to be filed with the Department’s “Legal Section”). Or perhaps they have misread the information guide or regulations. The best we can do is address what we believe the official regulations clearly require. Other Situations Non-Nebraska Attorneys. What about non-Nebraska attorneys? Non-Nebraska attorneys are permitted to represent taxpayers— provided they bring in a Nebraska attorney who actively participates in the case (Reg. 33-008.03C). Nonlawyer Officers and Employees of the Taxpayer. Essentially the same rules that apply to CPAs (plus some other requirements) apply to nonlawyer officers and employees of a taxpayer (Reg. 33-008.04). Refund Claims. Essentially the same rules that apply for protests/ petitions also apply for refund claims, with the important difference being that for income tax refund claims the request for hearing must be made with the original claim—versus for sales tax and other claims, the hearing request must be made prior to the Department taking action on the claim, which again poses the risk of a claim denial before the request is made (Reg. 33-002.03). What Are We Recommending? Ever since the first tax was imposed thousands of years ago, disputes have occurred as to what is taxed and how it is to be taxed. That continues today. Continued on page 24 ► 23 www.nescpa.org
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