December 29, 2003
Professional Responsibility & Limited Liability
Posted by Gordon Smith

The New York Times is reporting {ID=venturpreneur; password=blawg} that the Internal Revenue Service is cracking down on questionable tax opinion letters from attorneys and accountants, another legacy of Enron. Interestingly, policy makers are finally making the connection between the increased availability of limited liability and lower professional standards:

Another move would require legal and accounting firms to police their partners through high-level oversight committees. Mr. Everson said that a breakdown in professional integrity at some firms was a core problem for tax law enforcement.

This strategy is intended to counter the weakening of self-policing resulting from a shift in the legal form of most professional firms - from partnerships to limited liability partnerships - a change that has gone virtually unnoticed by Congress in its inquiries into the spread of tax cheating.

Under the old form, each partner was liable for all acts by all partners, a powerful incentive to enforce compliance with the law. Under the new form, the liability of each partner for misconduct by other partners is limited or even eliminated, provided that the partner remains unaware of the misconduct.

I told you so. (Thanks to Bill Whitford for the pointer.)

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