Originally published on Forbes.com Nov 17th, 2014
Last week I wrote about what I am calling the Kansas Property Tax Consultant War. The Kansas Court of Tax Appeals challenged the arrangements that property tax consultant Jerry Chatam had made with his clients. Mr. Chatam responded on two fronts and won on both. On the judicial front, a recent decision by the Kansas Court of Appeals overturned COTA’s decision. More dramatic was the legislative victory that converted the judges on the Kansas Court of Tax Appeals to members of the Board of Tax Appeals along with other changes favorable to appealing taxpayers or at least their consultants. For my third post on this topic, I have a first for my blog. I interview Trevor Wholford,who served as a judge on COTA. His views on the controversy are a bit different from Mr. Chatam’s, as you might expect.
Peter J Reilly: Was COTA holding that the practice of property tax consultants working on a percentage basis fundamentally unethical?
Trevor Wholford: To be clear, I did not join in the majority opinion. I wrote a separate, five-page concurring opinion. The focus of my opinion was the legal effect of the contractual relationship between Chatam and his taxpayer-clients.
With respect to tax consultants working on a “percentage basis,” my personal opinion is that such fee arrangements are neither fundamentally good nor fundamentally bad. It all depends on the circumstances. In my estimation, there’s not a whole lot of potential for mischief when a non-lawyer tax professional does work within his area of expertise for a taxpayer and receives a reasonable contingency fee for his services. Problems arise, however, when lawyers enter the picture. When a tax consultant retains a stake in the outcome of a tax appeal case after the case has been turned over to a lawyer, the tax consultant and lawyer are sharing fees. Lawyers are prohibited from sharing fees with non-lawyers for a variety of reasons, not the least of which is that these fee arrangements interfere with the attorney-client relationship and allow lawyers to solicit clients through “feeder” relationships with non-lawyers.
Reilly:What was wrong with people turning over control of cases to a consultant?
Wholford: I don’t believe there is anything wrong with a taxpayer relying heavily on a tax consultant. Problems arise when the tax consultant goes from being a professional agent to being the actual party in a tax appeal lawsuit.
Under the contract in Lyerla, the tax consultant (Chatam) was operating under a contract whereby the taxpayers assigned their appeal rights, in total, to Chatam, a non-lawyer in the business of acquiring and litigating the claims of other people for profit. The contract gave Chatam unfettered control over these case, and the taxpayers retained no authority to decide how—or even if—their appeals would be prosecuted. In exchange, the taxpayers were promised a share of any recovery—that is, assuming Chatam found it beneficial to his own portfolio to bring the case in the first place.
These kinds of arrangements inevitably lead to “horse trading”—i.e., compromising the interests of some taxpayers to gain advantages for other taxpayers (or even the tax consultant himself). They also lead to the practice of flooding county assessor offices with masses of appeals and using sheer volume as leverage to extract nuisance settlements. An entrepreneur can make a tidy profit each year aggregating and leveraging the appeal rights of thousands of taxpayers and settling claims within the margins.
Conduct such as this has been widely reported by county officials. For example, during a formal legislative hearing in September 2013, one county official testified that it was indeed a “truism” that such conduct occurs regularly, in addition to frivolous filings, unauthorized representation, discovery misconduct, and even physical intimidation and verbal abuse.
I encourage you to look into the 2009 case in which the Texas AG sued the tax consulting firm O’Connor & Associates for consumer protection violations. That case exemplifies what can happen when a tax consulting firm is given unfettered, blanket authority over taxpayer claims.
Reilly: Was there some sort of resentment from the Court of Appeals that COTA in the executive branch was putting on the airs of an Article III Court?
Wholford: No. I don’t believe the Court of Appeals’ opinion showed any resentment or ill will toward COTA or its judges. In fact, overall, I think the opinion was measured, well-reasoned, and showed a lot of restraint. Tax consultants might be heralding this opinion as a win, but I think they will figure out soon that it is not.
It’s important to note that the Court did not endorse the conduct addressed by the majority in the COTA decision; the Court merely decided it was unnecessary to go there. More important perhaps, the opinion appears to sanction COTA’s (now BOTA’s) authority to review contracts between tax consultants and taxpayers for the purpose of determining whether it is actually the tax consultant (and not the taxpayer) who is bringing the case.
Reilly: How do you account for the rather fast work of the legislature in this matter?
Wholford: I was not privy to the inner workings of the process. All I can say is that when powerful interests coalesce and are met with only anemic opposition, things can happen pretty quickly. I’m sure it was next to impossible for the opposition to get folks to understand that while this legislation was sold with soaring populist rhetoric—and, frankly, a lot of false facts— it protects the interests of only a narrow few. Of course, that’s the nature of much that goes on legislatively these days. It’s just politics.
Reilly: Is the restructuring to make the court more “taxpayer” friendly a reflection of anti-tax animus?
Wholford:I think the people pushing the legislation exploited anti-tax animus, without a doubt. It doesn’t take a lot of heavy lifting to win a political battle like this one. I knew that from the outset.
The reality is, however, that the legislation did not make COTA/BOTA more “taxpayer” friendly, at least in the way most taxpayers would hope for or expect. What the legislation did was make the body more “tax consultant” friendly—and I suppose, by extension, it was also pretty friendly to a small group of preferred taxpayers
Reilly: Is there a Tea Party connection to this story?
Wholford: I have no idea. You can research the people who sponsored and pushed the bill and decide for yourself. But if there was in fact influence brought to bear by people aligned with the Tea Party, I would submit the Tea Party folks were coopted and tricked into carrying water for people who do not share their core beliefs. This legislation had nothing at all to do with taxpayer rights in general.
Reilly: I saw a reference to the practice of consultants trading off one property for another. Is there evidence of that or other unethical activity?
Wholford: Yes. Also, during my tenure at COTA, staff routinely fielded calls from puzzled taxpayers who had no idea they were involved in tax appeal litigation and said they had never even had met the attorney who was purporting to represent them. Many times these taxpayers said they had no problem with their assessment. These calls say a lot about what goes on behind the scenes.
Reilly: Is it fair to characterize the legislation as downgrading COTA?
Wholford: No. Not from a legal standpoint at least. But the legislative process clearly had a deleterious effect on the body, which is unfortunate. BOTA is still the tax court of record in Kansas, and it still is staffed with good, competent professionals who do their best each day to decide cases fairly based on the facts and law that is before them.
Reilly: Is there anything to the notion that the Bicknell decision was a motivating factor? (Bicknell is a very large ($40+ million) income tax case working its way through the system)
Wholford: I don’t have any first-hand knowledge that the Bicknell decision influenced the legislation. There were good, respectable lawyers on both sides of that case. I can’t image any of them would have had anything to do with this sort of thing. The entire legislative fight was founded on disparaging the Court of Tax Appeals and its judges. It is unethical for lawyers to do that.
Well that was really something. When I started blogging nearly five years ago, I never thought I would get to interview a judge. It’s almost as good as interviewing a presidential candidate
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