From: Robert S. Schwartz [RSchwartz@lindabury.com]
Sent: Wednesday, November 20, 2002 7:23 PM
To: 'rule-comments@sec.gov'
Subject: Sarbanes-Oxley Auditor Regulation (s7-40-02)

							November 20, 2002

			Re:  Sarbanes-Oxley Auditor Regulation


Dear Sir or Madam:

	I recommend that the upcoming SEC proposed rules for the
above-referenced matter bar an auditor (of a reporting company) from
providing (federal, state or local) tax planning services to an audit
client, such as setting transfer pricing prices under the Internal Revenue
Code, recommending the establishment of off-shore tax dodge entities or
determining whether a proposed major corporate transaction qualifies as a
tax-free reorganization.  This is because such services constitute
prohibited "expert" and/or "legal" services within the meaning of the
legislation, and, following the legislative history, because the auditor is
acting as an advocate of the audit client by providing it with these tax
planning services, and moreover, the auditor has a duality or apparent
conflict of interest when reviewing a financial statement tax provision
covering tax matters that were either the subject of or may be influenced by
tax planning services provided by the auditor to the audit client.  This bar
should be an absolute bar, not merely a matter of "materiality" which
standard requires the exercise of imperfect auditor judgment.  The public
shouldn't be left guessing.

	For similar legal reasons, I recommend the upcoming SEC proposed
rules bar an auditor from providing all tax-related services that make the
auditor an advocate of the audit client in matters affecting the client's
tax liability.  Such matters include, but are not limited to, client
representation before any tax administrator at any level, such as IRS
Appeals, a state division of taxation audit reviewer or Revenue Canada.
This bar should be an absolute bar, not merely a matter of "materiality"
which standard requires the exercise of imperfect auditor judgment. The
public shouldn't be left guessing.

	By contrast, the auditor should be permitted to perform the service
of reviewing the adequacy of the financial statement tax provision, i.e.
provide this "tax" service (within the meaning of the legislation), and to
prepare "tax returns", another form of "tax" service, regardless if in the
course of preparation the auditor confronts a tax question involving the
proper interpretation of the law or proper application of the law to the
then known facts.  On the other hand, the auditor should be barred from
preparing returns when also serving as the "tax department" of the audit
client.  ( I am assuming this business practice will be permitted, although
I'm strongly against it.)  Moreover, whenever a reporting company lacks tax
return preparation employee personnel, the auditor should be barred from
preparing its tax returns. In such circumstances, the auditor has a duality
or apparent conflict of interest. 

	The auditor also should be barred from providing any tax advice in
connection with filing amended tax returns.  Falling under an important fine
point of at least the federal tax law,  an amended tax return is, as a
matter of law,  not "the tax return".  Drawing upon this long-standing
principle, the proposed regulations should reflect recognition of the fact
that preparation of an amended return ordinarily involves a restated tax
position in the nature of advocating for a tax reduction on the basis of
purportedly changed facts and/or involving a new or different interpretation
of the tax law and/or a reapplication of the tax law to the same or
purportedly changed facts.  An audit client's tax provision should be deemed
as affected by the filing of an amended return. The bar should be an
absolute bar,  not a matter of the exercise of imperfect auditor judgment
about which the public has to guess.

	Thank you for allowing me to comment. 

	
Sincerely,
	
Robert S. Schwartz, Esq.
	
Lindabury, McCormick & Estabrook
	
Westfield, New Jersey