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Ancillary businesses for professional firms

by Anthony J. Soukenik

This is a multi-part series of articles, discussing the opportunities, benefits, and compliance factors of operating an ancillary business for professional firms, both accounting and legal firms alike. 

Our firm created a subsidiary by vote of the shareholders to own and operate an ancillary tax appeals business. Tax appeals come in two forms: real and personal property. Regarding real property there are three categories in order of highest return: commercial, residential and agricultural. In Missouri, like most jurisdictions, the first property tax appeal is to the Board of Equalization (BOE) of the county of which the real property or personal property is located. 

For the better part of 35 years, we have prepared tax appeals (mostly real estate tax appeals) for our clients. Until the last five years, these appeals were managed by our firm’s paralegals and attorneys at the Board of Equalization, and if the result was unsatisfactory, an appeal was taken to the Missouri State Tax Commission. 

In Missouri, BOE appeals can be managed by agents that are unlicensed both in real estate and law. Several tax appeal firms operate in this space mostly comprised of non-lawyers; then upon appeal to the State Tax Commission, the work is referred to a law firm.

Our firm had a dedicated attorney handling tax appeals until his departure from the firm, at which time the  old adage became a reality, “when one door closes another door opens”. Rather than hiring another attorney to manage tax appeals, we decided to form a subsidiary and hire an executive that could market, prepare, and submit appeals to the BOE. If the BOE decision is unacceptable the executive, then supported by our law firm or the client’s choice of another law firm, the client shall file an appeal to the State Tax Commission.

One of the many unintended positive consequences of having a subsidiary managed by an executive was the positive response by members of the firm referring tax appeals to the subsidiary, as the executive had a dedicated purpose and there were fewer challenges as to who would receive origination credit since there was no attorney involved in filing the tax appeal until the matter was appealed to the State Tax Commission. With focus and guidance from the firm, this business blossomed. It was profitable from the beginning, and became so competitive that a competitor sought to employ our executive, which resulted in the sale of the subsidiary to the competitor on lucrative terms to the firm. This experiment has caused our firm leadership to consider new ancillary business opportunities which could complement our legal services.

While this was our first ancillary business, it will not be our last. These ventures will be the subject of a multi-part series of articles. Our next article will focus on navigating the ethical challenges of owning an ancillary business, including an examination of disclaimers to the subsidiary’s clients, that the advice provided the subsidiary’s employees, is not legal advice; a dedicated entrance; client permission to share information between the law firm and the subsidiary; and the legal ethics rules from state to state, which may allow non-lawyers to be co-owners in ancillary businesses.

30 November 2023

Anthony J. Soukenik

Sandberg Phoenix & Von Gontard P.C., Shareholder

Sandberg Phoenix & Von Gontard P.C.