Before deciding between a Certified Public Accountant (CPA) or a tax attorney, it’s crucial to understand your specific needs. If you require services like tax preparation, reporting, bookkeeping, accounting, or general tax and business advice, a CPA might be a more cost-effective choice. However, if your situation involves a tax dispute or an understanding of a specialized area of the tax law, which could possibly turn into a court case, it’s often more efficient and less expensive to engage a tax attorney from the outset.
What Does a Tax Lawyer Do?
A tax attorney is licensed and specializes in tax law. Most tax attorneys have a Master of Laws degree in taxation, which involves advanced training in a particular area of the law and results in a specialized certification called an “LLM.”
There are various types of tax lawyers, each with their area of expertise. For instance, transactional tax attorneys analyze the tax implications of business transactions and combinations, while international tax attorneys specialize in cross-border tax issues. Other types include criminal tax attorneys, tax bankruptcy attorneys, estate planning and trust tax attorneys, tax controversy and tax collection defense tax attorneys, and state and local tax attorneys. Each type of tax lawyer brings unique skills and knowledge to the table.
In many instances, it’s important to confirm that a particular type of tax attorney has prior governmental experience for example, in the case of hiring a tax controversy, tax collection defense, tax bankruptcy, and criminal tax defense matters. A seasoned tax attorney well versed in the United States or state tax administration systems, particularly the Internal Revenue Service and the federal and state court systems, can prove invaluable.
When you hire a tax attorney, you become protected by the attorney-client privilege. This privilege ensures that any communication between you and your tax attorney is confidential and protected by law and provides a high level of comfort when resolving complicated tax issues, enabling the parties to discuss sensitive tax matters freely.
Lastly, hiring a tax attorney with an accounting background or a CPA can prove invaluable in achieving certain results because they understand financial statements and the proper accounting treatment for certain types of transactions. In addition, many tax attorneys who are also CPAs may have a tremendous amount of experience understating and reviewing tax returns and different reporting and disclosure requirements. CPAs
Hiring a tax attorney offers a wider spectrum of possible solutions and outcomes than other tax professionals.
What Does an Accountant (CPA) Do?
A Certified Public Accountant, or CPA, is a licensed professional who must obtain a certain level of education in accounting, pass a comprehensive 16-hour exam, and then fulfill state-determined licensing requirements to ensure the proper training and work experience.
CPAs are typically responsible for assessing a business’s financial operations, creating and reviewing accounting, information, and management systems for effectiveness and efficiency, maintaining and managing financial records, preparing tax returns and overseeing tax reporting obligations, and reviewing financial statements for accuracy and completeness.
CPAs generally serve 5 different industries:
- Public Accounting
- Private Business and Industry Roles
- Government Accounting Positions
- Teaching and Education
- Not-for-profit Services
Within each industry, CPAs can fulfill a variety of functions including:
- Financial Accounting, Reporting, Budgeting and Forecasting
- Management or Cost Accounting
- Internal or External Auditing
- Tax Preparation and Planning
- Financial Consulting and Investment Advising
Most CPA accounting positions fall into the following categories:
- Accountant
- Auditor
- Budget analyst
- Financial manager
- Forensic accountant
- Revenue agent
- Tax preparer
Importantly, although an accountant can prepare financial statements, only a CPA can certify them. In addition, even though an accountant can prepare a tax return, only a CPA can represent a taxpayer before the IRS. And while an accountant can assist with internal or external audits, only a CPA can certify the audit. Lastly, a CPA must comply with ongoing continuing education and ethical requirements to maintain their license. Thus, they are more likely to remain current in recent tax laws and trends in the industry.
When Tax Attorneys and CPAs Work Together
There are several circumstances in which a Tax Attorney can effectively work with a CPA to the client’s advantage to obtain more effective and efficient representation. As mentioned above, one advantage of hiring a CPA is that oftentimes, much of the work can be completed less expensively, particularly where the CPA is the one who prepared and filed the client’s tax returns and may be more familiar with the client’s tax history. For this reason, the CPA can be more effective at summarizing transactions and accounts and play a crucial role during the administrative tax audit and appeals stage of a tax controversy matter. CPAs can assist tax lawyers in understanding the financial implications of tax-advantaged business transactions. To accomplish this, tax attorneys often establish a “Kovel” arrangement based on the case of United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), enabling them to extend the attorney-client privilege to communications between them and enabling the CPA to interpret technical accounting and financial transactions into summaries that the tax attorney can use to represent the client.
Besides working together on tax controversy matters, tax attorneys and CPAs often also work together in connection with business valuations, entity formation, mergers & acquisitions, obtaining banking credit arrangements, employee benefit plans, including employee stock option plans (ESOPs), the sale of a business, and estate and succession planning. To ensure a successful collaboration, there should be a detailed plan, with the tax attorney serving as the team leader, defining methods and frequency of communications, responsibilities, and a timeline with milestones and deadlines.
Questions? Contact Us Today for a Free Consultation!
At Tax Workout Group, many of our tax attorneys are CPAs. In addition, we operate a practice area within the law firm, which is a separate accountancy firm licensed by the State of Florida—the Tax Compliance Group. Thus, when you work with us, you get the best of both worlds!
The Tax Compliance Group consists of tax specialists, certified public accountants, and expert tax accountants who are dedicated to delivering expert tax compliance, tax reporting, tax accounting, and tax advisory services. We also provide dedicated bookkeeping support. Contact us today and we will be your tax relief guide!
