Tax Attorney vs. CPA: What’s the Difference?
Two professionals come to mind when you have tax issues–CPAs and tax attorneys.
Although they seem to provide overlapping services, there’s a fine distinction between the services provided by each professional.
Why might you seek the help of a tax attorney rather than a CPA? Continue reading to find out.
What Do CPAs Do?
Certified Public Accountants or CPAs are the probably first person you’d ask assistance from when it’s time to file your taxes.
You might be surprised to learn that many CPAs do not even handle tax matters. Many CPAs only handle books and accounting. They focus on preparing and auditing financial statements.
CPAs do have to have a license. CPAs are licensed through the state. Each state has different requirements for CPAs; however, none of them require any education or training in taxes. This is why most CPAs do not have any tax-specific education or training.
CPAs who handle taxes usually have to learn about them on the job. They also have to learn about our legal system. Tax returns prepared by CPAs and others often end up in the IRS and state administrative process and in court. This learning happens during tax season when they try to file as many tax returns as they can, given that they are usually paid per return. Tax preparation is their business. While this is not always the case, coming up with a tax plan is often not a service CPAs offer. The CPA may be focused on the tax treatment of one issue for the taxpayer rather than the overall tax plan, This is the accounting side of taxes.
This is why CPAs, in general, are better at handling the financial side of your tax returns. They can help you make financial decisions. This is largely a function of being able to better understand the balance sheets and calculations that are reported on tax returns.
What Do Tax Lawyers Do?
Just like CPAs, attorneys do not need to have any tax-specific education or training. They have graduated from law school. They are licensed by the state, but tax knowledge is not tested on the bar exam.
With that said, most tax attorneys will have some accounting and finance knowledge. Many are CPAs, former accountants, etc. Many have an advanced tax law degree, which is an LLM.
Tax attorneys usually do not focus on balancing the books or finding errors in recording financial transactions or helping you make financial decisions. They may specialize in helping with particular transactions, such as drafting tax-motivated agreements, planning complex estates for individuals, or helping individuals stay out of trouble with the IRS.
Why Might You seek the Help of a Tax Attorney Rather Than a CPA?
When You Need Expert Tax Planning
Tax attorneys should be hired if you need expert help with a complex tax position. Tax attorneys usually focus on tax planning and structuring tax-motivated transactions. Since they have an intimate knowledge of tax law and the tax code, including court cases and legislative history for our tax laws, tax attorneys can often help you navigate tricky tax situations and fact patterns to minimize your taxes.
Some of this work may even require a law license, as there are significant legal complications with these transactions. Some attorneys focus on specific transactions, such as businesses, while others focus on estate planning and lifetime transfers.
When the IRS or State Tax Authorities are Involved
Tax attorneys should also be hired if you need an expert to negotiate with the Internal Revenue Service and state tax authorities or defend tax positions in court. Attorneys are adept at presenting complex topics and advocating for clients.
Many tax attorneys focus on dealing with trouble with the IRS. They can keep you out of trouble with the IRS, such as avoiding tax penalties, making tax payments to avoid wage garnishments, and helping with any other tax dispute. This type of tax controversy work and tax defense case is squarely within their wheelhouse.
When it comes to serious issues concerning the tax law and staying out of trouble with the IRS, such as avoiding account levies or a criminal investigation, it can be advantageous to hire an expert tax attorney who has more experience in dealing with the tax law and the IRS and state tax bureaucracies. This too is a generalization–and there are exceptions.
When Confidentiality Matters
Tax attorneys should also be hired when confidentiality matters. This is one of the biggest distinctions between tax attorneys and CPAs. Tax attorneys generally cannot be compelled to divulge confidential client information. Tax attorneys can be the better choice in these situations.
Attorneys have to abide by the attorney-client privilege (it is your privilege) and their work is often protected by the work-product privilege. So, the court can’t force your tax attorney to reveal everything they know about your affairs. This legal shield makes it easier for someone to talk to an attorney and reveal all the messy details needed to zealously represent and defend you.
On the other hand, CPAs do not have the same privilege. They can be forced to divulge any and all information they know about you and your affairs. This is particularly problematic in criminal tax cases.
Tax Attorneys & CPAs Are Similar, But Different
CPAs and tax attorneys can help you minimize your tax liabilities, but their involvement in that process can vary.
As long as you don’t require legal advice, legal documents prepared, or civil or criminal litigation, CPAs can help you find ways to minimize your tax liability. What may appear like a complex tax issue to you may be simple to solve for your CPA. And involving a CPA can often help you reduce your tax liability.
Tax attorneys get involved in matters like choosing the right legal entity, structuring a business purchase or sale, or dealing with specialized tax laws such as international transactions. While not always the case, there are instances where they are more comfortable teasing out the nuances in the law to your advantage.
Tax Attorney Near Me
Knowing that you need a tax attorney is just the first step. The next step is to find a tax attorney–preferably a tax attorney that is located near you.
There are a number of ways to find tax attorneys. You may think that the internet is the place to find a tax attorney. If you are reading this website, that may be the case. But for many, the internet has actually made it more difficult to find a qualified tax attorney. This is largely due to the significant efforts tax pros put into marketing their services online.
This is a very competitive space on the internet. In fact, it is common to find CPAs who actively advertise online that they are tax attorneys. You will also see those who are not even CPAs advertising online that they are tax attorneys.
Another way to find a tax attorney is to ask for a referral. You might start with family and friends if you are not concerned that they may misconstrue your need for a tax attorney. You might also start with other professionals you know. Most of our clients find us by referrals from other financial professionals, such as CPAs, financial planners, insurance agents, real estate agents, bankers, etc.
Business Tax Attorney
It is worth pausing to consider business tax attorneys. Business tax attorneys touch on some of the very same areas as CPAs and tax attorneys. They may help with business transactions, such as business purchases and sales and leasing and other arrangements, for example.
It is common for tax attorneys to be able to handle the business side of transactions just as business attorneys would. The same is usually not true for business attorneys. Business attorneys usually cannot (and will not) advise clients on tax matters. This gives business tax attorneys a huge leg up in planning and structuring business transactions.
If you have questions about a business tax issue, you should seek out a business tax attorney.
At the end of the day, we are all shaped by our training, education, and experiences.
Regardless of degree or designation, there are those who tend to “think like a lawyer” or focus on accounting and calculations more akin to an accountant.
One professional may focus on the argument and persuasion and the other may focus on the calculations and substantiation. Both have a place in the tax world.
Your task is often finding the right professional with the right focus for your tax matter.
By working with the right professional, you can save money and find an efficient solution for your tax matter.
Get Help With Your Tax Matter
We are experienced tax attorneys in Houston, Texas. We help clients with just about every type of tax matter, including tax planning, tax litigation, and more.
If you have a tax issue and need to talk to a tax attorney, please call or schedule an appointment with our tax attorneys today.