August 11, 2015
“Both And,” not “Either / Or”
Ask not, “Do I need a tax attorney or an accountant?” Instead, understand why you need both a tax attorney and an accountant. Unless you have both, you are leaving yourself potentially exposed to financial and legal liability.
Tax attorneys generally have a Juris Doctor (J.D. or “Doctor of Laws”) as well a Master of Laws (LLM) in Tax Law. Certified Public Accountants (CPAs) are not attorneys (unless they are also attorneys); they are accountants who have had to pass the Uniform CPA examination. Generally speaking, attorneys focus on tax defense and strategic planning in advance to avoid the necessity of defending a client against whom the government has brought a case for tax crimes. CPAs, on the other hand, generally tend to focus on the creation of financial statements and other documents which report financial information about a person or business to interested third parties, including the IRS.
Some people find it confusing that many CPAs work in a variety of tax-related areas that often overlap with certain areas of tax attorneys’ professional practice. CPAs and tax attorneys each have their own unique specializations, however; understanding these particular, exclusive proficiencies is important to understanding why you need both a tax attorney and an accountant on your business support team when tax time comes around each year.
Understanding Your CPA’s Practice
A CPA has the flexibility to work in any area of accounting, including auditing, taxes, financial accounting and reporting, financial analysis and cash management, according to the American Institute of CPAs. CPAs work in both the public and private sector. Earning a CPA improves an accountant’s job flexibility and career advancement prospects, according to the Bureau of Labor Statistics. Some accounting positions require a CPA title. For instance, an accountant who files a report with the Securities and Exchange Commission must be a CPA.1
Understanding Your Lawyer’s Practice
A J.D. is designed to provide budding lawyers with a broad base of legal education, preparing them to focus on any area of the law. While in law school, they can focus their education in particular legal specialty areas, such as criminal law, tax law, labor law, environmental law or corporate law, so that they are prepared to concentrate their practices in their chosen area. Some lawyers who specialize in accounting areas, such as tax law, also acquire a CPA qualification to burnish their credentials.1
Also, some lawyers really go the extra mile, and get the LLM in Tax Law mentioned above. For attorneys who make that commitment, often Tax Law is all they do, and they focus on either the defense of clients against whom the government is bringing allegations of tax crimes or tax planning to help their clients reduce the likelihood of an audit or otherwise strategically optimize their tax credits and deductions.
CPAs and Tax Attorneys: Better Together
As the Start-Ups & Small Businesses Aspect of Practice Leader for the National Center for Preventive Law, I talk to a lot of people who are interested in starting a new business, as well as a lot of small business owners who are seeking legal advice. One thing I notice far too often is people trying to get by using either an accountant or a tax attorney, when they should be using both CPAs and tax attorneys.
If you are an entrepreneur, if you are involved in a start-up (as a partner, company officer, or investor), or if you are a business decision-maker with close financial ties to your company, you likely need a qualified professional to prepare financial reports and documents (CPA) and a different qualified professional to help you strategically optimize your tax credits and deductions (a tax attorney).
While some, if not most, CPAs who practice in the tax area can help increase your awareness of various credits and deductions, and while they may even help you make some good decisions, their focus is usually reactive, rather than proactive. What I mean by that is that CPAs tend to look things concretely, as they are, and concern themselves with analyzing and reporting the circumstances they observe. Tax attorneys, on the other hand, tend to look at the Internal Revenue Code, with an eye towards helping their clients strategically make decisions designed to lower their tax burden and add value to their business. In this way, tax attorneys tend to take an approach based on how they believe things should be, and try to guide their clients towards that ideal.
Again, there is some overlap, here, and that’s a good thing! The above statements are merely generalizations, not absolute, black-and-white statements of Gospel Truth. Also, your mileage may vary. There is surprising diversity in the marketplaces for accounting and legal services. The take-away point is: these professionals do some of the same things, but also a lot of things exclusive to their own professions; and they do what they do with largely different perspectives and goals. It is to your great advantage, therefore, to ensure you have both CPAs and tax attorneys supporting you and your business. Doing so will increase the likelihood that you are both accurately reporting your financial information to the IRS and other interested third parties, and making sound strategic business decisions that have favorable tax consequences.
If you need tax planning legal services, Executive Legal Professionals, PLLC is here for you. We can also point you in the right direction, if you need to get in touch with a good accountant who can help you with your business and personal financial documenting and reporting work. Feel free to contact us on the web, or give us a call at (615) 669-6566.
1 Gresham, T. (2013, April 20). CPA vs. JD. Retrieved August 11, 2015, from http://work.chron.com/cpa-vs-jd-13819.html
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