One of the most common questions taxpayers have is whether they should hire a CPA or tax attorney when facing an audit. It’s also a question I’m frequently asked as a tax attorney. Given that most people use a Certified Public Accountant (CPA) for tax preparation, many taxpayers assume the CPA is the best person to help them navigate an IRS audit. The reality is that a tax attorney may be your best option when it comes to defending you against costly audits, such as those from the Internal Revenue Service (IRS), the California Department of Tax and Fee Administration (CDTFA), or the Employment Development Department (EDD).
The Difference Between a Tax Attorney and CPA
While both professionals are familiar with taxes and taxation rules, there are very clear distinctions between a CPA and a tax attorney. A CPA prepares and files tax returns. They may also manage bookkeeping, handle payroll and plans for financial and retirement needs. Their credentials require a bachelor’s or master’s degree, a four-part Uniform CPA Examination, and state licensing.
A tax attorney focuses on more complex legal tax matters. They understand the law and are able to take your legal situation as far as necessary to obtain a successful result. Lawyers also have the ability to take your tax controversy case to Tax Court if necessary, and may handle formal tax court litigation, criminal tax investigations, and severe legal disputes. Attorneys require a Juris Doctor (J.D.) degree from law school and a state bar certification. Tax attorneys
However, the biggest — and perhaps the strongest — distinction between a CPA and a tax attorney is when you hire an attorney, you have an attorney-client privilege. There is no client confidentiality between you and your accountant or tax preparer. When you hire an attorney, you are allowed to freely communicate with your attorney. If you face any criminal charges, your tax preparer or accountant cannot provide this same protection. In most cases, he or she will be compelled to testify against you. Not because they want to; but because they will not have a choice, as confidentiality does not exist. That is not the case when you have attorney-client privilege with a lawyer.
It’s highly likely that you, as a taxpayer, will not need a tax attorney until you have an issue with a government agency like the IRS, EDD or CDTFA. However, having a tax attorney available to you before an issue arises can save you or your business valuable time and money.
Another question I’m frequently asked is if a taxpayer is facing an audit and hires a tax attorney, will the government agency assume they are guilty. The reality is that you have the right to representation. The government agent understands you are busy with your own business and that it is more efficient for you to hire a tax attorney and focus your time and energy running your business.
Additionally, my experience as a tax attorney has shown me that the government agents actually like that an experienced person is working with them because, in many cases, we do their work for them. We know the format, the questions and the documentation that the agent will request. We review your information and provide it to the government agent in an organized manner, which saves the government agent’s time and energy.
Both a CPA and tax attorney provide great value to you as a taxpayer and your business. Both have their specializations and are a necessary part of your tax journeys. That being said, if you find yourself in a situation where you’re facing a tax audit or dealing with a government agency, your first step should be consulting an experienced tax attorney. While a CPA or tax preparer is extremely skilled in their area of expertise, you want to make sure you are protected legally.
Allison Soares is a partner and tax attorney at Vanst Law LLP. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits from San Francisco to San Diego.
