The combination of CPA-attorney has been a tempting one for CPAs that are looking for ways to enhance their expertise and increase billings and for lawyers to find a lucrative niche to specialize in. But let there be no mistake, even though both lawyers and accountants practice in the tax area, there are things that CPAs do that are more appropriate to let them do, and vice versa for attorneys.
Lawyers need to be careful in what tax work they take on personally in order to avoid putting their clients in jeopardy. For example, attorneys preparing tax returns for their clients often do not realize that by signing their names as the tax preparer, they are waiving the attorney-client privilege as to matter disclosed on the face of the returns. Moreover, attorneys who prepare a pro forma balance sheet and profit and loss statement for their client in connection with a bank loan or business sale run into similar problems of waiver. The issue is one of subject matter privilege.
Accountants likewise must be careful. For example if an accountant discovers that a previously filed tax return omitted large amounts of unreported income or inaccurately reported the existence of deductible expenses, there may be a temptation to file an amended return to correct the problem before the IRS takes action. But even in situations where this might be interpreted as innocent error, it calls for referral to an attorney. An amended return is an admission by the taxpayer that the original return misstated the taxpayer’s income or expenses and commits the taxpayer to the figures used on that amended return. Rather than file an amended return, it is often better to hire an attorney to approach the IRS to informally self-disclose the missing income.
A properly firewalled tandem between a CPA and attorney could provide for a more positive outcome. By referring the matter to an attorney who concentrates in the area of tax controversy, the client is protected from the adverse consequences of a premature amendment. Meanwhile the CPA through forensic analysis may discover that even though the original deductions were wrong, there are other deductions that were not taken and these could offset the erroneous deductions. The attorney properly takes care of legal advice and the CPA properly takes care of the accounting.
Adapted from a 9/23/16 article in Accounting Today.