ArticleIt is not uncommon for a potential new client or even a new referral source to ask, “why would someone need to hire a tax attorney when they already have an accountant?” In many instances, the answer is that you may need to enlist both professionals.
There is no denying that there is some overlap between an accountant and a tax attorney. While tax attorneys and accountants both have specialized training in tax laws, rules, and regulations, the taxpayers who consult with them are generally facing very different issues. For example, a taxpayer may need an accountant to handle its bookkeeping, tax return preparation, annual tax planning and compliance and/or to analyze its financial data. A taxpayer, on the other hand, may need to hire a tax attorney when a review of the taxpayer’s books and records unveils ongoing failures to file and pay tax due, periods of unreported income or unsubstantiated expenses, payroll tax issues, missed tax elections, and the use of foreign financial accounts. A taxpayer may also need a tax attorney when there is a planned business transaction or other asset transfer that, without proper planning, could have significant tax consequences. Accountants most typically refer clients to a tax attorney when they realize that the client will need legal help that they are unable to provide, either because they do not have a specific skill set or they are legally barred from doing so (e.g., drafting wills, trusts, purchase and/or sale agreements).
Tax laws are also complex and can typically change from year to year. Both an accountant and a tax attorney may advise clients regarding what the tax laws permit; however, when there is a lack of clarity in terms of how the law should apply to a specific set of facts, a tax attorney is qualified to assist in analyzing that law and determining what position or action that client should take. Tax attorneys are well-versed in the federal tax code as well as state and local tax codes and other authorities. Tax attorneys play an important role in interpreting and understanding these complicated tax laws for clients, as well as instructing them as to their related rights and options. A tax attorney’s experience may extend into specialized areas like corporate transactions, estate planning and administration, tax litigation and even work with tax-exempt organizations.
Tax attorneys play an important role in interpreting and understanding these complicated tax laws for clients, as well as instructing them as to their related rights and options.
Most importantly, one of the biggest advantages of hiring a tax attorney is the benefit of attorney-client privilege, which applies in both civil and criminal cases. Attorney client privilege only protects communications that are (1) between a client and the attorney, (2) made in confidence, and (3) made for the purpose of securing legal advice. Attorney-client privilege does not automatically extend to third-party professionals, like accountants, unless that party is acting as an agent of an attorney in providing legal advice.1 For instance, the dynamics of a tax dispute with the Internal Revenue Service will drastically be affected if communications intended to be protected between an attorney and an accountant are disclosed.
Just as an individual may consult with a primary care physician and then an orthopedist for an injury, a taxpayer can benefit from having the right team of tax professionals around the table.
Michelle E. Espey is a Partner at Farrell Fritz, P.C. Michelle counsels clients on a broad range of tax matters, from representing individuals and corporations at all stages of Federal, State and New York City tax disputes to advising clients on the tax aspects of various transactions. Michelle currently serves as Co-Chair of the Suffolk Bar’s Taxation Law Committee and can be reached at mespey@farrellfritz.com.
Published in The Suffolk Lawyer, Vol. 40 No.3, April 2024
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1United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), extended the attorney-client privilege to accountants who are assisting attorneys. A discussion of accountant-client privilege, if applicable, is beyond the scope of this article.
