Advantages of Using A Tax Attorney Who Is Also A CPA

The advantages of using a tax professional who is both a CPA and an attorney are several.  Firstly, in some cases income tax law and estate tax law are related and incurring one form of tax will give rise to a corresponding deduction for the other tax.  This occurs when a decedent has "income in respect of a decedent" upon his or her death.  Income in respect of a decedent (IRD) is basically income due to a decedent at the time of his or her death upon which has been paid neither income taxes nor estate taxes.

Professional fees owed to a decedent at the time of death are one example of IRD.  Other common examples may be money within a traditional IRA or pension fund and U.S. Savings Bonds with accrued interest upon which the decedent has not yet paid income taxes.  Essentially, Congress recognized that this income is subject to "double taxation" and authorized an income tax deduction for the part of the estate taxes paid on this income.  This tax deduction is the most frequently missed tax deduction of all, basically because accountants and taxpayers do not understand it.  A professional who is both a CPA and an attorney is in a better position to be familiar with both income taxes and estate taxes and to make sure you, the taxpayer, get all the deductions available to you.

Another example of the overlap between income and estate taxes occurs then an asset may be titled in such a way that it is taxed for estate tax purposes but will, by being subject to the estate tax, get a step up in basis to its value at the date of the decedent's death.  A common example is a personal residence.  If a couple purchased their house 30 years ago for $100,000 and it is now worth $600,000, the beneficiaries can sell the house and not pay any capital gains taxes (income taxes) on the gain of $500,000.

Aside from increased knowledge, using a dual professional CPA attorney avoids a common problem experienced by many taxpayers; their accountant and attorney don't communicate regarding their situation and therefore tax saving opportunities are missed.  Just about every legal document you sign where money is exchanged has tax saving opportunities.  Is your tax professional aware of them?  Can he quantify them and forecast the effect upon your taxes?  Is your tax professional offering you tax saving suggestions annually or does he merely prepare your returns mechanically?  If your answer to either of the first two questions in no and the answer to the third question is yes, perhaps you need a new tax professional.

Licensed versus Unlicensed

Understanding the advantages of using a dual professional can be better understood my comparing the pros and cons of licensed versus unlicensed tax professionals.  If a client's main goal is simply inexpensive tax preparation, an unlicensed professional will probably be the least costly choice.  By unlicensed we mean an "accountant" who is neither licensed by his state board of professional licensing services or by the Internal Revenue Service.

The Internal Revenue Service administers an exam for people who wish to represent tax payers before it.  Upon passing, an account is allowed to represent taxpayers before the Internal Revenue Service.  This is usually done by having the taxpayer sign a power of attorney form (Form 2824) authorizing the accountant to act on his behalf in tax disputes as an enrolled agent.

The State Boards of Professional Licensing Services administer and grade the Uniform Certified Public Accountant Exam.  While the exam is the same in all 50 states, the standards needed to pass it both for education and achievement vary from state to state.  In addition to the ability to represent taxpayers before the IRS and The State Departments of Taxation and Finance, the CPA designation subjects its licensees to a rigorous code of ethics to which they must comply and requires the licensee to complete continuing education courses totaling a certain number of hours annually to maintain their license.

A CPA must be more careful than an enrolled agent in taking a controversial position on a client's tax return.  Generally, most states require the CPA to use the standard "it is more likely than not that the taxpayer's position on his return will prevail in a tax examination or a tax court proceeding."  This insures the taxpayer that his tax professional is not taking overly aggressive positions on his behalf which may subject him to large civil and or criminal tax penalties.

It is interesting that an IRS study of tax returns prepared by tax professionals has found a much higher percentage of tax returns that the agency regards as problematic prepared by unlicensed professionals as opposed to licensed tax professionals.  The Internal Revenue Service has proposed to Congress that unlicensed professionals be required to take an annual exam administered by it, pay an annual fee and complete a number of continuing education credits to maintain their right to prepare tax returns.

David Kass is both an experienced tax attorney and a CPA.  Please contact Kass & Kass to schedule a consultation. A brief introductory consultation is available for a nominal charge.