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In this episode of Practical Tax, tax attorneys Steve Moskowitz and Liz Prehn discuss the range of services tax attorneys can provide for their clients. Above all, the goal of the tax attorney – and this podcast, as well – as to make the client aware of different opportunities for saving taxes so they can achieve the best possible result. Listen to the podcast to learn more!
Speaker 1: 00:00 My brother has an accountant, and my boss has a tax attorney. I just started a small real estate company. I’m wondering which one will I need.
Speaker 2: 00:07 You’re listening to Practical Tax, with tax attorney Steve Moskowitz.
Steve Moskowitz: 00:10 There was a time when most people thought that all was needed for the taxes was an accountant. That’s how I started my career out. I was a CPA before I was a tax attorney. But then things changed, and the IRS got more aggressive. They started summonsing accountants and say, “What did your client tell you? Hand over the papers. What did you tell him?”
Steve Moskowitz: 00:32 With an attorney, we have attorney-client privilege, and also there is a difference. That’s why, when I became a tax attorney, I was already a CPA, but I wanted to be able to do more for the client. Like, be able to go into tax court for him or her, and everything else. To me, having achieved both licenses, there’s a big difference between a tax attorney and an accountant.
Steve Moskowitz: 00:52 For me, my personal experience was I had a certain range of service as a CPA. When I became a tax attorney, that so broadened. There was so much more I could do for a client. That’s the reason I went to law school to become a tax attorney and be able to do so much more for my client, completely.
Steve Moskowitz: 01:10 Over 20 years ago, I met my colleague Liz Prehn, a tax attorney. Liz, what are your thoughts on this area?
Liz Prehn: 01:18 I think it’s really an interesting question. I see the value in both the CPA and the tax attorney. I think, for our clients, it provides a really interesting tension that provides a great result for our client. CPAs have one set of rules. Generally very conservative. The tax attorneys have maybe a little more persuasive and may be pushing some boundaries, or coming up with some ideas that perhaps the CPA doesn’t take into account.
Liz Prehn: 01:46 It really provides a great result for our clients. As for the attorney-client privilege, I think we all know tax preparation is tax preparation, but in a lot of our criminal cases, we certainly have an extension to a CPA to help us interpret the case. That can only be done through an attorney.
Steve Moskowitz: 02:04 So what happens is that sometimes we’ll bring in people. Suppose, for example, someone speaks another language. The translator isn’t an attorney. What happens is a provision where anybody the attorney hires to work under him or her has that privilege. So when I’m speaking to that client in the other language, and the client’s telling me all his secrets, the IRS can’t go to the interpreter and say, “Aha, Mr. Interpreter, you’re not an attorney. What did the client say?”
Steve Moskowitz: 02:25 No, he’s under the privilege of the umbrella. That’s one of the ways you get around that. That’s why, for example, if an accountant is going to be employed, the client doesn’t employ the accountant, the attorney employs the accountant. So you have the attorney-client privilege.
Liz Prehn: 02:40 Interesting that the change… how cannabis has evolved. Back in the day, the CPAs and the accountants used to have a real problem with their clients because they didn’t want to know certain things or certain business activities, but they had to be able to comply with their taxes. At least a lot of people did. A lot of people didn’t, just bypassed the whole tax system. A lot of people were in the business of it and wanted to be able to buy houses and things like that. What they would do is they would have their accountant, and then they would have their attorney. They would go to their attorney and get advice on how to handle the tax situations because that part was privileged, when they’re talking to their attorney. Not when they’re talking to the accountant.
Liz Prehn: 03:18 That’s been interesting to change now that cannabis is a little more legal. Not federally, but…
Steve Moskowitz: 03:25 I like that. That’s perfect phrasing. A little more legal. There’s a great controversy between so many of the states and the federal government. Obviously, we’d like to see the federal government move so it’s simple and it’s completely legal. That would also go ahead and take care of a lot of other problems.
Steve Moskowitz: 03:45 For example, there’s a code section I don’t like. It’s Internal Revenue section 280E and if you happen… This is so unfair. This would apply to a cocaine dealer or a cannabis dealer. Where he or she is only entitled to deduct their cost of goods sold, not the operating expenses. If you have a situation for example … For me as a former CPA, I know what those are. Basically, the cost of goods sold is like the name says. The expenses that are incurred making the product. Unlike an operating expense for rent. So almost any business person can deduct the rent for their business but a cannabis owner can’t.
Steve Moskowitz: 04:23 So what someone would do is say, “Well, wait a minute, they’re in multiple businesses. They’re in the T-shirt business and they’re in the cannabis business-”
Liz Prehn: 04:30 We saw that with the Champ case. It is unfair. It’s kind of counterintuitive to have a business that’s legal in the state, but they’re essentially getting taxed on… double taxed because they don’t get their business expenses.
Steve Moskowitz: 04:46 So what happens is what people are trying to do is say, “Well, all right, they’re in multiple businesses. They sell cannabis and they sell T-shirts, so the portion of the store that is related to T-shirt selling is deductible.” Then we have, of course, the argument of, “Well, wait a minute how do you make the allocation?”
Steve Moskowitz: 05:07 There are all kinds of things that come up. For example, you have somebody saying, “Well the T-shirt is $50 and the cannabis is free.” The government says, “Well, wait a minute. You are misstating.” There’s another code section where if a person with multiple businesses misstates something or allocates improperly the IRS can come back and reallocate. Liz, maybe you can tell us some more about the Champs case.
Liz Prehn: 05:29 Well, we’re seeing a lot of tax audits. The Champs case was the first case that really came on the radar because the taxpayer won, in a sense. They were able to show the allocation. Since then, the number of audits of dispensaries and other cannabis-related businesses have really skyrocketed. That’s kind of the… It’s been limited now. I think the most recent one was the Harborside case.
Liz Prehn: 05:53 We cover it quite extensively on our tax blog actually, which is an interesting read.
Steve Moskowitz: 05:57 That made good reading. Of course, I always love reading about taxes. A lot of times… Sometimes I’ll say things, and people are thinking I’m making a joke. For example, when people get married I always say, “Well, marriage is a great tax event.” They laugh, but it really is. We’re not writing for other tax attorneys and professors in most cases. We’re trying to basically make you aware of something.
Steve Moskowitz: 06:19 Like if we were surgeons. We wouldn’t tell you how to do the operation. We would tell you this operation is available and could alleviate the pain in a certain area of your body. In tax, there’s so much that’s available, and from practicing these 30 plus years so often when I tell a client, “Well, you can do this and this,” they look at me in wonderment and say, “Well, is that new?” And it’s not. It’s been around for a long time. They just can’t believe that they can do these things.
Steve Moskowitz: 06:47 The more you become aware, the more you can save taxes. We’ll help you along in that area. But you really want to have some awareness of this because there are so many golden opportunities to save taxes. Of course, we’re really excited about the new tax law and the 199A and cost segregation analysis in pensions. But there’s a lot of other things too that can be individualized and really save people a lot of money.
Steve Moskowitz: 07:13 The reason that I became a tax attorney was, obviously, I wanted to do more than when I was a practicing CPA. I did, but there’s a real difference, and you can benefit from that. Here, we have the knowledge of both, and it really makes a difference whether we’re talking about, talking to you, planning, doing your tax return. Or in tax court, when the judge asks a question that an attorney wouldn’t understand, and the accountant can pop up and say, “Yes.” So we understand the forms as well as the theory.
Liz Prehn: 07:40 The bottom line is, having a tax attorney offers you attorney-client privilege. Which is a huge benefit and often very needed. In this day and age, what you’re telling people can really be held against you.