In this episode of Practical Tax, tax attorneys Steve Moskowitz and Liz Prehn discuss the differences between accountants and tax attorneys. While there are major distinctions – including the important attorney-client privilege a tax attorney affords – each position has its benefits, and the two can work in tandem. Listen to the podcast to learn more!

Episode Transcript

Speaker 1: 00:00 So my account just retired, good for him. But where do I go? What do I do now?

Speaker 2: 00:04 You’re listening to Practical Tax, with tax attorney Steve Moskowitz.

Steve Moskowitz: 00:07 I’m tax attorney Steve Moskowitz with long time Moskowitz associate, tax attorney Liz Prehn. A lot of people say, “But I already have an accountant, but I want a second opinion.” There can be a huge difference between an accountant and an attorney. I started my career as a practicing CPA, and the sole reason that I went to law school was to become a tax attorney because I knew as a practicing CPA there were so many things that I couldn’t do for a client, and I wanted to be able to do more things them, do it all, including representation in tax court and many other things. Not to mention the privileges that only an attorney has, and I’m talking about attorney-client privilege, where, if you come in and you tell me your secrets, by law it remains a secret. If you tell them to anybody else, say a CPA, the IRS can get that information from the CPA and have that CPA testify against you.

Liz Prehn: 00:57 Yeah, I think, Steve, that privilege is an important factor, but I also really enjoy, as a practitioner… Now, I’m not a CPA, I love CPAs. I love our CPAs, I love other CPAs. I need them, right? Because it provides such a great tension between practice of tax law, the CPA, tax preparation, tax positions, and I think, ultimately, it gets the best result for the client, having this debate going back in forth, whittling down the issue, and finding out what your client’s risk position really is and how they want to proceed. I think everybody should have both.

Steve Moskowitz: 01:32 That’s why it’s fortunate we have both here.

Liz Prehn: 01:34 Okay, I have a lawyer client that had a CPA that was doing the returns, and they were getting K1s based on their partnership retirement agreement. And the question arose, and maybe because they were lawyers they were a little bit more into the definitions of the law and what should be self-employment tax and what should not be subject to FICA. And ultimately we were able to advise them that maybe this shouldn’t be subject to FICA, based on a thorough review of their documents and what’s happened and their working positions or nonworking positions.

Liz Prehn: 02:08 So that was interesting, it saved them a lot of money, and just going through the returns, we just happened to find a couple minor things, like an AMT credit or some depreciation that had been missed, but I thought that was kind of a routine second review. I think it’s interesting for clients that might be considering big tax positions and what that really means to their fine app books and their business operations and going through that.

Liz Prehn: 02:30 So if they’re going to invest in a pension, invest in an insurance position of something like that, which is certainly provided within the tax code, what does that mean to their ongoing business, what does that mean to documentation, ongoing tax transactions, things like that?

Steve Moskowitz: 02:45 And those opinions are so important. For example, as mentioned pensions. Most people are familiar with the common pensions you get in the bank, but there’s many different type of pensions. If you’re otherwise qualified, you can have multiple pensions, and there are a lot of pensions that business people can have where they individually can deduct hundreds of thousands of dollars or more every year for themselves. And also with pensions, there’s even a cash flow benefit.

Steve Moskowitz: 03:09 It’s the only deduction where most things you have to go ahead and spend the money by 12/31 year 1. With a pension, you have up to the time of filing the return plus extension in year 2. So essentially, three-quarters of the way into year 2, you put some money in a pension, you deduct in year 1, it’s fantastic, and it has a lot of other benefits too.

Liz Prehn: 03:31 Whether or not you have an accountant, I take a collaborative approach, especially when I know the methodology and I feel that the competency is there, and that there’s no breach of my ethics to continue the relationship, either with the accountant or through the client to provide this kind of global, comprehensive service.

Liz Prehn: 03:48 I also think it’s important when there’s a new business or a partnership, for instance, the accountant may not be up with, do we need to modify the partnership agreement to keep up with the laws? Do we need to do that? These are little things that we can add when it comes to developing the pension strategy, developing the business strategy, in terms of what’s going to be compliant with the tax law.