CPA vs Tax Attorney: What’s the Difference Between Them?
If you’re dealing with the IRS, with taxes, with finances, or even just with budgeting, chances are you’ve heard of two major roles within the system: the tax attorney and the CPA.
Without digging into it, though, you probably don’t know what they are and what they do, other than that they have something to do with taxes. Let’s do that digging for you.
First, let’s start by defining both CPAs and Tax Attorneys.
What Is a CPA?
A CPA is a Certified Public Accountant. They’re accountants, but they’re a specific kind of accountant, with extra schooling, extensive experience, and certification, hence the designation. All CPAs are accountants, but not all accountants can call themselves CPAs.
To first become a CPA, an accountant needs to obtain a license for their state, or for any state in which they are practicing. While state regulations may vary, they typically include rigorous college-level courses on business and accounting. The program is typically at least 150 hours of courses, though it may be more. Accountants must then work under a CPA for at least a year before they are then allowed to take a comprehensive set of exams testing their knowledge of CPA finances. CPAs also have to take additional continuing education courses throughout their careers. This is at least 120 hours of continuing education every three years.
CPAs have a fiduciary duty to their clients. This means they have a legal duty to act in the best interests of their clients, rather than simply themselves or their accounting firm.
As far as taxes are concerned, CPAs and non-CPAs are allowed to prepare tax returns, but only CPAs are allowed to represent their clients if an IRS audit is initiated. CPAs are also required to follow a fairly strict code of ethics.
CPAs are experts in tax preparation and are a hugely beneficial resource to anyone with a complex tax situation. Simple situations, such as single filers with standard W-2 incomes and little else, likely don’t need the expertise of a CPA. Anyone who owns a business, has children, deals with divorce, or has a high net worth can benefit from hiring a CPA.
Essentially, the more money you’re dealing with, both in terms of larger numbers and in terms of more and more varied income and expense streams, the more likely a CPA can benefit you come tax time. They can help you ensure that your tax returns are prepared properly, they can protect you from audits, they can handle an audit process, and they can help with tax burdens incurred before you hire them.
CPAs are also ideal for long-term relationships. You pick a CPA and work with them, year over year, as long as they’re providing quality service and can handle your situation. They help you develop a long-term plan to manage your money in a way that minimizes your tax burden while abiding by state and federal laws.
What Is a Tax Attorney?
A CPA is an accountant, but a tax attorney is a lawyer. Tax attorneys go to law school and earn a law degree, usually with a specialization in tax or financial law. To practice in your area, they will need to pass the bar exam and may need continuing education to ensure that they stay up to date on tax legislation.
Tax attorneys are specialists in dealing with the fallout of improperly prepared taxes, audits, tax debt, and other tax burdens. They can help if you’re facing liens or levies, settling back taxes, struggling with unfiled returns, or dealing with wage garnishment.
Additionally, the term tax attorney is an umbrella term. There are many specialties within tax law and a tax attorney might specialize in one or two of them, rather than the entire tax code. For example, you might find a tax attorney who specializes in real estate law, one who deals with trusts, and one who primarily handles issues with investments. In general, though, all of them will have the basic knowledge necessary to handle the most common tax issues.
The Differences, Summarized
Now that you know what each role is, you can start to examine the specific differences between them. In a way, you can think of the difference between the two as similar to the difference between medical professionals. You go to your primary care physician for ongoing monitoring, treatment, and long-term planning. You go to an emergency surgeon for a specific, dangerous issue. Similarly, you go to a CPA to get your taxes in order and manage them on an ongoing basis; you go to a tax attorney when you have a major issue that needs solving.
A CPA is an accountant, while a tax attorney is a lawyer. They are both specialties from within their respective career fields.
A CPA can help you manage a complex situation on an ongoing basis. A tax attorney can help you with immediate issues relating to the fallout of bad decisions, errors, or crimes, but typically does not provide ongoing services for financial management.
A CPA is generally going to be more effective the more money you’re managing, and the more complex your situation is to handle. A tax attorney specializes in complex legal situations but can help anyone regardless of their income streams or tax burdens.
A CPA can represent their client in an IRS audit, usually by providing documentation and proof of any claims, filings, or income/expenses. A tax attorney can represent their client in a court of law against the IRS in legal proceedings. CPAs are not lawyers and are not qualified to represent their clients in a court of law. They can, however, work with a tax attorney to provide you full and accurate representation.
A CPA is typically less expensive to hire than a tax attorney. However, a tax attorney is typically hired once, to solve a legal issue; a CPA is hired on an ongoing basis. A tax attorney can, however, provide advice on how to structure your assets in such a way as to avoid IRS scrutiny or tax complications.
Other Related Roles
There are a variety of other roles that professionals might take as a part of financial planning. They have their definitions and distinctions from CPAs and tax attorneys even there is a little overlap with one or both of them.
Enrolled Agents: Enrolled Agents are a type of financial representative who is either a former IRS employee or who has passed an IRS-given exam to prove their knowledge of the tax code. It is “the highest credential the IRS awards” and requires ethical standards and continuing education, though not as much as a CPA. Enrolled Agents can represent an individual or business before the IRS, though they may not be as familiar with the legal system as a tax attorney, nor as educated in the tax code as a CPA. They’re a good middle ground and specialize in knowing how the IRS itself works. The IRS can verify whether or not someone is an official enrolled agent.
Accountants: All CPAs are accountants, but not all accountants attain the certification as a CPA. The single most important difference between a CPA and an accountant is that a CPA is required to maintain a fiduciary duty to their clients; that is, they have a legal compulsion to act in the best interests of their clients. Accountants do not have that compulsion, and can act in a manner they see fit, even if it’s not necessarily the best action to take for their clients. Accountants often work to benefit their firm first and their clients second.
Tax Preparers: A Tax Preparer is someone who has taken tests and certified themselves to be able to prepare taxes, but who may not have intimate knowledge of edge cases and tax law. They are typically the kinds of people you find at H&R Block, Liberty Tax, or other local tax preparation firms. They are perfectly adequate for dealing with basic tax situations, but may not be the best choice for more complicated tax situations or issues with audits and penalties. Certified tax preparers are issued a Preparer Tax Identification Number, which can be looked up here to verify that a tax preparer is certified.
Financial Advisors: A financial advisor is someone who has a role that deals with telling you how you should handle your tax or financial situation, but who does not have any certification. They may not have much experience or any official education, either. A financial advisor is typically just a name for a position within a financial management firm, and may or may not hold any special requirements. There’s no governing authority for financial advisors, no tests or certifications, and no central database for identification numbers. Most everyone on this list is some form of a financial advisor.
Certified Financial Planners: A CFP is similar to a CPA. Certified financial planners typically work with individuals and smaller tax situations, compared to CPAs, who typically work with complex situations, wealthy individuals, and businesses. CFPs need to be certified and have individual requirements, issued by the Certified Financial Planner Board of Standards. CFPs need a Bachelor’s degree with some focus on financial planning, pass an exam, and have either 4,000 hours of apprenticeship or 6,000 hours of experience in financial planning.
Financial Coaches: Financial coaches are not certified in general, and are not often considered a unified position. A financial coach is like a life coach; they try to help you build sound financial habits and give you overall advice on budgeting, taxes, and wealth management, but don’t necessarily know their way around the tax code, the IRS, or the law.
Wealth Advisors: A wealth advisor is similar to a financial planner or financial advisor; they may also be CPAs or other certified accountants, but they also might not. A wealth advisor typically focuses on individuals with high incomes or net worth and can help with aspects of wealth management including taxes, estate planning, charitable contributions, and more. They are primarily defined by their clients, not their services.
Asset/Investment Managers: An asset manager, investment manager, or wealth manager is typically an individual or a company that handles aspects of wealth such as investments, stock portfolios, and brokerages. They serve as an intermediary between an individual or business and the stock market, helping to optimize portfolio distribution and performance.
Estate Attorneys: An estate attorney is a lawyer specializing in a specific type of asset, that being the estate. Estate law is nearly as complex as tax law and has a significant amount of overlap, so an estate attorney may have valid tax advice and vice versa. Like a tax attorney, an estate attorney needs to attend law school, pick a specialty, pass the bar exam, and so on.
Ghost Preparers: A ghost preparer is an individual who prepares tax returns, but does not sign them as a certified preparer. They may or may not have a PTIN, certification, or any sort of training at all. They may request payment in cash and refuse to provide a receipt, and may not be contactable after a transaction. In short, they’re often scammers, and the returns they file are unlikely to be accurate or optimized.
The primary difference between a Certified Public Accountant (CPA) and a Tax Attorney is simply their chosen profession. A CPA is an accountant, focusing on money matters. A tax attorney is a lawyer, focusing on legal matters. They both approach the same problem – that of managing money and tax burdens – from different sides of the spectrum.
It is essentially the difference between prevention and remediation.
If you need ongoing assistance with managing a complex tax situation, and you want to prevent that situation from turning into a problem, whether through ignorance or poor management, you will want a CPA. If you already have a problem, and you’re facing down an IRS audit, a lien, a levy, wage garnishment, or another IRS penalty, you want a tax attorney.
A CPA can help you prevent a problem, but a tax attorney can help you solve a problem that has already happened.
If you’re currently struggling with tax debt and are looking for debt relief, our professionals can help. Reach out to us today for a free consultation from a tax expert!