The Symbiotic Relationship Between Tax Attorneys and Accountants

April 15, 2024

Published in The Suffolk Lawyer

By Michelle E. Espey

 

It 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.

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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Suffolk Lawyer (scba.org)

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.