In our last post, we began discussing do-it-yourself tax filing, and the risks taxpayers take when they go it alone. As we noted last time, working with a CPA is certainly a better way to ensure an accurate return is filed. Working with an experienced attorney has its own advantages over working with a CPA, but it isn’t the case that a taxpayer has to choose between working with a CPA and a tax attorney. In many cases, taxpayers work with both.
CPAs and tax attorney have their own areas of expertise when it comes to navigating income tax law and filings. A tax attorney is going to be able to provide sound advice and advocacy regarding particularly complex tax issues, and communications between attorneys and their clients are privileged, which can provide a taxpayer legal protection. On the other hand, having a CPA may be necessary in some cases to preserve attorney-client privilege.
The issue of subject matter waiver is one reason why working with a CPA may be necessary to preserve attorney-client privilege. Subject matter waiver occurs when an attorney discloses privileged or otherwise protected information and communications in a tax return, result in waiver of privilege for related yet undisclosed information and communications. By signing their name as the tax preparer, tax attorneys can waive privilege as to matters appearing on the tax return, removing the taxpayer’s legal protection.
Attorney-client privilege can also be waived when an attorney prepares balance sheets and profit/loss statements related to bank loans and business sales. In cases where privilege is an important concern, then, it is probably better to have a CPA prepare the actual return based on the attorney’s advice and guidance.
One area where it is important to work with an experienced attorney is in addressing inaccuracies in previous tax filings. We’ll say more about this in our next post.