Creating an LLC - use my CPA or diy?
Aurora, IL · Member since 2014 · 65 posts · 20 votes
Creating an LLC - use my CPA or diy?
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CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
10y@Danielle Cage For me it comes down to this: who can you hold accountable if something goes wrong? Are you going to call up your CPA and say "hey I need you to defend the documents you prepared?" because, seeing as he isn't an attorney, I don't think that would work out too well.
As a CPA myself, I'll advise on the tax and accounting side all day long. I'll help the client with a risk assessment and understanding the potential financial impact of litigation. But I don't see why I'd prepare the LLC's docs/ operating agreement for two reasons: (1) it brings about too much liability for me, since I don't practice law and write contracts day in, day out and (2) if I truly have the client's best interest in mind, shouldn't I refer my client to a specialist who is truly an expert in the area instead of trying to retain that revenue? Think about that for a second...
You shouldn't have a CPA draft legal agreements the same way you shouldn't take your tax return to an attorney (unless a tax attorney). The professionals should, however, collaborate and compliment each other.
Hope this helps.
32 Replies
- Attorney · Winchester, VA · Member since 2015 · 726 posts · 387 votes10y
Originally posted by @Brandon Hall:
@Matthew Kreitzer @Logan Allec
My understanding is that in the area of taxation, CPAs are allowed to interpret federal, state, and local tax laws for clients, as long as the legal principles being interpreted do not extend beyond tax law and it will not be considered UPL.
The rules that you cited seem to corroborate my thoughts:
"(A) A non-lawyer shall not furnish to another for compensation, direct or indirect, advice or service under circumstances which require his use of legal knowledge or skill in the application of any law, federal, state or local, dealing with taxes, except:
(2) A certified public accountant or a person duly enrolled may practice before the Internal Revenue Service, as those terms are defined by the then applicable federal regulations and the extent permitted therein.
(4) A non-lawyer may render such advice or service incident to an engagement to provide products or services which he is otherwise authorized to provide, where such advice or service arises out of the providing of such other products or services and was not the principal purpose of the engagement."
U.S. Treasury Circular 230 allows CPAs to represent tax clients’ interests before the IRS. In doing so, CPAs will need to analyze and interpret tax laws that apply to particular client's situation. However, CPAs are required to consult an attorney when a tax issue involves legal principles that extend beyond tax law.
So when I'm providing tax planning, tax advice, cost segregation, etc. it is my understanding that I can cite court cases and rely on them as authority. Further, I can take facts and opinions from TC Opinions and apply them to my client's situation.
Additionally, while CPAs can (and should be) in close talks with clients as they form business entities to advise on tax and accounting matters, they should not physically set up the entity nor should they advise on legal technicalities such as asset protection and liability issues.
Thoughts?
There is only one hitch in your line of reasoning; the jump from (A)(2) to "CPA may utilize Tax Court decisions in providing tax advice". I think a Court, in deciding a UPL case, would look to the fact that UPR 5-102(A)(2) explicitly mentions practice before the IRS. Practice before the Tax Court isn't the same as practice before the IRS. This difference is highlighted by the fact that an attorney, although automatically able to represent the interests before clients in IRS tribunals or the U.S. District Court (if admitted), one must get an additional certification to practice before the U.S. Tax Court.
I think there is a rather arbitrary line drawn in the sand by the UPL rules. Namely; a CPA can talk about how the IRS views things based on their Private Letter Opinions/former controversy before the USDC, or before administrative tribunals. But since the U.S. Tax Court is a separate entity, mere license to practice before an IRS agency doesn't rise to the level of being able to speak to the U.S. Tax Court. I think that is why there is an additional Tax Examination for CPAs who deal with the U.S. Tax Court.
I want to highlight something though, this is an unsettled area of law. The argument you are providing is certainly one that could be brought up before a Judge, but I think the nature of the language of the UPL rules would support the idea that, by explicitly omitting language related to the U.S. Tax Court, and further detailing UPL before the U.S. Tax Court in UPR 5-101 (A)(3), they are two separate provisions, and the Court would go with the idea that it would be UPL.
My advice is merely based on a practical consideration; As a CPA, do you want to risk your license on an unsettled legal issue like this, and possibly serve up to a year in jail?
PS: Agree on Corporation matters/asset protection.
- 10yChristian CarsonPro MemberCleveland, OH · Member since 2011 · 400 posts · 223 votes
I can't resist this thought experiment. @Matthew Kreitzer, what about subsection (A)(4) of the cited rule when applied to tax accountants? Assume our nonlawyer tax accountant is engaged to provide a memorandum of opinion on the tax consequences of a proposed corporate structure. Would it not be professional malpractice to fail to inform the client of a tax court memorandum directly on point that disapproves of the structure? Considering that revenue agents often cite to TCMs and other legal authorities when making post-audit determinations, it seems that this information would be absolutely crucial to recommending the appropriate tax structure.
Of course, the situation would be different if a client, already mired in a controversy with the IRS, sought the advice of the tax accountant as to the potential outcome of the dispute in tax court. In that case, I agree--that's squarely legal advice.
I don't think UPL statutes were intended to serve as a gag order on citing to legal authority -- published opinions can and often do affect the way the IRS interprets the Code. Their role in keeping the client out of tax trouble seems indispensable.
- Attorney · Winchester, VA · Member since 2015 · 726 posts · 387 votes10y
Originally posted by @Christian Carson:
I can't resist this thought experiment. @Matthew Kreitzer, what about subsection (A)(4) of the cited rule when applied to tax accountants? Assume our nonlawyer tax accountant is engaged to provide a memorandum of opinion on the tax consequences of a proposed corporate structure. Would it not be professional malpractice to fail to inform the client of a tax court memorandum directly on point that disapproves of the structure? Considering that revenue agents often cite to TCMs and other legal authorities when making post-audit determinations, it seems that this information would be absolutely crucial to recommending the appropriate tax structure.
Of course, the situation would be different if a client, already mired in a controversy with the IRS, sought the advice of the tax accountant as to the potential outcome of the dispute in tax court. In that case, I agree--that's squarely legal advice.
I don't think UPL statutes were intended to serve as a gag order on citing to legal authority -- published opinions can and often do affect the way the IRS interprets the Code. Their role in keeping the client out of tax trouble seems indispensable.
I think the decision would turn on whether the CPA in question had taken and become certified before the U.S. Tax Court through the Tax Court Examination. Let us assume, for argument, that the CPA in question had taken the proper licensing procedures and did have the ability to practice before the U.S. Tax Court. I think the question then becomes; Are they predicting future actions of the U.S. Tax Court or are they applying existing memorandum on what the current law is in the U.S. Tax Court.
If they are doing the latter, I would think they wouldn't be very helpful to the client, as the Tax Court is notoriously fickle. Do I think that would be UPL? No, not necessarily. If they are doing the former, I would call that UPL, as it is predicting the actions of the U.S. Tax Court in a way that denotes knowledge of the law, for compensation, providing actionable calculations. That would, IMHO, rise to the level of UPL.
This is all under the model of a CPA having taken their licensing examinations. If this was a mere CPA that does not have the appropriate license? I'd argue it would all either be UPL or unlicensed CPA-ness.
As for non-cpa tax professionals? See below addendum.
PS: If you can't tell by the analysis, I have some issues with how some of the non-Big Four accounting firms operate. In the Big Four, they have overseer attorneys who ratify the conduct of their accountants, which completely removes the UPL status.
ADDENDUM: After having read Title XX, Rule 200 of the U.S. Tax Court, I'm fairly confident that Tax Accountants, unless admitted before the U.S. Tax Court, could be in violation of their practice rules.
- CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes10y
Originally posted by @Matthew Kreitzer:
Originally posted by @Christian Carson:
I can't resist this thought experiment. @Matthew Kreitzer, what about subsection (A)(4) of the cited rule when applied to tax accountants? Assume our nonlawyer tax accountant is engaged to provide a memorandum of opinion on the tax consequences of a proposed corporate structure. Would it not be professional malpractice to fail to inform the client of a tax court memorandum directly on point that disapproves of the structure? Considering that revenue agents often cite to TCMs and other legal authorities when making post-audit determinations, it seems that this information would be absolutely crucial to recommending the appropriate tax structure.
Of course, the situation would be different if a client, already mired in a controversy with the IRS, sought the advice of the tax accountant as to the potential outcome of the dispute in tax court. In that case, I agree--that's squarely legal advice.
I don't think UPL statutes were intended to serve as a gag order on citing to legal authority -- published opinions can and often do affect the way the IRS interprets the Code. Their role in keeping the client out of tax trouble seems indispensable.
I think the decision would turn on whether the CPA in question had taken and become certified before the U.S. Tax Court through the Tax Court Examination. Let us assume, for argument, that the CPA in question had taken the proper licensing procedures and did have the ability to practice before the U.S. Tax Court. I think the question then becomes; Are they predicting future actions of the U.S. Tax Court or are they applying existing memorandum on what the current law is in the U.S. Tax Court.
If they are doing the latter, I would think they wouldn't be very helpful to the client, as the Tax Court is notoriously fickle. Do I think that would be UPL? No, not necessarily. If they are doing the former, I would call that UPL, as it is predicting the actions of the U.S. Tax Court in a way that denotes knowledge of the law, for compensation, providing actionable calculations. That would, IMHO, rise to the level of UPL.
This is all under the model of a CPA having taken their licensing examinations. If this was a mere CPA that does not have the appropriate license? I'd argue it would all either be UPL or unlicensed CPA-ness.
As for non-cpa tax professionals? See below addendum.
PS: If you can't tell by the analysis, I have some issues with how some of the non-Big Four accounting firms operate. In the Big Four, they have overseer attorneys who ratify the conduct of their accountants, which completely removes the UPL status.
ADDENDUM: After having read Title XX, Rule 200 of the U.S. Tax Court, I'm fairly confident that Tax Accountants, unless admitted before the U.S. Tax Court, could be in violation of their practice rules.
So this seems to be more based on "practicing in front of the US Tax Court" in which case I'd ask "what does that entail?"
For instance, if a client comes to me and is asking for tax planning advice, can I not cite past TC Opinions in order to substantiate a particular strategy? Further, what if that TC Opinion causes the IRS to issue a memo or rev ruling or even change the code, what is the procedure for citing at that point?
As an example, CPAs provide cost segregation studies for clients across the US and commonly cite TC Opinions to support the movement of depreciable components from 27.5 years to 5 year personal property. From my understanding, this is an acceptable manner for both the IRS and the US Tax Court in terms of substantiation. So if the CPA is citing authority to substantiate a tax strategy, is that not okay? Assuming a lawyer gets pulled in should it be taken to court? Additionally, if a client does go under audit, a CPA can represent the client in front of the IRS - assuming the audit hasn't escalated to the courtroom, can the CPA cite TC Opinions as authority to fend off the IRS audit?
I believe I read about an exemption for CPAs that allowed them to act in this manner without fear of UPL. It does not allow them to practice in front of the US Tax Court, but does allow them to cite authority. Thoughts on this?
I agree that anticipating future moves of the Court is UPL. I also agree that, if the above is not allowed, 100% of the CPAs I know are doing it wrong and teaching it wrong.
- Attorney · Winchester, VA · Member since 2015 · 726 posts · 387 votes10y
Originally posted by @Brandon Hall:
So this seems to be more based on "practicing in front of the US Tax Court" in which case I'd ask "what does that entail?"
For instance, if a client comes to me and is asking for tax planning advice, can I not cite past TC Opinions in order to substantiate a particular strategy? Further, what if that TC Opinion causes the IRS to issue a memo or rev ruling or even change the code, what is the procedure for citing at that point?
As an example, CPAs provide cost segregation studies for clients across the US and commonly cite TC Opinions to support the movement of depreciable components from 27.5 years to 5 year personal property. From my understanding, this is an acceptable manner for both the IRS and the US Tax Court in terms of substantiation. So if the CPA is citing authority to substantiate a tax strategy, is that not okay? Assuming a lawyer gets pulled in should it be taken to court? Additionally, if a client does go under audit, a CPA can represent the client in front of the IRS - assuming the audit hasn't escalated to the courtroom, can the CPA cite TC Opinions as authority to fend off the IRS audit?
I believe I read about an exemption for CPAs that allowed them to act in this manner without fear of UPL. It does not allow them to practice in front of the US Tax Court, but does allow them to cite authority. Thoughts on this?
I agree that anticipating future moves of the Court is UPL. I also agree that, if the above is not allowed, 100% of the CPAs I know are doing it wrong and teaching it wrong.
Well there are two ways of looking at this; It isn't merely "practicing before the U.S. Tax Court", but also "the practice of law generally". There are two provisions that most states have when dealing with defining the "practice of law".
Let us begin the two part analysis;
A) Practice Before the U.S. Tax Court - Punishment by U.S. Tax Court
The U.S. Tax Court, in Rule 200, doesn't strictly define what "practice before the U.S. Tax Court" means. I'd argue, although I have another Tax Attorney sitting next to me arguing otherwise, that any attempt to explain a U.S. Tax Court ruling would be practice before the U.S. Tax Court. As far as I am aware, there are no Legal Ethics Opinions, or "LEOs" which have been issued by the American Bar Association explaining what constitutes "practice before the U.S. Tax Court. As such, I would call it an unsettled question, with *potential*, but not gauranteed, liability.
B) General Practice of Law
Alternatively, most states have a separate definition of what constitutes the practice of law. In Virginia, the practice of law is defined as "the provision of any kind of advice which denotes a knowledge of the law for compensation". I'd argue that, although the there isn't a U.S. Tax Court definition of practice before the U.S. Tax Court, the conduct described above; namely application of TC opinions to specific cases, would fall under the practice of law provisions generally of the states. It is the provision of actionable advise based on one's perceived understanding [by the client] of legal knowledge, namely the analysis of a court case. The regular Practice of Law rules do not differentiate between federal decisions and state decisions. Any attempt, under general practice of law rules, to explain how *case law* impacts a person's situation would be the practice of law.
I would argue that it sounds like most CPAs could very well be violating the UPL laws as they currently operate.
I think the reason that most CPAs do this and continue to do this is that state Bar Associations are extremely lackadaisical about pursuing UPL claims. I've brought this up with Bar Counsel in my state before. They do not have the resources to pursue this kind of thing. Personally, if I had a CPA client come in and ask me "In Virginia, may I analyze U.S. Tax Court cases as a licensed CPA?", I'd tell them, "No, hire me to do it."
- 10yLogan AllecBusiness MemberAccountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
This was a nice lunchtime read.
Clarita CPA Group516 Reviews - Woodbridge, NJ · Member since 2015 · 42 posts · 2 votes10yHi Danielle, I would suggest look into legalzoom.com I have started my LLC through them and it's been super easy. They will do everything and charge you a flat fee. Also, they take full responsibility of filing all paperwork and due diligence. I hope this helps. -Harshil
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