strategies-init

What Is the Difference Between a Tax Attorney and a CPA?

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So we get asked this question a lot and a lot of taxpayers struggle in understanding what I do versus what a CPA does. In our firm we have tax attorneys who are both. We have tax attorneys who are attorneys and they are CPAs as well. Just to highlight why somebody would do that I want to draw the distinctions between what a CPA is and what a tax attorney is. So let’s start with a CPA. CPA stands for certified public accountant and what a certified public accountant is by definition is they’re somebody who is certified to provide financial statements and to the public that is what the term CPA stands for. When you go to accountant school and when you go through the process of getting your CPA license, the focus of your CPA license is naturally on reporting and preparing financial statements. It’s taking information, translating it to a financial statement and having the public have confidence in that statement. So within that process the focus is really on compliance. Accountants make sure that things are filled out and that they’re compliant so that’s why you go to an accountant to prepare your taxes every year. The accountant is charged with taking your information, putting it on a tax return, making sure that tax return is accurate and turning it in and that’s the basic function of what an accountant does. On the other side of things attorneys are focused on advocacy. When we go to law school, we learn about the law. We learn about how to argue, then learn about how to apply facts along and so there’s more of a back-and-forth with an attorney then there is in a compliance setting. With compliance, you are just focused on getting the right answer. On the advocacy side, oftentimes there’s not always a right answer so the two schools of thought are different between compliance and advocacy. Now that’s not to say that CPAs don’t advocate for their clients, although it’s a very rare characteristic.

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How Does the Government Evaluate Offers in Compromise?

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That’s a good question. So the government evaluates offers in compromises based on what a taxpayers reasonable collection potential is. Remember an offer in compromise is an agreement between the taxpayer and the government to forgive a past tax liability in exchange for future compliance. The government isn’t likely to forget about the liability. The government wants to make sure that the offer it’s getting from the taxpayer is fair to the government, so the government uses a formula called reasonable collection potential to determine that formula. The way reasonable collection potential works is the government looks at the taxpayer’s current situation, it projects a period of time between the state and federal government. They do it slightly differently but the question essentially is okay John’s taxpayer is submitting an offer in compromise: how much could we reasonably collect from John over the next five years and is that amount equal or lower than what John is offering? So you see how it works. They’re taking a five-year period, they’re saying how much can we get out of this guy and that amount is equal to or less than the amount of the offer. Then the government is inclined to take the offer so reasonable collection potential breaks down like this.

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What Are the Different Types of Offers in Compromise?

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So there’s three main types of offers in compromise at the federal level. There’s doubt as to collectability, there’s doubt as to liability and there’s effective tax administration. So let’s start with doubt as to collectability. It is the traditional offer or compromise that you may have heard of to settle your tax liability for pennies on the dollar and much like the name suggests, the reason that you’re submitting an offer of compromise is the doubt that the government will ever be able to collect that liability over the next X amount of years. So from a government’s perspective, the government has a lot of people that owe money. It’s not interested in going after a lost cause, so the government would rather cut its losses, settle the account, get you in compliance and move forward. So that’s essentially what the ask is and a doubt as to collectability offer in compromise. In a doubt as to liability offer in compromise you’re debating whether or not you actually owe the liability and you’re making a settlement offer to the government based on the fact that you don’t owe this liability and the risk to the government if they don’t take your doubt as to liability is that they won’t collect anything or will collect less than

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What Is the IRS Appeals Process Like?

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So, the IRS appeals process is actually reasonably friendly to taxpayers and let me explain why. First of all the function of Appeals technically is to be an independent body of the IRS away from examinations and collections. The sole function of appeals is to resolve disputes between the taxpayers and the government and to do so in a mutually beneficial way. The most common time we run into appeals is usually with respect to when we’re filing a Tax Court petition and trying to work things out. Most of our audits that we do at the firm we will file a tax court petition for and then we’ll try and negotiate with appeals. The benefit of dealing with Appeals is most of the Appeals officers are either former collection agents or they’re formal auditors so they understand what you’re talking about. You’re dealing with professional people who know the same playing field as you and that are a representative that we can communicate with on a high level and get a lot done. Number two is with Appeals you’re dealing with a very high volume of cases, so Appeals is trying to screen cases out prior to litigation. Because it’s trying to resolve disputes, it has a lot more flexibility. They’re dealing with so many cases that if, for example, you’re taking an audit into appeals, appeals isn’t going to go through bank statements. They’re not going to go through receipts but appeals will take a look at the presentation of information and they will make an objective decision independently of the author.

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What Is the EDD Appeals Process Like?

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So if you can’t reach a resolution in a payroll tax audit you have essentially three options. The first option is to deal with the auditor and their manager. Oftentimes this can be problematic. Obviously this depends on the two people that are involved and people are people. Like any other organization, you get good people and you get bad people so depending on the relationship with the auditor that’s been developed during the course of the audit and depending on the relationship of the manager, it’s going to change the dynamic on how things are resolved at that level. Going to the manager is always an option. Generally speaking, the audit manager is going to back their auditor’s determination. It’s not like the manager is going to sit there and throw the auditor under the bus. The purpose of bringing in the manager is you get somebody more senior. You get somebody who usually is a former auditor but who has exposure to dealing with these issues and can often resolve tensions if they popped up in the audit process by being kind of a third party representative for the government to come in and resolve the situation. The managers don’t really like dealing with these issues. They would rather their auditor deal with these issues and not go to the manager but there is a possibility. Above the manager of the EDD level, you also have the head of the audit division.

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What Is the CDFTA Appeals Process Like?

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When you have a sales tax audit and you can’t agree on the audit, the very first step in the process is that you have an exit conference with the auditor and the manager, and if that doesn’t bear fruit, the auditor is going to submit the sales tax audit report. It’s going to go up through technical review. They have a review department review the audit report to make sure it’s technically correct and then it goes to a final billing. Once it goes to a final billing and I notice the determination is issued, that is your ticket to file your petition of redetermination to go into Appeals. So you file your petition and redetermination, the case moves from Sacramento, it goes back down to the district level and then the district level will try one more time to get it resolved before going through Appeals. What this usually means is as follows. Number one you get a chance to do a 10-day conference with the district principal auditor so CDTFA will schedule you to talk with the head of the audit unit for the particular district that you’re working in and the manager and the auditor will both be there and then you can kind of negotiate. If there’s an opportunity to get the case settled with the person who is making the final decision on the issue (for the district number two, this is just your principal auditor) and you don’t agree for whatever reason and the case can’t be resolved in the district, then you go through the formal CDTFA appeals process. The way it usually works out is you’ll get a hearing officer at CDTFA, you’ll go in for an appeals conference which is much like a mediation, so you’ll sit there, the auditor sits there, the manager sits there and the Appeals officer sits there. Usually the appeals officer is either an attorney or their former auditor, and then there’s a discussion between the parties on what the issues are and how to resolve. So what usually happens is there’s a conference and then there’s a follow-up document submission for the petitioner, usually the taxpayer, to prove their point and so on and so forth. What ends up happening after that is an exchange of information back and forth between you and the auditor and the manager of “here’s our documents that prove our point,” “here’s our counter response” and you kind of go back and forth. Eventually you read through to the point where you can’t submit any more documents, you can’t make any more arguments and the parties just kind of wear themselves out and at that point

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