User talk:Snanai

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Hello, and welcome to Wikipedia! If you would like to continue the discussion about taxes and lawyers and CPAs, this page would be the appropriate place to do so. Thanks! Famspear (talk) 19:13, 6 January 2012 (UTC)

What does a CPA know about tax law?

The following is taken from the Content and Skill Specifications for the Uniform CPA Examination from the Examinations Team of the American Institute of Certified Public Accountants (rev. July 1, 2011). There is NOTHING anywhere NEAR this extensive in terms of testing for lawyers on any bar examination.

[quote] These topics test knowledge and understanding of concepts and laws relating to federal taxation (income, gift, and estate). The areas of testing include federal tax process, procedures, accounting, and planning, as well as federal taxation of property transactions, individuals, and entities (which include sole proprietorships, partnerships, limited liability entities, C corporations, S corporations, joint ventures, trusts, estates, and tax-exempt organizations).

In addition to demonstrating knowledge and understanding of these topics, candidates are required to demonstrate the skills required to apply that knowledge in providing tax preparation and advisory services and performing other responsibilities as certified public accountants. To demonstrate such knowledge and skills, candidates will be expected to perform the following tasks:

• Evaluate the tax implications of different legal structures for business entities.

• Apply analytical reasoning tools to assess how taxes affect economic decisions related to the timing of income/expense recognition and property transactions.

• Consider the impact of multijurisdictional tax issues on federal taxes.

• Identify the differences between tax and financial accounting.

• Analyze information and identify data relevant for tax purposes.

• Identify issues, elections, and alternative tax treatments.

• Research issues and alternative tax treatments.

• Formulate conclusions.

• Prepare documentation to support conclusions and tax positions.

• Research relevant professional literature.

1. Treasury Department Circular 230 [relating to practice before the Internal Revenue Service]

2. AICPA Statements on Standards for Tax Services

3. Internal Revenue Code of 1986, as amended, and Regulations related to tax return preparers

Federal Tax Process, Procedures, Accounting, and Planning [ . . . ]

A. Federal Tax Legislative Process

B. Federal Tax Procedures

1. Due dates and related extensions of time

2. Internal Revenue Service (IRS) audit and appeals process

3. Judicial process

4. Required disclosure of tax return positions

5. Substantiation requirements

6. Penalties

7. Statute of limitations

C. Accounting Periods

D. Accounting Methods

1. Recognition of revenues and expenses under cash, accrual, or other permitted methods

2. Inventory valuation methods, including uniform capitalization rules

3. Accounting for long-term contracts

4. Installment sales

E. Tax Return Elections, Including Federal Status Elections, Alternative Treatment Elections, or Other Types of Elections Applicable to an Individual or Entity’s Tax Return

F. Tax Planning

1. Alternative treatments

2. Projections of tax consequences

3. Implications of different business entities

4. Impact of proposed tax audit adjustments

5. Impact of estimated tax payment rules on planning

6. Role of taxes in decision-making

G. Impact of Multijurisdictional Tax Issues on Federal Taxation (Including Consideration of Local, State, and Multinational Tax Issues)

H. Tax Research and Communication

1. Authoritative hierarchy

2. Communications with or on behalf of clients

IV. Federal Taxation of Property Transactions [ . . . ]

A. Types of Assets

B. Basis and Holding Periods of Assets

C. Cost Recovery (Depreciation, Depletion, and Amortization)

D. Taxable and Nontaxable Sales and Exchanges

E. Amount and Character of Gains and Losses, and Netting Process

F. Related Party Transactions

G. Estate and Gift Taxation

1. Transfers subject to the gift tax

2. Annual exclusion and gift tax deductions

3. Determination of taxable estate

4. Marital deduction

5. Unified credit

V. Federal Taxation of Individuals [ . . . ]

A. Gross Income

1. Inclusions and exclusions

2. Characterization of income

B. Reporting of Items from Pass-Through Entities

C. Adjustments and Deductions to Arrive at Taxable Income

D. Passive Activity Losses

E. Loss Limitations

F. Taxation of Retirement Plan Benefits

G. Filing Status and Exemptions

H. Tax Computations and Credits

I. Alternative Minimum Tax

Federal Taxation of Entities [ . . . ]

A. Similarities and Distinctions in Tax Treatment Among Business Entities

1. Formation

2. Operation

3. Distributions

4. Liquidation

B. Differences Between Tax and Financial Accounting

1. Reconciliation of book income to taxable income

2. Disclosures under Schedule M-3

C. C Corporations

1. Determination of taxable income/loss

2. Tax computations and credits, including alternative minimum tax

3. Net operating losses

4. Entity/owner transactions, including contributions and distributions

5. Earnings and profits

6. Consolidated returns

D. S Corporations

1. Eligibility and election

2. Determination of ordinary income/loss and separately stated items

3. Basis of shareholder’s interest

4. Entity/owner transactions, including contributions and distributions

5. Built-in gains tax

E. Partnerships

1. Determination of ordinary income/loss and separately stated items

2. Basis of partner’s/member’s interest and basis of assets contributed to the partnership

3. Partnership and partner elections

4. Transactions between a partner and the partnership

5. Treatment of partnership liabilities

6. Distribution of partnership assets

7. Ownership changes and liquidation and termination of partnership

F. Trusts and Estates

1. Types of trusts

2. Income and deductions

3. Determination of beneficiary’s share of taxable income

G. Tax-Exempt Organizations

1. Types of organizations

2. Obtaining and maintaining tax-exempt status

3. Unrelated business income

[end of quote]

There is no bar exam that has this kind of scope for the testing of a candidate’s knowledge of taxation. Famspear (talk) 20:05, 6 January 2012 (UTC)

This is not to say that the "tax skill" of a lawyer who specializes in tax law is the same kind of skill as the "tax skill" of a CPA who specializes in tax law.

There are certain skills that a CPA who has not become a lawyer will have, and certain skills he or she probably will not have. Likewise, there are certain skills that a lawyer who has never passed the CPA exam will have, and certain skills he or she probably will not have. Everything else being equal in terms of typical training and testing of lawyers and CPAs, the typical CPA will know much more than the typical lawyer about tax law.

Given a CPA/non-lawyer and a lawyer/non-CPA, there are certain aspects of tax law at which the lawyer will be "better at" (and, probably, vice versa). Famspear (talk) 20:12, 6 January 2012 (UTC)

I appreciate your position, however I was not comparing a CPA to a typical lawyer. You continue to miss my point, perhaps I haven't been clear. Upon review of my comments, you will find that I specifically was comparing a typical CPA and typical business lawyer, TO a Tax Attorney.

At no time did I suggest that one should replace his/her CPA with a lawyer of any kind.

It is a rare CPA that has the business tax planning/strategy expertise of that of a tax attorney. With all due respect, you would only argue that out of ignorance. And when CPA's are in fact tax law specialists, their professional designations reflect it (MST etc).

You will also not argue, that the CPA's and general business attorneys currently serving the small business community are the two main reasons why small businesses continue to pay a significantly larger percentage of earnings to taxes than do large corporations.

It is out of personal experience of working with thousands of business owners from which I speak. The facts are that most CPA's act in exactly the same "basic" functions that I described. Adherence to "proper accounting procedures" is a fair expression of GAAP to the general public. If you're insulted as a CPA, then so be it. When, for years on end, thousands of small to mid sized businesses are exposed to the expertise of a tax attorney for the first time, and reduce their tax burdens by 20% or more almost every time, that is proof enough that CPA's are not pro-active tax law specialists - as it applies to the conversation we are having.

As it applies to post transaction compliance, CPA's are tax specialists. When it comes to pre transaction tax planning and strategy, it has been my experience that CPA's will "give their blessing" to the strategy, but never seem to come up with it on their own - ever.

But that's not all of the evidence. Of course, if you want to work for a firm that serves big clients as a tax strategist, the requirements are JD and LLM. Sometimes you'll find an expert that carries JD, LLM and CPA designations. If you want to work for a firm that serves small clients, you have to be a CPA, or sometimes an EA.

CPA's perform a valuable function that no tax attorney can fill.

You can repeat how qualified CPA's are, and it still will not change the facts as they are.

Rather than compare the vast majority of CPA's to a tax attorney (JD, LLM), you prefer to compare a very rare breed of CPA to a general practitioner lawyer. That's not an honest debate, that's not the argument I was making, and it is not being an honest broker of information to the public - with all due respect. Snanai (talk) 21:07, 6 January 2012 (UTC)

You wrote:

“I appreciate your position, however I was not comparing a CPA to a typical lawyer. You continue to miss my point, perhaps I haven't been clear. Upon review of my comments, you will find that I specifically was comparing a typical CPA and typical business lawyer, TO a Tax Attorney.”

“At no time did I suggest that one should replace his/her CPA with a lawyer of any kind.”

And at no time have I suggested that you are saying that.

“It is a rare CPA that has the business tax planning/strategy expertise of that of a tax attorney. With all due respect, you would only argue that out of ignorance. And when CPA's are in fact tax law specialists, their professional designations reflect it (MST etc).”

With all due respect, I am not arguing that the typical CPA has the business tax planning skill of a tax attorney. However, I do argue that many of the statements to which I am responding are over-generalizations and that some of the statements are incorrect. And, no, since there is no generally accepted definition of a “tax law specialist” in the sense in which I think you are using the term (and neither you nor I have actually tried to define the term for purposes of the discussion yet), it is not correct to say that a CPA’s “designation” (eg MST) will reflect that. (Note: States such as Texas do have official advertising certifications for lawyers as tax law specialists, but that’s a separate discussion.)

“You will also not argue, that the CPA's and general business attorneys currently serving the small business community are the two main reasons why small businesses continue to pay a significantly larger percentage of earnings to taxes than do large corporations.”

I don’t know whether that is a correct statement or not, so I am not arguing “for” or “against” that point.

“It is out of personal experience of working with thousands of business owners from which I speak. The facts are that most CPA's act in exactly the same "basic" functions that I described. Adherence to "proper accounting procedures" is a fair expression of GAAP to the general public. If you're insulted as a CPA, then so be it.”

Not sure what you’re driving at here. At any rate I’m not “insulted” – either as a CPA or as an attorney. I enjoy the discussion. And no, most CPAs do not act in exactly the same functions that you described. Again, I would argue that the statement is an unsupported over-generalization.

“When, for years on end, thousands of small to mid sized businesses are exposed to the expertise of a tax attorney for the first time, and reduce their tax burdens by 20% or more almost every time, that is proof enough that CPA's are not pro-active tax law specialists - as it applies to the conversation we are having.”

That might be “proof” -- if such proof exists. The statement you provided is not proof.

“As it applies to post transaction compliance, CPA's are tax specialists. When it comes to pre transaction tax planning and strategy, it has been my experience that CPA's will "give their blessing" to the strategy, but never seem to come up with it on their own - ever.”

That has not been my experience.

“But that's not all of the evidence. Of course, if you want to work for a firm that serves big clients as a tax strategist, the requirements are JD and LLM. Sometimes you'll find an expert that carries JD, LLM and CPA designations. If you want to work for a firm that serves small clients, you have to be a CPA, or sometimes an EA.”

That’s not any of the evidence. That’s not evidence at all. That is merely a series of statements of your opinion. Again, I would argue that this is a generalization that’s not demonstrable and probably not really helpful.

“CPA's perform a valuable function that no tax attorney can fill.”

Agreed.

“You can repeat how qualified CPA's are, and it still will not change the facts as they are.”

You keep stating generalizations that you have not proven, and I have posted specific facts – such as the exam requirements for CPAs. Nothing you say can change the facts as they are.

“Rather than compare the vast majority of CPA's to a tax attorney (JD, LLM), you prefer to compare a very rare breed of CPA to a general practitioner lawyer. That's not an honest debate, that's not the argument I was making, and it is not being an honest broker of information to the public - with all due respect.”

No, I am not comparing “a very rare breed of CPA” to a general practitioner lawyer. I am comparing a TYPICAL CPA to a typical general practitioner lawyer. And a TYPICAL CPA – even one who has just recently passed the CPA exam – is going to have MORE training and expertise in tax law than a typical general practitioner lawyer.

I now understand, however, from your most recent comments, that you are now comparing a typical CPA not to a typical lawyer, but rather to a “tax lawyer” (which neither you nor I have defined yet). My response is that a typical CPA – at least one who is a generalist – will not be as conversant with tax law as a “tax lawyer” (in the sense of someone who concentrates his or her practice on tax). But so what? Famspear (talk) 21:40, 6 January 2012 (UTC)

By the way, I agree with what I think is part of the central thrust of your comments: That a tax lawyer who is dealing with transactional issues is more likely to be involved before the transaction is done -- in the planning phase -- whereas a CPA is more likely to be involved after the transaction has occurred (which can be frustrating for the CPA if the client did something dumb without getting tax advice first, since the damage is done).

On certain other tax issues, such as federal criminal tax, the situation is sometimes reversed. It is the CPA who is sometimes involved up front, where the client intentionally provided false information for the CPA to prepare the tax return, and the CPA was unaware. Then, after the Criminal Investigation Division of the Internal Revenue Service is involved, the client must (or at least should) immediately hire a good criminal tax defense lawyer. Fortunately, in all my years I've never had to deal with a client's affairs in quite that way.

I have, however, been involved in matters where the CPA firm I worked for was hired by a criminal tax defense lawyer to work for the lawyer in preparing his client's defense. As you may know, an accountant hired in this way is sometimes called a Kovel accountant. I've also been involved with the IRS Criminal Tax Division and the FBI where the defendant in the criminal investigation was a debtor in a bankruptcy case (and the defendant was not my client). Those kinds of cases can be interesting.

When I practiced as a tax lawyer, my work was mainly in estate planning. In my current practice as a CPA, I deal mostly with other lawyers on tax and bankruptcy issues. Only about half my time is spent actually preparing tax returns, and even then the returns tend to be a bit exotic, with nuanced fact patterns, tax law issues, and problems dealing with how to treat and disclose certain transactions. Lots of gray areas. Famspear (talk) 23:23, 6 January 2012 (UTC)