Tax Consulting Question

[rfk]

Probably a dumb question but tired and want an opinion:

Does anyone know if a tax consultant who provides tax planning and advice on various ideas and levels, needs to be licensed as such, or can they be a financial or business consultant and provide this advice under the umbrella of "consultant" ? I am not talking about a person or organization who prepares tax returns, but only analysis and advice and earns a fee from the work-up and analysis from the tax perspective.

Thanks for your input.

rfk

[taxea]

I would google tax consultant, call the office and ask if they are required to be regulated by the IRS and how. I can't imagine any tax consultant that does not also prepare taxes.

[rfk]

Thinking of no tax prep though

I am thinking of the standpoint of a non-preparer tax consultant who is similar to a CFP or CPA but who does not prepare returns. He or she would have someone on staff or an associate do the returns for the client.

This type of consulting would involve high level tax and associated non-tax consulting, but with tax implications since a lot of the decisions or planning involve or revolve around tax issues.

rfk

[erchess]

Consulting

The tax preparer you hire will very soon have to be an RTRP if not an EA, CPA, or Tax Attorney. My guess would be that anyone who agrees to a subordinate or even equal position in your firm will want you to have a designation as great as theirs. Someone might make an exception if you were only the source of money for the operation but not looking to tell anyone how to do their job. I just know that I am an EA and if I were to join a firm I would expect that everyone at or above my level of pay benefits and authority would be an EA, CPA, or Tax Attorney.

[Gary2]

The tax preparer you hire will very soon have to be an RTRP if not an EA, CPA, or Tax Attorney. My guess would be that anyone who agrees to a subordinate or even equal position in your firm will want you to have a designation as great as theirs. Someone might make an exception if you were only the source of money for the operation but not looking to tell anyone how to do their job. I just know that I am an EA and if I were to join a firm I would expect that everyone at or above my level of pay benefits and authority would be an EA, CPA, or Tax Attorney.

There's no IRS requirement that an attorney be a tax attorney. Indeed, unlike patent attorneys, there's no requirement that an attorney pass any special tax-related exam to practice either before the IRS or the Tax Court. I'm sure you realize this, and indeed, that's part of the point you're making in the last sentence.

Though I can envision some firms having a business and liability attorney as well, maybe even an MBA. And who knows - an experienced IT person could easily earn more than a junior EA.

[rfk]

Tax Consulting Followup Question

My thought is that it still begs the questions / answer:

Does a person who practices Tax Consulting oriented advice and who does NOT prepare tax returns or related have to be licensed as such? Financial, Management, and Tax consulting for individuals and businesses sometimes does not always involve just tax or sometimes involves just tax. But a consultant can wear different hats being in front of a client. But does he or she need to be an attorney (tax type), a CPA, EA, or RTP to give some of this advice when needed? More from the standpoint of higher level tax consulting advice; forget the tax preparation.

Thanks.

rfk

[taxmandan]

My thought is that it still begs the questions / answer:

Does a person who practices Tax Consulting oriented advice and who does NOT prepare tax returns or related have to be licensed as such? Financial, Management, and Tax consulting for individuals and businesses sometimes does not always involve just tax or sometimes involves just tax. But a consultant can wear different hats being in front of a client. But does he or she need to be an attorney (tax type), a CPA, EA, or RTP to give some of this advice when needed? More from the standpoint of higher level tax consulting advice; forget the tax preparation.

Thanks.

rfk

No license or registration is required to give advice of any sort. Well, maybe a state beauticians' license for tax advice but that may depend on the state.

[oceanlovin'ea]

A license might not be required but I would think that it would be beneficial. If a person is giving advice on investments and such, I think personally I would prefer that the person have some kind of credentials that would show they know what they are doing.

Where did the person get the knowledge and expertise to do this consulting?

If that person were working for a firm, then it would probably be the responsibility of the firm to know the credentials of the consultant and would be held responsible for whatever is done in their firm.

Linda, EA

[Koss]

Consultant

There's a very fine line here, that you need to examine carefully, based on some of the facts, or hypothetical facts, in the original post.

rfk wrote:

I am thinking of the standpoint of a non-preparer tax consultant who is similar to a CFP or CPA but who does not prepare returns. He or she would have someone on staff or an associate do the returns for the client.

It sounds like you would be working closely with the return preparer, and providing substantive advice on key issues that affect how the return is prepared. If your advice and/or opinion has a critical influence on certain positions that are taken on the return, then you have become a non-signing preparer.

This is a formal term that is defined in the treasury regulations. Unfortunately, it can interpreted two different ways, and this has led to some confusion.

One definition of a non-signing preparer is a supervised preparer. That means that you have to have a PTIN, but you are exempt from testing and continuing education. A supervised preparer does not sign the return, but actually does prepare most or all of the return. The return is then reviewed by an EA or CPA, who actually signs the return.

In theory, the scenario you are describing might fall into that category, but it could also work out to be the reverse.

It boils down to a subtle question of who is really making the most important decisions about how the return is prepared: You, the "consultant," or the other guy, who is the "return preparer"?

If you are presenting ideas and general advice, but the final decisions always rest with the return preparer, then you might be a supervised preparer, or you may not need a PTIN at all.

But if the guy preparing the return is relying heavily on your opinions and advice, then you have a substantial role in the preparation of the return, whether you realize it or not. And that makes you a non-signing preparer.

The terms non-signing preparer and supervised preparer are not synonymous. They mean different things.

You should carefully read 26 CFR 301.7701.15, which explains the definition of a non-signing preparer, with examples.

A non-signing preparer can be subject to preparer penalties, just like a signing preparer.

The bottom line is that it doesn't matter anymore who signs the return. When the rubber hits the road, if there is a serious problem, the IRS is going to take a hard look at who was really involved in the preparation of the return, regardless of who actually signed it.

If you're going to be a tax consultant, and you will be working closely with return preparers on complex matters, you need to figure out just how involved you will be in the preparation of the return. There is no easy answer. It may vary from one client to another, from case to case. You may need to err on the side of caution.

BMK

[Koss]

Non-signing Preparer

Here's the link to the applicable regulations. The examples, which involve an attorney giving tax advice but not preparing the return, are a bit mind-bending. It apparently makes a big difference whether you give advice before or after a transaction takes place.

http://www.law.cornell.edu/cfr/text/26/301/7701-15

BMK

[Lion]

Fee-Based FInancial Consultant

A fee-based financial consultant? Maybe need a state license. Maybe covered under a Securities act? Or ERISA if retirement planning is part of the package? Making recommendations on what to do? Insurance, retirement, investments, entity advice, what? Did you join a professional organization? If so, have you read their publications to see what they suggest or require? As has been mentioned, giving tax advice, especially to the signing preparer, has more specific requirements now.

[rfk]

Thanks people for the opinions

I will review the discussed ideas more in detail.

Thanks, again.

RFK

[erchess]

My Understanding

There's no IRS requirement that an attorney be a tax attorney. Indeed, unlike patent attorneys, there's no requirement that an attorney pass any special tax-related exam to practice either before the IRS or the Tax Court. I'm sure you realize this, and indeed, that's part of the point you're making in the last sentence.

Though I can envision some firms having a business and liability attorney as well, maybe even an MBA. And who knows - an experienced IT person could easily earn more than a junior EA.

is that the State Bar Association would routinely disbar a member who touched tax issues without jumping through the required hoops to be recognized as a Tax Attorney and that in most states the requirement is that one receive an LLM in Taxation from an accredited law school. I have been given this impression by a cousin who practices regular non tax related law in SC. I think the IRS is aware of the situation and figures there is no more need than with CPAs for it to check on quality of applicants or enforce continuing education because the relevant state associations are doing a reasonable job.

[Koss]

Tax Attorney

I have to respectfully disagree here.

Your cousin may have seen an isolated case or two, or had some discussions with some tax attorneys who sit on committees of the state bar association. I'm not saying that he's just making stuff up.

And the reality is that attorneys who don't have any experience in taxation have no desire to take tax cases. So it is probably quite rare.

But there is no formal certification in taxation for attorneys. And state bar associations don't have the time or resources to monitor everyone's behavior. The only way an attorney can be disbarred is if someone files a complaint. It doesn't have to be an unhappy client; it could be a judge, or another lawyer, or anyone. But the bar doesn't watch what every attorney is doing.

It is indeed a violation of various codes of conduct for an attorney to take a case that he is not qualified to handle. An attorney who has spent most of his career doing estate planning should not be handling a criminal case. But it happens. He may step in and represent his brother in a drunk driving case or something. If he really fouls it up, then, yes, he could get in serious trouble with the bar for practicing outside the scope of his qualifications. But someone would have to bring it to the attention of the bar.

It certainly does not require an LLM in taxation. I know several qualified tax lawyers who do not have this degree.

An attorney with no real experience in taxation would never accept a serious tax case. That's one thing we can agree on.

But attorneys can certainly prepare tax returns under Cir. 230, and they are not required to take any continuing education in taxation. The IRS leaves it to attorneys to police themselves. I think we can agree on that also.

Their malpractice insurance would not cover them on cases that are outside the scope of their practice. So I think we all agree, as I noted above, that attorneys who don't have the right kind of experience are not going to accept tax cases. But the bar doesn't have the wherewithal to monitor this sort of thing. And I think that most states do not require an LLM in taxation.

BMK

[Gary2]

One thing that hasn't been mentioned is that some written advice, e.g. covered opinions, constitute practice before the IRS, even though they're unrelated to specific tax returns. See 10.2(4) and 10.35 of Circular 230.