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Why Should You Hire a Tax Attorney Alongside a CPA?

Nick Eusanio, Esq., LL.M. Leave a comment

Key Takeaways

  • It’s not CPA vs. Tax Attorney, it’s CPA plus Tax Attorney.
    CPAs typically handle tax compliance (return preparation and filing) and planning; Tax Attorneys help structure and support planning and compliance positions on the front end, and provide defense and legal counsel when risk and complexity arises on the back end.
  • Bring in legal counsel before problems arise.
    The biggest value of a Tax Attorney is often proactive; structuring transactions, documenting positions, and advising on strategies to avoid or mitigate exposure up front.
  • Controversy changes everything.
    If you’re facing tax audit, examination, investigation, dispute, controversy, or potential litigation, a Tax Attorney helps protect your position—both strategically and through privilege.

Many individuals and businesses view a CPA as the go-to for tax planning, filings, and financial strategy. But in most scenarios (other than those involving simple individual tax compliance involving W-2 income only), involving a Tax Attorney with your CPA is a best practice. In complex or high-risk situations, hiring a Tax Attorney alongside your CPA can be critical.

Here are some key moments when Tax Counsel should be part of your team:

Tax Controversies & Disputes

If you’re facing a tax audit, examination, investigation, controversy, or dispute with a taxing authority, a Tax Attorney helps protect your position and guide strategy, through tax technical, factual background development, and procedural levers. Just as importantly, attorney-client privilege offers protection that doesn’t exist through a CPA, especially in sensitive matters that may involve criminal allegations.

Criminal Investigations & Litigation

If a tax issue involves criminal investigation and / or escalates to litigation, a Tax Attorney is essential. Tax Counsel protects privilege of attorney-client communications and manages investigations, court proceedings, and defense strategy (again, focused on tax technical, factual background development, and procedural levers), while your CPA provides valuable financial expertise.

Major Transactions & Tax Positions

Before executing a significant transaction, or taking a complex tax position, a Tax Attorney can help structure the deal and provide legal documentation to support your position. Often, structuring a transaction involves one or more of the following: choice of legal entity, implementation of new agreements, restructuring of existing legal entities or agreements, or written tax opinions supporting key tax positions. All these decisions involve tax technical analysis, tax efficiency, legal considerations, and legal drafting.

A Tax Attorney is uniquely qualified to advise and execute on all these matters, ideally in collaboration with a trusted CPA. A CPA can’t form legal entities, draft agreements, or advise as to legal effects or implications of those items. But, combining these unique strengths and abilities of a Tax Attorney with those of a CPA (financial and tax modeling, for one) is a proactive approach that can be a game changer in bolstering your position and reducing risk.

The Verdict: Tax Attorney-CPA Team Approach is Best

It’s not CPA versus Tax Attorney; it’s CPA plus Tax Attorney. The strongest outcomes come from collaboration—combining financial insight with legal strategy to create a plan that is effective, efficient, and defensible.

Bottom line: If your situation involves complexity, risk, or potential dispute, it’s worth involving a Tax Attorney early. The right team doesn’t just solve problems; it helps you avoid them altogether while achieving desired outcomes.

Nick Eusanio holds an LL.M. in Taxation and has worked in public accounting firms alongside CPAs on complex tax compliance and planning matters, bringing both legal insight and practical tax experience to sophisticated transactions and disputes.

Are Personal Injury Settlements Taxable in Kentucky or Ohio?

Nick Eusanio, Esq., LL.M. Leave a comment

When it comes to personal injury settlement proceeds, the U.S. federal and state income tax treatment can significantly affect how much of your recovery you keep. Whether you’re a personal injury plaintiff, attorney, or tax advisor, thoughtful structuring and characterization of a settlement is essential.

Here’s a high-level summary of how federal, Ohio, and Kentucky income tax law treats personal injury settlement proceeds, and how to structure a settlement agreement for tax efficiency.

💡Personal Injury Settlements Can Be Tax-Free

Under Internal Revenue Code (IRC) § 104(a)(2), certain damages received on account of personal physical injuries or physical sickness are not taxable. So, these proceeds aren’t included in federal gross income under IRC § 61, which otherwise broadly includes “all income from whatever source derived.”

To support tax-free payments, especially for Kentucky or Ohio taxpayers, attention to the relevant legal framework and aligning structuring and documentation of the settlement are critical.

🔍 The Federal Income Tax Framework: IRC and Treasury Regulations

Under federal income tax law:

  • IRC § 61 is the starting point, which states that gross income includes all income of a taxpayer unless a specific exclusion applies.
  • IRC § 104(a)(2) excludes from gross income damages received (other than punitive damages) on account of personal physical injuries or physical sickness.
  • Treas. Reg. § 1.104-1(a), (c) confirms that the exclusion applies to both lump-sum and periodic payments and clarifies the scope of injuries that qualify.
    • For instance, it is also possible to exclude settlement amounts attributable to emotional distress, but that emotional distress 🧠 must be directly related to the personal physical injury sustained, unless the amount is for reimbursement of actual medical expenses related to the emotional distress and such amount wasn’t previously deducted under IRC § 213.
    • 💭 Note: Punitive damages and damages unrelated to physical injury—like reputational harm or contract claims—are taxable.

🏛️ State Income Tax Law: Ohio and Kentucky Generally Follow Federal Law

  • Ohio Revised Code § 5747.01(A) and Kentucky Revised Statutes §§ 141.010 and 141.019 state that both Ohio and Kentucky generally conform to the federal definition of gross income, with certain state-specific adjustments.
  • So, if your settlement proceeds are excluded under IRC § 104(a)(2), they are also excluded from Ohio and Kentucky state income tax, unless a specific modification exists (which does not in Ohio or Kentucky income tax law).

📝 How to Structure the Settlement Agreement

The tax characterization of a settlement isn’t solely based on what the payment is called—it depends on what the payment is actually for. Still, clear language in the agreement helps support favorable tax treatment.

Recommended provisions to include:

  1. Purpose – Clearly state that the agreement is a settlement instead of pursuing a potential or existing claim or legal action under statutory or common law involving personal physical injuries or physical sickness.
  2. Characterize Settlement Proceeds into Appropriate Buckets –  
    State amounts of any payments attributable to personal physical injuries or sickness and affirm that the parties intend those payments to be excluded from gross income under IRC § 104(a)(2) and Treas. Reg. § 1.104-1(a), (c). Specifically allocate any settlement proceeds to other buckets if relevant, like punitive damages which are taxable.

⚖️ Final Word

Not every settlement dollar is tax-free. But with smart planning and a well-structured agreement, plaintiffs in Kentucky and Ohio can often shield personal injury settlements from both federal and state income taxes.

Tax advice should always be tailored to the specific facts of the case—so if you’re drafting a settlement agreement or receiving a payout, consult with a tax attorney who knows how to structure these arrangements properly.