Nonprofit & Tax Planning

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.

Simplify Nonprofit Structuring with LLCs

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

When a nonprofit operates through multiple affiliated entities—all furthering the same exempt purpose [for example, under section 501(c)(3)]—structuring those affiliates under one or more LLCs can provide significant efficiencies. As a tax attorney practicing in this space, I help nonprofit clients balance liability protection, tax compliance, and administrative efficiency with their commercial goals, using LLCs. Below are some important considerations for this type of planning.

U.S. Federal Income Tax Considerations

A nonprofit parent that has already obtained tax-exempt status (by filing a Form 1023 application for exemption and receiving IRS approval) can form one or more single-member LLCs, which default to treatment as a disregarded entity for U.S. federal income tax purposes. This type of structuring can provide some key benefits:

  1. Administrative simplification & cost efficiencies: No need for additional filings of Form 1023 application for exemption filings, or annual Form 990 tax exempt organization income tax returns. As long as the LLC meets the typical organizational and operational tests (was organized for and is operated for the same exempt purposes as the parent), it need not apply to obtain its own federal tax exemption, and its income, expenses and assets flow through to and are reported on the parent company’s Form 990 each year.
  2. Risk management: Utilize multiple LLCs to isolate activities presenting higher risk from those with relatively lower risk, as well as separate key assets or property from entities conducting activities with higher risk. Assuming adherence to proper corporate governance principles, each LLC provides liability protection like a corporation. This structuring can help a nonprofit group efficiently manage its overall risk profile.
  3. Commercial branding: LLCs are easy to form and operate, offering flexibility to align the group’s desired commercial branding with various operating entities, whether unified or specific branding based on the entity and activity.

U.S. State & Local Tax Considerations

U.S. federal income tax exemption does not guarantee exemption from state and local taxes. Importantly, states levy various types of taxes, such as income, franchise, property, and sales and use taxes. Below are some key considerations in the state and local tax context:

  1. State & Local Tax conformity to the Internal Revenue Code (IRC): For purposes of income tax, states and localities may or may not follow the IRC, or may follow the IRC generally but provide state statutory exceptions to certain IRC provisions.
  2. Other State & Local Tax types: States and localities may require specific tax exemption applications for different tax types. Additionally, the state and local requirements for these tax exemption applications may differ based on entity type and/or tax treatment of the entity (i.e., corporation, LLC, partnership), or location of the entity or its assets or property.

As always, it’s important to have an experienced tax attorney evaluate the specific facts, circumstances, and applicable law in this type of structuring. With proper planning, it is possible for nonprofits to achieve administrative simplification and cost efficiencies in the federal, state and local tax contexts using LLCs.