Why Your General Counsel Is Not Your CPA

Modern businesses rely heavily on both legal and financial professionals. It is common, however, for executives and founders to blur the line between what a general counsel can responsibly handle and what belongs squarely in the territory of a Certified Public Accountant (CPA). This confusion is most obvious when the word “tax” appears in an email subject line or, worse, in a letter from the Internal Revenue Service (IRS).

This article explains how general counsel and CPAs differ, why those differences matter during a tax audit, and how organizations can coordinate both professionals to protect the company’s legal and financial interests.

Legal Counsel vs. CPA: Two Different Professional Worlds

At a high level, in‑house or outside general counsel is responsible for legal risk, while a CPA is responsible for financial reporting and tax compliance. Both might participate in discussions about taxes, but they do so from very different angles.

Core Roles Compared

According to state licensing requirements, CPAs must meet rigorous education, examination, and experience thresholds before they can sign audit reports or represent taxpayers before federal agencies. In contrast, lawyers focus on the interpretation and application of law, which includes tax statutes but not necessarily the detailed mechanics of tax accounting.

How CPA Qualifications Differ from General Accounting

A CPA is not just an accountant with a different business card. They must complete a substantial course of study (commonly 150 semester hours), pass the Uniform CPA Exam, and satisfy experience requirements established by state boards of accountancy. Many states effectively require education equivalent to or approaching a master’s degree in accounting or a related field.

CPAs also maintain licensure through continuing professional education, and they are bound by professional standards and ethical rules enforced by state boards and the American Institute of CPAs (AICPA). These rules cover quality control, independence in audits, and integrity in tax practice. General counsel, by contrast, is governed by state bar ethics rules that focus on conflicts of interest, confidentiality, and competence in legal advice, not accounting technique.

Why General Counsel Should Be Cautious About Acting Like a CPA

General counsel often field questions like:

• “Can we take this tax position?”
• “Will this deduction hold up in an audit?”
• “Is there a legal argument to support this accounting treatment?”

While tax statutes are law and therefore within a lawyer’s domain, the application of those statutes to a company’s complex financial data is an accounting exercise. That is where CPAs come in.

Three Common Risk Areas

• Complex tax computations – Research credits, transfer pricing, or multi‑state apportionment require specialized tax accounting knowledge. A general counsel is unlikely to have the tools or software to model these scenarios correctly.
• Financial statement implications – The choice of tax position can change how liabilities, deferred taxes, and contingencies appear in financial statements. CPAs are specifically trained to apply accounting standards to these issues.
• Attest and assurance work – Only licensed CPAs can sign audit and attestation reports on financial statements under state law and securities regulations.

If a general counsel oversteps and effectively performs CPA work, the organization risks mistakes in tax filings, misstatements in financial reports, and potential issues with regulators who expect certain opinions and attestations to come from licensed CPAs.

What Only a CPA (Not General Counsel) Is Authorized to Do

CPAs enjoy explicit legal authority in areas where general counsel typically cannot substitute, particularly for public companies and regulated entities.

Exclusive CPA Functions

• Audit and attestation services – Federal law and state regulations reserve the issuance of audit opinions on financial statements to CPAs, particularly for public companies whose audits must be overseen by firms registered with the Public Company Accounting Oversight Board (PCAOB).
• Signing certain tax returns – CPAs frequently sign business tax returns and related certifications, signaling that a licensed professional took responsibility for the underlying work.
• Comprehensive IRS representation – CPAs have unlimited representation rights before the IRS, enabling them to represent taxpayers in audits, appeals, and collection matters without restrictions on the type of tax issue or client.

Non‑CPA accountants and many other tax preparers face limits on representation. They may be able to talk to IRS revenue agents about returns they personally prepared but cannot represent taxpayers in appeals or more complex stages of a dispute. General counsel can represent clients in legal tax controversies, but they generally do not perform the detailed reconciliation and accounting necessary to support every tax number under examination.

Understanding the IRS Tax Audit Process

When the IRS initiates an audit, it is effectively asking, “Can you prove the positions you took on this return?” Responding properly requires both legal and accounting expertise: legal, to interpret the IRS’s questions and protect the organization’s rights; and accounting, to connect those questions to detailed records.

Types of IRS Audits

• Correspondence audits – Conducted entirely by mail. The IRS requests documentation to support specific items, such as a deduction or credit.
• Office audits – Held at a local IRS office. A revenue agent meets with the taxpayer or representative and reviews selected return items and supporting records.
• Field audits – Conducted at the taxpayer’s place of business or the representative’s office. These are typically more complex and can involve extensive review of books and records.

Although many smaller audits can be managed primarily by a CPA or enrolled agent, larger or higher‑risk audits benefit from a coordinated approach involving both tax counsel and accounting professionals.

What Triggers an Audit?

While the precise algorithms the IRS uses are not public, common triggers include:

• Large or unusual deductions relative to income
• Significant changes in income or expenses compared to prior years
• Inconsistencies between information returns (like Forms W‑2 and 1099) and the taxpayer’s return
• Participation in transactions the IRS has classified as abusive or high‑risk

CPAs help ensure that the numbers are well‑supported and consistent, while general counsel advises on the risk associated with certain positions and potential exposure if the IRS disagrees.

How General Counsel and CPAs Work Together During an Audit

The most effective audit response teams treat general counsel and CPAs as complementary rather than interchangeable. Each profession contributes distinct value to a coordinated strategy.

Typical Division of Labor

• General Counsel
  • Coordinates overall strategy and communications with senior management and the board
  • Manages attorney‑client privilege and, when appropriate, structures work under privilege
  • Assesses litigation risk and settlement options if disputes escalate
  • Advises on disclosure obligations to investors and regulators
• CPA or Tax Accounting Team
  • Reconstructs and explains the tax positions in question
  • Prepares schedules and reconciliations responding to IRS information requests
  • Identifies documentation gaps and helps locate or recreate records
  • Models financial impact of proposed IRS adjustments

For complex audits, businesses often also engage a dedicated tax controversy attorney or law firm, especially if the dispute is likely to proceed to IRS Appeals or litigation in Tax Court. General counsel typically oversees the selection and management of these external advisors.

Practical Steps to Prepare for a Possible Tax Audit

Even if the IRS never knocks on your door, organizing your records and clarifying roles in advance will reduce stress and cost. The following steps help align legal and accounting functions.

1. Clarify Who Owns Tax Compliance

Every organization should designate primary responsibility for tax filings and responses to revenue authorities, usually within the finance or tax department supported by external CPAs. General counsel should be clearly identified as a legal advisor rather than the preparer or owner of the return.

2. Maintain Robust Documentation

CPAs emphasize that the best defense in an audit is thorough, organized documentation. Good practice includes:

• Retaining invoices, receipts, and contracts that support income and deductions
• Documenting how complex tax positions were analyzed and who approved them
• Keeping board or committee minutes when major tax‑relevant decisions are made
• Ensuring that accounting policies and procedures are written and updated

3. Establish an Audit Response Protocol

An audit response protocol should specify:

• Who receives and logs IRS correspondence
• Who is authorized to communicate with the IRS on the company’s behalf
• How document collection will be coordinated between departments
• When external counsel or specialist CPAs should be brought in

General counsel can draft and maintain this protocol, but it should be developed in consultation with the company’s CPA or tax advisor so it aligns with practical record‑keeping realities.

Choosing the Right Professional for Tax Issues

Not every tax issue warrants a full team of professionals. Some are routine accounting questions; others raise substantial legal risk. A straightforward way to triage is to look at the nature and consequences of the issue.

When a CPA Is the Primary Advisor

• Preparing and filing routine federal, state, and local tax returns
• Determining the proper accounting treatment for revenue, expenses, and deductions
• Designing internal controls over financial reporting and tax compliance
• Responding to basic IRS correspondence and information requests

When General Counsel Should Take the Lead

• Questions about whether a transaction violates tax statutes or anti‑avoidance rules
• Potential criminal tax exposure or allegations of fraud
• Disputes likely to proceed to IRS Appeals or court
• Disclosure obligations in securities filings related to uncertain tax positions

When Both Are Essential

• Large, complex IRS audits touching multiple tax years or jurisdictions
• Transactions with both legal and tax dimensions (mergers, spin‑offs, cross‑border restructurings)
• Implementation of tax planning strategies that require consistent accounting and strong legal support

In practice, many businesses rely on a small core team consisting of general counsel, a senior finance executive, and an external CPA firm. This group can escalate to specialized tax counsel or additional experts when needed.

Frequently Asked Questions

Can my general counsel sign the company’s tax return?

Typically, organizations have an officer (such as a CFO) sign business tax returns, often with a CPA preparing or co‑signing as the paid preparer. CPAs, not general counsel, are the professionals specifically licensed and trained to prepare and sign returns in a way that meets accounting and tax standards. General counsel may review for legal risk but usually does not function as the preparer.

Is any accountant allowed to represent me in an IRS audit?

No. While various tax preparers can help with records and correspondence, only attorneys, CPAs, and enrolled agents hold unlimited representation rights before the IRS. Other preparers are limited to representing taxpayers in narrower circumstances, generally involving only returns they personally prepared.

Do I really need both a CPA and a lawyer for tax matters?

For routine annual filings, a CPA or qualified tax preparer is often sufficient. When a situation involves significant dispute potential, major transactions, or risk of penalties beyond normal interest and additions to tax, involving general counsel or specialized tax counsel is prudent. The cost of dual involvement is usually far less than the cost of poorly managed controversy.

Can a CPA give legal advice about tax law?

CPAs regularly interpret tax regulations in the course of preparing returns and advising clients, but they are not licensed to practice law. For issues that bleed into non‑tax legal questions (such as corporate governance, securities disclosure, or potential litigation), an attorney should lead, with CPAs contributing the financial and tax computations.

How should my company document advice from CPAs and lawyers?

Organizations should keep engagement letters, formal opinions, emails that explain key decisions, and workpapers supporting significant tax positions. General counsel may decide to structure certain consultations under attorney‑client privilege, especially where contentious issues or potential penalties are involved. CPAs, bound by their own professional standards, will maintain workpapers that support their conclusions and can assist if an audit arises.

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Author

medha deb

 

Medha Deb is an editor with a master's degree in Applied Linguistics from the University of Hyderabad. She believes that her qualification has helped her develop a deep understanding of language and its application in various contexts.

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