A CPA Weighs in on Tax Time

The turning of a new year brings new resolutions and new beginnings, but also the specter of our old friend and nemesis: the annual tax ritual. Because of the arcane nature of the tax code, it's ever changing provisions and our own barely suppressed emotions concerning one of our national civic duties, most of us beyond the simple W-2 and short form turn to a tax expert for advice and solace. This is often a Certified Public Accountant, the CPA that we too often take for granted and want to get by as soon as possible.

In the belief that the more you know, the better you will feel and the easier any process will be, I recently interviewed a well-regarded CPA in Palo Alto California, Barbara Brown (no relation, by the way). When I asked what exactly a CPA is and does, she explained that each state has its own standards for certification. But at the heart of the requirements are an accounting major, or equivalent, and a very difficult exam.

Now there are other categories who do tax preparation, such as the part-timers who work for the national chains like H&R Block and generally handle the simpler returns. The next level, in terms of ability to handle increasing complexity, is "enrolled agents" and lastly, tax attorneys.

Brown states that 80% of her work is tax compliance, which is guild-speak for helping people with more complicated, and therefore more expensive, financial situations. Interestingly, she says there is not much call for tax planning except for the self-employed. Salaried folks and their deductions are usually straight forward. And tax planning for estate purposes is usually the preserve of niche lawyers who prepare the paperwork.

A CPA appellation is a flexible fit for many kinds of careers, Brown points out, as are other professional degrees like medicine and the law. CPAs not interested in private tax practice go into the business world as consultants, controllers, financial officers and even law enforcement. Remember it wasn't the FBI's Elliot Ness who got Al Capone, it was accountants poring over his tax returns who got him jailed for tax evasion.

When I inquired about how a client might make the best of their time with their CPA, and not incidentally keep the fee manageable, the result was predictable. Think ahead, prepare your questions and bring all of your relevant documents with you. It sort of reminds you of that ideal patient you wish you saw more often.

Alas, as we might expect, the opposite is all too common, she reports. Most people are unprepared, emotional and only reluctantly compliant when it comes to their taxes. At least they have the implied threat of an expensive and unpleasant audit to finally bring them into line. In medicine the unprepared, emotional and reluctantly compliant patient on the negative side only has the iffy and vague threat of possible poor health in the future to motivate. But, happily for many, there is also the positive motivation of an upside improvement in symptoms and prognosis.

Another parallel between the professions of public accountancy and medicine is that people do not understand whether their expert is doing a good job or not. In medicine you sometimes have an visible marker, such as in areas like surgery or dermatology. On the other hand, one would think that a CPA's worth would be revealed by the greater or lesser size of the eventual tax bill, a visible score, if you will, but it surprisingly often doesn't work that way.

Why, you say? Well, there are just too many variables. Varying interpretations of laws and court decisions, what a given auditor might think or do, your comfort level in gray area aggressiveness and so on. Hey, most doctors feel that their patients don't really know how to judge our work, either. Sure, a doc might give good service and be well liked but we've all seen popular doctors who might not measure up otherwise. And vice versa.

Many publications love to publish comparisons around tax time showing that five different CPAs looking at the same financial info come up with five different tax bills. And, just like in medical opinions, they might all be "right." It can be frustrating, to say the least, for both the tax payer and the professional who tries to explain the discrepancies.

I've said before that inexpensive advisers are no bargain so try to find the best that you can, including CPAs. Brown says to ask around among your friends, attorneys and financial advisers. Then interview a few with prepared questions. She emphasized the importance of the comfort factor, as well as the depth of their knowledge base in deciding whom to retain.

Oh, and if you are wondering, Brown says most CPAs do their own returns, because "it's easier." I guess that this is one place where these two professions diverge in method.

We've frequently seen, with long evidence, that the doctor who treats him/herself has a fool for a patient. But then again, money is fungible and their issues are often correctible where sometimes our health is not.

So thank you, Barbara Brown, and happy taxes to one and all.