In These Scenarios, Rely on a Specialized Tax Attorney

Staff Writer - Angela
May 14, 2018
In These Scenarios, Rely on a Specialized Tax Attorney

For complex tax situations, depending on the targeted expertise of a specialized tax attorney can help you avoid costly fees and penalties, which in some cases could even include prison time. Hiring a lawyer who specializes in taxation is about more than just filing your return. This type of professional has in-depth knowledge of tax laws and can help you understand and qualify for all the deductions that apply to your situation, potentially saving you thousands. From helping you understand when to itemize deductions to preparing for an IRS audit, a tax attorney is the professional you need to advocate for your interests.

What Is a Tax Attorney?

This type of lawyer has specialized training in federal, state, and local tax laws and policies, including but not limited to the acquisition of material and intellectual property, income tax, estate transfers, and business transactions. Tax attorneys are available for both consultation and litigation, meaning that they can assist you with tax challenges both in and out of the courtroom. These attorneys represent individuals, small businesses, corporations, and nonprofit organizations for their complicated tax matters.

Hiring a tax attorney can help you understand the tax laws you are subject to as an individual or business owner and how you can best stay in compliance with these laws to avoid stiff IRS penalties. They can assist you with setting up trusts and wills as well as oversee the distribution of your estate. They can advocate on your behalf in mediation and court for the elimination or reduction of your individual or business tax obligations, recommend and oversee structured IRS settlements, collaborate with CPAs to create and prepare tax documents, and represent you in audit hearings, IRS hearings, administrative appeals, U.S. Tax Court, and even the U.S. Supreme Court and Court of Appeals.

What Can a Tax Attorney Do for You?

If you’ve received an audit notice from the IRS, it’s likely the first time you’ve had to face this stressful situation. A specialized tax attorney, on the other hand, has assisted clients with this challenge time and again and understands the pitfalls that may occur during the auditing process. They can help the IRS understand the material facts of your case and take important steps to resolve tax issues, including filing appeals of court decisions, communicating with the IRS on your behalf, making recommendations to help you save money, and explain the tax credits for which you may qualify.

Even if you haven’t been subject to audit, specific situations require the knowledge and training of a tax attorney. Common scenarios in which you should consult with this type of professional include the following.

  • If the value of your estate when you die is expected to be greater than $5.49 million, your heirs will be subject to an estate tax that can climb to as much as 40 percent. Consulting a tax attorney can help you strategize about how to avoid a large tax burden associated with your inheritance.
  • If you are an entrepreneur starting a new business, a tax attorney can help advise you on whether you should choose a corporation, limited liability company, sole proprietorship, or other beneficial structure. Every business entity is taxed differently, so a qualified attorney’s consultation is essential to help you understand what type of company is most advantageous for your specific situation.
  • If you already have a business and are engaged in international commerce, a specialized tax attorney who is well-versed in global matters can help you understand international taxation, contracts, and other critical legal matters.
  • If you are being investigated by the IRS, are planning to sue the IRS, or want your audit or lawsuit independently reviewed before the U.S. Tax Court, you should choose a tax attorney with litigation experience who can represent you in court. If you have committed tax fraud, you can be truthful with your attorney about the material facts of your case and he or she is under a professional obligation to keep this information confidential. This is not necessarily true of a certified public accountant (CPA).

If you are in trouble with the IRS, whether you’re under investigation or you simply owe substantial back taxes, a specialized tax attorney has comprehensive knowledge of the programs you might qualify for and their specific, often-changing requirements. Understanding the details of relief programs is an essential part of taking the steps to enroll.

What Should I Consider When Choosing a Tax Attorney?

Like other types of lawyers, specialized tax attorney must complete their Juris Doctor (JD) degree and be admitted to practice by the bar association in your state. In addition, however, a qualified tax lawyer will also have a Master of Law degree in taxation, which indicates advanced training in a specialized area of tax law, such as estate planning, business taxation, international taxation, or the provision of financial services. Some tax attorneys also have an accounting background and are schooled in the legal implications of a vast variety of tax situations. These attorneys can help you with complex accounting situations that also have legal implications.

To represent you with the IRS, a tax attorney must be registered with the IRS as an Enrolled Agent (EA). This requires successful completion of a three-part exam about individual and business taxation and adherence to the ethical standards of the profession. They are also required to complete at least 72 continuing education course hours every three years to maintain EA status with the IRS.

It’s important to interview potential tax attorneys so you can find the right fit for your specific situation. Questions that you should ask include:

  • Are you admitted to the state bar?
  • What is your specialty and do you have advanced training in that area?
  • How much do you charge per hour?
  • Do you have experience with the situation I’m facing?

If the attorney in question is not able to help with your tax issues, he or she may be able to refer you to a colleague with more experience in that area.

If you’re already working with a CPA, he or she is required by professional ethics as documented by the National Conference of Lawyers and CPAs to consult an attorney if you receive a notice of deficiency from the IRS or if you are under criminal investigation. That’s because although a CPA may be able to represent you in tax court if registered with the IRS as an enrolled agent, more serious issues are typically settled in district court rather than in tax court.

When Should I Hire a Tax Attorney?

While it’s always advisable to consult a tax attorney if you are a business owner, even individuals may need the expertise of this professional. These are the most common scenarios in which you should seek counsel from an experienced tax lawyer.

  • If you or your business is subject to an IRS audit, the auditing process is legally binding. For this reason, it’s important to seek legal counsel from an attorney rather than relying on the advice of a CPA. A tax attorney will advocate for your interests during the audit and has strategies to help reduce your tax debt, including recommending an offer in compromise, installment payment plan, and/or penalty abatement. An offer in compromise means that the IRS agrees to settle the tax debt for much less than you owe. Because less than half of requested offers are approved, however, it’s important to have a tax attorney to negotiate on your behalf if you plan to go this route.
  • If the IRS suspects that you have been purposefully hiding income or otherwise evading your taxes, it will conduct a criminal investigation. Just as you would not go to court without an attorney, you should not navigate criminal charges from the IRS without a specialized tax attorney. He or she can help argue for minimal charges in your case, which is critical since tax-evasion penalties include expensive fees and even jail time.
  • If you need to communicate with the IRS about a tax matter and have trouble doing so eloquently, or don’t have time to create the professional and well-researched correspondence required for this situation, a tax attorney can go to bat for you by sending emails and letters and making phone calls on your behalf. He or she will ensure that your intentions are understood by the IRS as well as thoroughly explain communications from the IRS so that you are able to comprehend their often-complex implications.
  • If you have neglected to file a tax return for one or more years in which you had income, a tax attorney understands the steps you need to take to file these back returns and pay the outstanding taxes you may owe. The IRS may require you to answer specific questions about why these returns were not filed, which an attorney can help you address. In some cases, they can advocate for more lenient penalties and fees for the late returns and past-due taxes.
  • If you receive a CP (notice from the IRS), it could have been sent for any number of reasons. A tax attorney can help you understand this notice and abide by or fulfill its associated requirements.
  • If you receive an inheritance or are named as a benefactor of an estate, the funds you receive are subject to taxation. The rules for inheritance and estate tax are different from those for other types of income, so it’s important to retain a specialized tax attorney who can explain the regulations that apply to your specific situation and potentially take steps to legally reduce your tax burden associated with the inheritance.

In addition to these scenarios, hiring a tax attorney has specific benefits for small-business owners. These include:

  • Helping you choose the most advantageous business entity for your enterprise.
  • Allowing you to dedicate yourself wholly to running your business rather than also taking the time to comprehend more than 1,700 pages of tax code that may or may not pertain to your situation.
  • Navigating state and local taxation, which can be especially tricky if you have more than one business location.
  • Understanding tax classifications of employees so that you can categorize yourself, your business partners, and your workers correctly.
  • Documenting and tracking all deductible expenses so that you don’t miss out on tax savings.
  • Preventing you from running afoul of the IRS because you weren’t aware of regulations that apply to your business.
  • Helping you establish effective systems for finance and tax-related procedures to keep your business running smoothly in these areas from day one, including choosing an appropriate tax year.
  • Correctly documenting and reporting all gross business income to the IRS, including not just funds but goods, services, bartering arrangements, property, assets, and additional income derived from sales.
  • Helping you understand your tax requirements as a self-employed individual, including quarterly estimated tax payments and the tax implications of being considered both the employer and the employee.
  • Keeping up with a tax code that changes daily and ensuring your business remains in compliance.

When Should I Represent Myself With the IRS?

Both business and individual taxpayers have the right to represent themselves when it comes to IRS matters. For example, if you missed a deduction you might qualify for or made a minor mistake on your return, it’s fine for you or your CPA to address these items directly with the IRS. You can also easily file for an extension on your taxes by submitting Form 4868.

If you choose to represent yourself in an audit, however, you might quickly find yourself in over your head. To successfully handle the IRS audit process, you must have a comprehensive understanding of all applicable tax laws, know what type of documentation you must provide and how to provide it correctly, and know how to navigate the complex appeals process.

Although hiring a specialized tax attorney is an additional expense for individuals and business owners alike, it’s an investment that is well worth making if you are potentially facing a heavy tax burden or substantial fines and penalties.

 

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