For some tax situations, a certified public accountant (CPA) is the pro you need to call. More complicated issues typically require the assistance of a tax attorney. A specialized lawyer can advocate on your behalf with legal matters concerning your taxes as well as complex technical matters that require comprehensive and up-to-date knowledge of the ever-changing tax code.
It’s most important to hire a tax attorney if you have been accused of a crime or owe back taxes that you are unable to pay. For most individuals, the expertise of a tax attorney can help in the following additional situations:
If you are being investigated by the IRS for a criminal matter, such as fraudulently claiming credits or deductions, it is essential to seek the guidance of a tax attorney who is experienced in litigation and can defend your interests in court.
Any information you share with a tax attorney is confidential and does not legally need to be divulged during court proceedings; this is not necessarily the case for an accountant. This means that you can share every detail of your case and brainstorm potential defenses with your attorney without the fear that this information will be used against you.
Penalties for tax fraud and evasion can include substantial fines and jail time. You’ll also be required to pay all back taxes with interest and fees.
Honest mistakes are not considered fraud by the IRS. Actions that do constitute fraud and require specialized legal representation include:
Although the IRS does offer payment plans to taxpayers who are unable to resolve their debt, it can be a challenge to qualify for and negotiate a settlement under these types of programs.
If you have tax debt you are unable to pay, a tax attorney can help you negotiate an offer in compromise. This means that the IRS agrees to settle your tax debt for less than you owe. This program has strict eligibility requirements and it can take up to two years to process your application.
In addition, these arrangements are accepted by the IRS in only a small percentage of cases. For example, the IRS received 67,000 requests for an offer in compromise arrangement in 2015 and accepted just 27,000 of these requests. A tax attorney can help frame your offer in compromise in a way that makes it more likely to be approved and often streamline the process.
Another program for delinquent taxpayers is the IRS Fresh Start Program, which launched in 2011 to provide individuals a reasonable way to resolve their tax debt. Under this program, a lien will not be placed on your personal property until your tax debt exceeds $10,000. With a lien, the IRS retains ownership of assets until you pay your tax debt. Fresh Start also makes it easier to qualify for an installment agreement if your tax debt amount is below $50,000.
This program also makes allowances in negotiating the amount of debt you can afford to pay by creating realistic future income calculations, increasing allowable living expenses, taking student loan and state and municipal tax payments under consideration, and excluding certain items such as bank accounts and automobile equity from tax levies.
If you think you may qualify for Fresh Start or an offer in compromise, talk with a tax attorney about your options before approaching the IRS with an offer to negotiate.
The IRS may require an audit if they think you may have paid the wrong amount of taxes. Because an audit is a legally binding process, you should have a tax attorney who can advocate on your behalf. If you are subject to an additional tax burden after the audit, the attorney can argue for penalty abatement and help you arrange installment payments. Although you are technically allowed to represent yourself in a tax audit, it’s usually not prudent to do so unless you understand the applicable laws, can provide the required documentation, and owe less than $10,000.
When you receive notification of an audit, a tax attorney can advise you on next steps. A correspondence audit is done by mail and is used for less complex audit cases. An office audit requires you to bring associated documents to a local IRS office. The field audit is done by an IRS representative at your place of business.
In some cases, it makes sense to represent yourself in dealings with the IRS or have your CPA do so. Tax attorneys do not typically handle minor mistakes or adjustments that need to be made to a tax return, file extensions for your tax return, or complete and submit tax returns. These are routine matters best done by the individual or his or her accountant.
All attorneys must obtain a juris doctorate (J.D.) degree and be admitted to practice by the state bar association. However, tax attorneys also have additional specialized training in their area of expertise. This often includes the master of laws (LL.M.) degree in taxation in addition to the J.D. Some tax lawyers also have a background in accounting. A tax attorney who is also a CPA may be the best person to assist if your tax issue includes complicated accounting principles.
Not just any tax attorney will do, especially if you are accused of a tax crime or owe substantial back taxes. You must make sure that the attorney in question has the training, experience, and credentials needed to advocate for your specific situation. For example, some tax attorneys specialize in audits, others in estate issues.
Before hiring an attorney, check with local and state bar associations to make sure he or she is licensed and in good standing. You can also read online reviews about his or her practice to help inform your decision. Ask the attorney how he or she keeps up with changes in the tax code. In this area of law, being aware of constant updates is a critical part of practice.
In most cases, attorneys offer a free consultation before agreeing to take your case. This is a good opportunity to learn more about their areas of experience. Some questions you should ask during this initial meeting include how much the attorney charges and what type of fee schedule you will be subject to; how many cases of this type he or she has handled and the outcomes of those cases; and whether he or she is able to provide references from other clients.
Most tax attorneys charge an hourly fee along with a retainer, which is an upfront fee that allows you to retain their services. In rare cases, a tax attorney may charge a flat project-based fee. Although their expertise may come at a premium cost, in many cases, hiring a tax attorney can greatly reduce your past-due tax burden and decrease or eliminate penalties and fees.
If the attorney you consult with isn’t the right fit, he or she may be able to provide a referral to a colleague who has more experience in your required area. You can also seek lists of registered attorneys through professional organizations such as the National Association of Tax Professionals and Tax Law Association. Ideally, a tax attorney should have sound knowledge of the tax code and be able to present a range of potential solutions for your tax issue. They understand the most effective methods for dealing with the IRS and can often minimize your penalties and fees.
If you’re struggling to pay your tax debt, Solvable can help. We specialize in finding the best debt relief companies for your specific situation. Our debt relief process includes a free consultation and expert advice about how we can advocate on your behalf to find a solution to your IRS issues.