The IRS is knocking at your door. They want your home because you haven’t paid your income taxes. Before you walk away and leave it all behind, consider how a tax lawyer can help you to protect your assets. Tax relief can be daunting on your own, but with help from an expert, you can prevent this nightmare from ever happening.
What is a tax lawyer?
Tax lawyers are legal experts with experience protecting clients from tax litigation and negotiating tax relief solutions. However, they do not practice tax litigation exclusively. In fact, many tax lawyers handle a variety of tax-related duties for individuals and corporations including:
- Navigating complex tax codes and laws.
- Structuring and documenting business entities.
- Overseeing business tax planning to legally minimize tax burdens.
- Advising clients on estate, tax, and financial planning.
- Handling disputes before the IRS.
Tax lawyers can also help to relieve the stress you may feel by dealing with the IRS on your behalf.
A tax attorney can represent you in state or federal Tax Court, or in other courts including the District Court, the Court of Federal Claims, or even the Bankruptcy Court. Additionally, a tax attorney can represent tax professionals who are the subject of IRS enforcement proceedings such as injunction actions or violations.
Do you need a tax lawyer to help with tax relief?
Knowing when it is time to call on the services of a tax lawyer can be difficult. You may think they are too expensive, or that you can ignore your tax situation and it will go away.
Your first question when hiring a tax attorney is whether you need one. Maybe you prepare your company’s taxes or you rely on a CPA for your tax, accounting, and other financial questions. So why should you turn to an attorney when it comes to taxes?
Why hire a tax attorney?
Tax lawyers are highly specialized professionals. They must have a Juris Doctor (J.D.) degree, pass a state bar exam, and have either a master of laws degree in taxation or certification as a tax law specialist. It can take up to 10 years to obtain those qualifications. You don’t need a tax attorney to file your tax return or give you advice on what tax deductions or credits to claim. An experienced CPA or enrolled agent will work just as well, and you’ll save yourself some money in retainer and consultation fees. But when dealing with complicated tax relief applications or resolving cases with potential legal ramifications, a tax attorney can save you a ton of money and stress.
Among other things, a tax attorney can leverage their expertise to get you an affordable tax relief solution. They can prevent you from sharing sensitive information that might trigger an audit. And since they streamline the process and speak the jargon, the IRS prefers working with them, and may offer them more favorable options. When shopping for a tax relief company, look for firms that have tax lawyers on staff, such as Optima Tax, Tax Hardship Center, and Victoria Tax Lawyers.
What do tax lawyers do?
A tax lawyer, sometimes called a tax litigation lawyer or tax controversy lawyer, can help you with:
- Tax audits. If a taxing agency questions whether you paid the right amount of taxes, they might request an audit. Audits come in three forms:
- Correspondence audits are uncomplicated audits that the IRS can perform by mail.
- Office audits require you to take your receipts and other documents related to specific questions about your return to a local IRS office.
- Field audits send an IRS agent to your home or place of business.
- Tax appeals. If you need help understanding your rights and what to expect during the appeal process, a tax lawyer can provide guidance.
- Tax collection. Individuals and businesses are responsible for paying a variety of local, state, and federal taxes including income, sales, payroll, and excise tax. Tax lawyers can help you understand your responsibilities and walk you through the collection process, if needed.
- Tax penalties. The IRS imposes tax penalties for failure to file or pay taxes, negligence, disregard, and many other infractions. A tax lawyer can help you navigate the many ways the IRS (and other taxing agencies) penalize taxpayers. They can also help you to find a tax relief solution to get you out of debt without a tax levy.
How else can tax lawyers help?
Many people make innocent errors when filing their taxes, and these misunderstandings can usually be cleared up without a professional. But if the IRS accuses you of a more serious crime — like tax evasion, failure to collect employment taxes, or filing false documents — a tax lawyer can help.
Penalties for criminal tax fraud can include up to five years in jail, plus fines and the cost of prosecution for each tax crime. And there’s more. Afterward, the IRS Examination Division will assess your taxes along with a civil tax fraud penalty.
Keep in mind that the IRS understands that sometimes people make mistakes. Mere carelessness is not tax fraud. Fraud includes overt acts such as:
- Intentional understatement of income.
- Failure to file tax returns.
- Concealment of income or assets.
- Engaging in and concealing illegal activities.
- Failure to make estimated tax payments.
If you need assistance with criminal tax fraud or tax evasion, you need a tax lawyer. A tax lawyer understands the process, how a civil tax case works within the system, and the most important factors to consider. There is no substitute for a knowledgeable tax lawyer when it comes to tax debt issues.
In what situations do you need a tax attorney?
There are four contexts where you definitely need a tax attorney: tax relief, an audit, a criminal investigation, and tax court.
If you owe $10,000 or more in back taxes, and you cannot afford to pay in full, you need to at least consult with a tax lawyer. Once you owe $10,000, the IRS files tax liens and tax levies on your property. Tax liens put you at risk of losing your property, and have long-term devastating effects on your personal and business credit. You can stave off the worst of these penalties by paying off your debt in full — but to do that, you’ll need to negotiate an affordable payment plan. A tax attorney can help you do so, while keeping you from making your situation worse.
If you are facing an IRS or state tax audit and there are issues on your tax returns that you can’t explain, you need the knowledge and strategy of a tax attorney. Don’t worry about the IRS thinking you have something to hide because you hire a tax lawyer to represent you. IRS and state auditors actually prefer to deal with tax professionals because it makes their jobs easier. IRS auditors are assessed by how many cases they close not by how much money they collect. Tax lawyers know exactly what auditors need to close a case, and don’t take it personally or get emotional during audits.
If the IRS’s Criminal Investigation Division is investigating you, you need a tax attorney. The IRS doesn’t play to lose. In 2015, the IRS started 3,853 criminal investigations. 80.8% of the defendants were sentenced to prison. The average sentence was 40 months (Source). In this position, you can’t afford anything less than the best representation.
The United States Tax Court gives taxpayers a forum where they can dispute the tax assessment of the IRS. You can represent yourself, particularly if the dispute is over a small amount. But if the case is over a substantial tax debt, you need a tax attorney representing you. You can be sure the IRS will have a team of tax attorneys on their side of the aisle.
When else might you hire a tax attorney?
The following instances are less dire than the above four. But if you’re not confident about your ability to manage them yourself, you should still call on an expert.
Before the IRS audits your small business, you’ll need to eliminate any potential problems. Tax attorneys not only have a clear understanding of federal and state business laws. They also know how business law intertwines with tax law, and how it affects your and your business’ tax liability. They can help negotiate with the IRS and stay up-to-date with the tax code so you can stay ahead of changes in tax law.
Payroll or employment taxes can be a particularly thorny problem for businesses. If you don’t pay, pay late, or pay an incorrect amount, a detailed tax audit is inevitable. And payroll tax debt is non-negotiable. Not even bankruptcy can discharge employment and property taxes.
How you set up your business – sole proprietorship, partnership, or limited liability (LLC) – has serious legal and tax consequences. A tax attorney, particularly one who is a CPA or has an accountant on his team, can help you make the most tax efficient decisions.
Wills, trusts, and probate are complicated issues. An attorney with expertise in both estate planning and tax can help identify the best tax opportunities and options for your estate.
Why should you hire a tax attorney instead of an accountant?
There are three good reasons you should use a tax attorney instead of a certified public accountant or an enrolled agent.
They’re skilled negotiators
A seasoned tax attorney knows what deals the IRS can and cannot accept. They are trained to resolve conflicts, design agreements, and determine resolutions to difficult situations. This is particularly important during tax relief settlements. Although detailed rules regulate tax relief programs, much depends on the negotiating skills of your representative.
They’re legal experts
Tax lawyers are familiar with IRS procedures; they know how to navigate its bureaucracy. Having a tax attorney in your corner immediately neutralizes the intimidation factor the IRS holds over you. And if you have something to hide, a tax attorney can help you keep a lid on those past tax indiscretions.
Their work is confidential
One of the most important benefits a tax attorney offers that an accountant cannot is the attorney-client privilege. The information you share with your lawyer is confidential. The IRS cannot force your tax attorney to testify against you.
Do CPAs and enrolled agents also enjoy client privilege?
Section 7525 of the United States Code does say CPAs and other federally authorized tax practitioners, such as enrolled agents, also offer confidentiality. But be careful, it’s a trap.
The accountant-client “privilege” only applies to civil (i.e. noncriminal) tax matters. But if your civil proceeding later becomes a criminal case, that confidentiality dissipates. Anything you told your accountant before the investigation became a criminal matter can now be shared. Criminal investigations often start as civil examinations (tax audits), and the information you share during the audit can later be used against you.
In other words, any “civil” case with the IRS has the potential to turn into a criminal investigation, so the accountant-client privilege is practically worthless. In the 2009 fraud case of U.S. v. Rutherford, for example, the CPA that represented the defendant in the tax audit was not protected by client privilege when the case became a criminal investigation. The statements of the CPA were accepted as evidence.
Things to consider when deciding whether to hire a tax attorney
Treat hiring a tax attorney as an investment. As with any other investment, perform a cost-benefit analysis to determine whether it’s worth the cost. If you’re not sure about hiring an attorney, consider the following:
Legal representation before the IRS is your right.
The taxpayers’ bill of rights grants all taxpayers the right to hire an attorney to represent them. Just like the right to legal representation in a regular court of law, it’s there for a reason. You need it.
Unsuccessful self-representation is more expensive than attorney fees.
Taxpayers with a large tax debt, facing a messy tax audit, or under criminal investigation cannot afford to represent themselves. The stakes are too high.
The IRS had a conviction rate of 96% in 2015 and eight out of 10 cases resulted in prison sentences.
The average sentence was 3 years and 4 months (Source). You want to give yourself the best chance of success, and that means hiring an expert.
Tax relief companies with tax attorneys are twice as likely to get an offer in compromise approved.
An offer in compromise is a tax relief settlement wherein the IRS agrees to accept less than the total debt. In 2015, 40.3% of offers in compromise were accepted (Source). But tax relief firms with tax attorneys on staff often have approval rates of over 90%. That improves your odds by about 50%.
The IRS is ready to negotiate with tax attorneys.
The Internal Revenue Service may be the largest federal bureaucracy in the United States, but it is still underfunded and overworked. Since 2010, the IRS’s budget has been reduced by 17%, even though the number of tax returns they have to assess increases every year. The IRS is so understaffed it can only audit 0.7% of tax returns. In other words, they can’t afford to counter-negotiate forever. Tax attorneys have the negotiation skills and legal knowledge to know what settlements IRS agents can approve, and to chase your desired result.
Consider the full cost of dealing by yourself with the IRS.
Applying for a tax relief or facing a tax audit without a tax lawyer will save you money on attorney fees. However, make sure you consider the full cost of a DIY job. Not only are you less likely to “win” an audit, but you risk providing self-incriminating information that the IRS could use against you.
The time cost is another factor to consider. Expect to waste a lot of time on the phone, reading IRS guidelines, and poring over the 75,000 pages of our tax code. In 2015, the average waiting time to get someone to answer the phone at the IRS was 35 minutes. That’s if you get an answer. According to a report by the Taxpayer Advocate Service, during some months in 2015, 90% of calls made to the IRS were not answered (Source).
How much will a tax attorney cost you?
Tax attorney fees vary based on where you live, the complexity of the case, whether they charge a flat fee or by the hour, and the expertise and experience of the tax lawyer. Based on these factors, fees can range from $100 to $1,000 an hour.
For an office audit, expect a tax lawyer to spend up to 15 hours on an office audit. For more complex field audits, appeals, and tax court cases, expect 60 hours or more. In your initial consultation, ask the tax attorney to provide an estimate for the services you require. Tax relief firms that have tax lawyers on their staff include retainer and consultation costs when calculating the flat fee for their services.
Some tax relief firms only employ enrolled agents. Although enrolled agents are still experienced in tax law, they don’t have the expertise of a licensed tax attorney. Consider this when comparing the fees of tax relief firms that do have tax attorneys on staff and those that don’t.
How do you find a good tax attorney?
Choosing an attorney is an important move. Don’t rush to retain the first tax attorney you meet. Be sure to interview attorneys carefully and find someone that makes you feel comfortable and has the qualifications you require. Talk to a few.
Having a law degree is not enough to be considered a tax attorney. Confirm that your prospective tax attorney passed the state bar, and is licensed to provide legal representation before the IRS. Tax attorneys must also obtain a Masters of Laws (LL.M.) in taxation or a certificate as a tax specialist from a state bar association
Licensure in a state does not automatically mean an attorney can appear in federal courts. They must make an application, show their valid license from the state where the court is located, and have a lawyer registered in the court vouch for them. The same process occurs in the Circuit court (appeals) and the Supreme Court.
To find the right tax attorney, look for:
- Tax lawyers who work for a tax relief firm licensed by the IRS to train tax professionals.
- An attorney licensed to practice law in your state (this is not the same as admission to a state bar).
- Specialization and experience in the necessary field.
- Admission to federal courts, as required.
And make sure that they can explain:
- Clearly and specifically what they can and cannot do.
- What is required of you.
- The expected outcome.
- An estimate of the overall cost, including upfront payments, payment options, and payment schedule.
Tax Attorney FAQ:
What does a tax attorney do?
Tax attorneys are lawyers who specialize in the complex and technical field of tax law. They’re best for handling complex, technical and legal issues associated with your tax situation.
How much it cost to hire a tax attorney?
Tax attorneys generally charge either an hourly rate or a flat fee for their services. The majority of tax attorneys charge by the hour and rates are between $200 to $400 per hour. Other one is flat fees regardless of how many hours the attorney spends on your case.
Can a tax attorney prepare a tax return?
Attorneys must be licensed by a state court or state bar after having earned a law degree and passed the bar exam. Not only are attorneys a registered tax return preparer, they also can prepare a legal defense for a client involved in a tax-related court case, even for taxes they did not prepare.
Are CPAs and tax attorneys are same?
A tax attorney is completely different than a CPA, although both help taxpayers. Tax attorneys are legal professionals with law degrees. They have passed the state bar exam and specialize in the legal side of tax preparation.
When do I need a tax attorney?
When you want to save yourself and your business from IRS penalties, interest and possible criminal actions (including jail terms), it is best to hire an expert in tax representation, who will be able to handle your situation better.
What you should Look for in a tax attorney?
Tax attorneys must have a Juris Doctor degree, commonly referred to as a J.D. They must be admitted to the state bar. Additionally, tax attorneys should have advanced training in tax law. Most will have a master of laws (LL.M.) degree in taxation, referred to as an LL.M.
What is the benefit of having tax attorney?
You have two reasons to hire a tax attorney. One: If you are in trouble with the IRS only an irs tax attorney can give you the attorney-client privilege. Under this, your attorney is exempt from testifying against you. The second one, only a Tax lawyer will have the experience in achieving tax settlements.
Ready to get started?
Do you have tax debt problems? Tax law can be complicated, but with a certified expert on your side, you can give yourself the best chance of success.
Your first step is to do some research and find the right tax relief company for your circumstances. Fortunately, SuperMoney can help! Click here to peruse a list of side-by-side reviews, ratings, and pros and cons for the top tax relief firms on the market.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.