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 assist you with tax relief.
What is a tax lawyer & how can they help?
Tax lawyers 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
Another thing that a tax lawyer can do is relieve the stress you may feel by dealing with the IRS or other tax agency on your behalf.
A tax litigation 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 may 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 sometimes 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 probably 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 either have a master of laws degree in taxation or certification as a tax law specialist from a state bar association. It can easily take 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. However, when it comes to dealing with complicated tax relief applications or resolving cases that could have legal ramifications, you are going to want tax attorney on your side.
However, having someone there to help, an expert in their field can go a long way in making a difficult process easier to handle.
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 audit. For less complicated audits where it can be done by mail.
- Office audit. You’ll need to take your receipts and other documents related to specific questions about your return to a local IRS office.
- Field audit. An IRS agent comes to your home or place of business.
- Tax appeals. If need assistance understanding your appeal rights, what you can appeal, 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 (such as alcohol, fuel, and luxury) tax. Tax lawyers can help you understand your responsibilities and walk you through the collection process, if need be.
- Tax penalties. The IRS imposed tax penalties include failure to file, failure to pay, negligence, disregard, and many others. A tax lawyer can help you navigate the many ways the IRS (and other taxing agencies) penalize taxpayers.
Related: Learn more about Tax Liens here (What they are and how can you get them removed).
How else can tax lawyers help you?
While many people innocently make errors when filing their taxes, if the IRS accuses you of a more serious crime such as 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. But there’s more. Afterward, the IRS Examination Division will assess 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.
When should you hire a tax attorney for solving IRS tax issues?
There are four scenarios where you do 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 can start filing tax liens and tax levies on your property. Tax liens not only put you at risk of losing your property but also have devastating effects on your personal and business credit.
If you are facing an IRS or state tax audit and there are “issues” with your tax returns you are not sure you can explain, you need the knowledge, strategy, and advice 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 and 80.8% of the defendants were sentenced to prison. In case you were wondering, the average sentence was 40 months. (Source)
The United States Tax Court gives taxpayers a forum where they can dispute the tax assessment of the IRS. You can go without a lawyer, particularly if the dispute is over a small amount. 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.
You may also want to hire a tax attorney to help with the following:
Before the IRS audits your small business, make sure you eliminate 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 personal and business’ tax liability. They can help negotiate and settle with the IRS and keep 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, don’t pay in a timely manner, or pay an incorrect amount, a detailed tax audit is a near certainty. There’s also the fact that tax debt is forever. 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 decision.
Wills, trusts, and probate are all complicated issues. An attorney with expertise in both estate planning and tax can help identify the best tax opportunities and options for your estate.
How can a tax attorney help with solving your tax problems?
There are three good reasons you should use a tax attorney instead of a certified public accountant or an enrolled agent.
A seasoned tax attorney knows what deals the IRS can and cannot accept. They are specifically trained to resolve conflicts, design agreements, and determine a proper resolution to difficult situations. This is particularly important during tax relief settlements. Although detailed rules regulate tax relief programs, a lot depends on the negotiating skills of your tax representative.
Tax lawyers are familiar with IRS procedures and know how to navigate its bureaucracy. Having a tax attorney in your corner immediately neutralizes the intimidation factor the IRS holds over you. If you have something to hide – most taxpayers do – a tax attorney can help you keep a lid on past tax indiscretions.
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.
Don’t 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, have the same common law protection of confidentiality as an attorney. Be careful, it’s a trap.
The accountant-client “privilege” only applies to civil (i.e. noncriminal) tax matters. The problem is the IRS takes the position that if a civil proceeding later becomes a criminal case the accountant privilege does not cover communications that took place before the investigation became a criminal matter. Criminal investigations often start as civil examinations (tax audits) and the information shared during the audit can be used for the criminal investigation.
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. For instance, in the 2009 fraud case of U.S. v. Rutherford, 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 even though the court acknowledged that the IRS auditor should have interrupted the audit sooner when the criminal intent of the taxpayer became evident.
Things to consider before hiring 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. Here are some things to consider:
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.
If you think tax attorneys are expensive, try representing yourself.
Taxpayers with a large tax debt, facing a messy tax audit, or under criminal investigation cannot afford to not hire a tax attorney.
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)
Tax relief companies with tax attorneys are twice as likely to get an offer in compromise approved.
In 2015, 40.3% of offers in compromise were accepted. (Source) Tax relief firms that have tax attorneys on staff often have approval rates of over 90%.
The IRS is ready to negotiate.
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. Tax attorneys have the negotiation skills and legal knowledge to know what settlements IRS agents are authorized to approve.
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 could be used against you.
The time cost is another factor to consider. Expect to waste a lot of time on the phone, reading IRS guidelines, and pouring over the 75,000 pages of our tax code, when you deal with the IRS by yourself. For instance, the average waiting time to get someone to answer the phone at the IRS in 2015 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)
Even if you think you are better off dealing with the IRS by yourself talk to a tax professional first.
What is the average salary for a tax attorney?
Tax attorneys fees vary widely depending 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.
Expect a tax lawyer to spend up to 15 hours on an office audit and 60 hours or more for more complex field audits, appeals, and tax court cases. 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 have to either pass a difficult IRS exam or have five years’ experience working for the IRS, they don’t have the training or 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 to find the right tax attorney for your tax problems?
What are the benefits of hiring a tax attorney?
Hiring a tax attorney gives you the peace of mind of knowing you are not taking unnecessary risks with your financial and personal freedom. Facing the IRS is like defending yourself from criminal charges. If the stakes are high, you need a lawyer to represent your interests. Without the experience, knowledge, and legal training of a tax attorney, you are at a great disadvantage.
A tax attorney will increase your chances of approval for a tax relief program. It will also protect you from over-sharing with the IRS when sending financial documents in a correspondence audit or when answering questions during a field audit.
How can a tax attorney help?
Having a law degree is not enough to be considered a tax attorney. Check if the tax attorney has 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 they have a valid license from the state where the court is located, and have a lawyer already registered in the court vouch for them. The same process occurs in the Circuit court (appeals) and the Supreme Court.
How to 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.
To find the right tax attorney, look for:
- Tax lawyers who work for a tax relief firm that is licensed by the IRS to train tax professionals
- An attorney who is 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
Choose an attorney who 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
Do you have tax debt problems? Find out how reputable tax relief companies that have tax attorneys on their staff can help.