When an Accountant Isn't Enough, Call a Tax Attorney
When things get off track with the IRS in Michigan
on August 4, 2021
Updated on July 27, 2022
Keeping track of taxes can be confusing at best and scary at worst. Fortunately, that’s what tax attorneys are for.
“When a business owner is first starting their business, it’s important to have a lawyer set up all the entity documentation and decide what kind of tax structure the entity should be,” says Chelsea Rebeck, a tax law attorney at Rebeck & Allen in Southfield. “For the most part, business owners need a tax lawyer and a CPA quite a few times within the life cycle of the business.”
So what can a tax attorney do that an accountant can’t? Quite a bit.
The Difference in a Certified Public Accountant and Tax Lawyer
“A CPA can represent people before the IRS, but an accountant that doesn’t have any credentials or certifications cannot. Some CPAs do specialize in tax resolution and they could be a very good option, but they might not have the skills and the training and the experience of somebody like a tax attorney who does this kind of work day in and day out,” says Venar Ayar, founder and principal of Ayar Law in Farmington Hills. “The other thing that an accountant can’t do, even if they’re a CPA or enrolled agent, is represent people in criminal matters.”
For most businesses, having both a CPA and a tax attorney is a smart move. “Having the full arsenal of advisers, which includes having your regular business attorney, your tax attorney, and your CPA, is a really smart move for business owners,” says Rebeck. “You’re taking advantage of all of the potential assistance that you can so you can save money and save taxes and keep yourself out of trouble.”
Most tax attorneys and CPAs work seamlessly together, she adds. “They’re able to gather all the documentation and kind of organize it and then we deal with the auditors on the actual procedure of the audit.”
When Tax Issues Become Legal Issues with Internal Revenue Service
How would a business owner know when to contact a tax attorney? “If things get off track,” Ayar says.
A lot of times, says Rebeck, when employers get behind on things like payroll taxes or corporate income taxes—due to cash flow issues or just general forgetfulness—CPAs are usually not well equipped to handle a lot of interaction with the IRS. “A lot of it is very law-specific and a lot of it is procedural rules that go beyond the scope of doing accounting and tax work,” Rebeck says.
Then there are audits. “The business owner can have the accountant who prepared the return try to handle that, but it’s usually not a good idea,” Ayar says. “Those are the most common situations: they either haven’t filed, haven’t paid or they’re experiencing an audit or some kind of investigation and they would need somebody to defend them against the IRS and that someone, ideally, would be a tax attorney.”
The worst thing you can do is ignore the situation. “The biggest penalties come from not filing tax returns, not from not paying. The other thing people should know is the sooner they talk to somebody the better. With my firm, it doesn’t cost anybody anything if they want some advice.”
You Can Try to Resolve a Tax Situation Yourself (If It’s Easy)
Often, he says, the problems aren’t that complicated. “I encourage a lot of people to do stuff on their own if it’s simple. If you just owe $10,000 to $20,000, you can actually set up a payment plan online. If you have the means to pay the IRS back over five or six years at just a couple hundred dollars a month, you don’t need an attorney. Just go online at IRS.gov and set yourself up on a payment plan,” Ayar says. “Other firms might charge $1,500 to $2,000 to do something for you that really isn’t that complicated.”
A word of caution to anyone just getting started with a tax attorney: Beware of scams. “There’s a lot of companies who take advantage of people’s fears in the tax resolution industry,” says Ayar. “There’s a huge difference between something called a tax resolution company and a law firm. … If you ask one of these tax resolution companies to talk to an attorney before you sign up, they won’t let you. That’s the biggest red flag and the biggest thing people can do to protect themselves: Before you hire anybody, ask to speak to an attorney. Scammers won’t let you.”
In the end, talking to an attorney can allay a lot of fears.
“What people need to realize is that, if you owe money to the IRS, you’re entitled to pay what you can afford,” Ayar says. “They’re not going to put you out on the street. They let you pay your bills. It’s very unusual for them to take your house or your car.”