When Do You Need a Tax Lawyer?
Common tax situations in which a tax lawyer can help you
By Andra DelMonico, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on June 26, 2024 Featuring practical insights from contributing attorney Richard S. KestenbaumUse these links to jump to different sections:
- What Is a Tax Attorney?
- What Does a Tax Attorney Do?
- Five Ways a Tax Attorney Can Help You
- Signs It’s Time to Hire a Tax Attorney
- How Much Does It Cost to Hire a Tax Attorney?
- How Do I Find a Tax Attorney?
You head out to the mailbox and discover something that brings dread: a letter from the Internal Revenue Service (IRS). What do you do now? The first thing to do is open the letter and find out what it is about. Then, depending on the contents, you may consider hiring a tax attorney. While most taxpayers don’t need a lawyer to file their tax returns, there are several situations where having legal representation provides several benefits.
What Is a Tax Attorney?
When students are in law school, they attend classes in a variety of legal areas, such as real estate, tax code, personal injury, or estate planning. After graduation, students must pass the Bar Exam. This exam is done in every state, with a portion on federal law and a separate portion on state law.
Once passing, lawyers choose specialties they will focus on when practicing law. A tax attorney will advise clients on their best interests while complying with tax laws and codes. They will explain the possible consequences of specific actions. They will also represent clients in audits, disputes, or other litigation proceedings.
While tax lawyers work with the tax code, they differ from certified public accountants (CPA), tax preparers, and other tax or accounting professionals. Tax lawyers focus their professional practice on representing clients in tax-related legal matters. Tax professionals who are not members of a Bar Association cannot represent clients in legal matters. Conversely, your tax attorney won’t prepare your tax return or perform your accounting.
“A tax attorney has a different kind of training than a tax accountant,” says Richard Kestenbaum, a tax attorney in New York with the firm of Kestenbaum & Mark. Tax lawyers who do tax work describe it as tax controversy work. They are more suited by education and experience to help than an accountant. Accountants understand the technical workings of the Internal Revenue Code as to computational matters. They don’t understand the legal issues that are often involved in resolving the controversy in a case.”
What Does a Tax Attorney Do?
Similar to other lawyers, tax attorneys will perform research, advise clients, prepare documents, and represent clients in litigation. There are also different types of tax lawyers depending on the issues they focus their practice on. Some lawyers may be generalists who will represent clients in a broad range of tax-related matters. Other lawyers may choose to focus their practice on a particular area of tax law. For example, they could be estate tax lawyers who help clients reduce tax liability when they die. Other types of tax lawyers include:
- Income tax lawyer
- State and local tax
- Small business tax attorney
- Partnership tax
- Tax litigation attorneys
- US International tax lawyer
- Corporate tax
- Tax-exempt organizations
- Employment and labor tax issues
Five Ways a Tax Attorney Can Help You
A tax attorney can help in five common tax situations. Ultimately, all tax-related legal services help individuals and businesses stay in the IRS’s good graces.
Kestenbaum explains that tax lawyers can assist clients in a variety of tax-related matters. “Taxpayers, whether large or small, can benefit from the assistance of a tax attorney. It could be a simple collection case that is a missed posting of a payment amount, a lost payment, or a refund claim that hasn’t been acted on. Or it could involve a criminal issue, and without the advice of someone experienced in the tax controversy world, clients often don’t recognize what their risk exposures are.”
1. Tax Planning
It is better to take a proactive approach when handling tax matters. Seeking the guidance of a lawyer can help reduce tax liabilities by understanding federal and state tax laws. Business owners depend on tax lawyers to make strategic financial decisions. Individuals can also benefit from tax law guidance during financial planning. Common situations include moving from one state to another or moving to another country. You are not exempt from US taxes when living as an expat. There are also more people working as freelancers or independent contractors, which comes with unique tax challenges.
2. Tax Disputes
The IRS may notify a taxpayer that it is performing an audit of the taxpayer’s previous tax filings. This doesn’t always mean the taxpayer is in trouble. Often, certain circumstances trigger a red flag for the IRS that causes a more thorough examination. A tax lawyer will represent the client during the audit process. They will advocate for the taxpayer’s rights. If the audit results in tax court litigation, the lawyer can continue representation. Should the audit or court proceedings result in an unfavorable outcome for the taxpayer, the attorney can assist with the appeal process.
3. Tax Debt Relief
The IRS will contact taxpayers about the unpaid taxes that are owed. If the taxpayer cannot afford the tax bill, they may need to request a payment plan or negotiate an offer in compromise to reduce the debt. If the taxpayer chooses to do nothing, the IRS may file tax liens or levies against the taxpayer’s assets. A lawyer can provide valuable representation for taxpayers to ensure they do not run afoul of the IRS, protect their assets, and satisfy the tax debt owed.
4. Small Business Transactions
A tax lawyer can help when forming or restructuring a business. The lawyer will advise on potential tax outcomes and liabilities and could provide valuable guidance during a merger, acquisition, or divestiture.
5. Tax Fraud
In certain situations, a taxpayer may take fraudulent actions to avoid tax debt. These illegal activities result in criminal charges such as tax fraud or evasion. A range of actions can result in these types of criminal charges. A taxpayer could willfully choose not to file a tax return or pay their taxes. They could include frivolous claims that fraudulently inflate tax deductions and tax credits. Well-known fraud includes individuals collecting fraudulent tax returns by submitting fake tax filings on behalf of other individuals. Other common tax fraud schemes could include:
- Fake charity
- Hiding income ‘
- Offshore tax shells
- Identity theft
- Offer in compromise mills
- Payroll or HR scams
- Abusive retirement plans
Signs It’s Time to Hire a Tax Attorney
You don’t need to be facing an IRS audit or other tax problems to need a tax attorney. There are several practical situations where a tax attorney can provide valuable guidance and advice.
For example, if you are starting a business, a tax lawyer can explain the potential tax consequences of the different business entities. If you move to another state or overseas, a tax lawyer will help you with tax planning for your future earnings. Those with extensive assets will benefit from speaking with a tax lawyer during estate planning to limit the liabilities of beneficiaries when inheriting.
In more serious situations, you may need legal representation if you are facing a tax audit, fraud charges, or accusations of tax evasion. The IRS will claim that you owe back taxes and may threaten you with additional tax assessments, penalties, fees, and interest. A notice from the IRS or a state tax agency will put you on notice of these actions. Ignoring this notice could result in additional penalties, wage garnishment, or tax liens.
How Much Does It Cost to Hire a Tax Attorney?
Generally, a tax lawyer will charge a flat fee or an hourly rate. A flat fee is a one-time payment that you will pay for the entirety of the service that the tax attorney provides. An hourly rate is a fee that you pay based on the number of hours the attorney spends working on your case. The actual cost of the tax lawyer’s services will vary based on several factors.
- Geographic location
- Type of legal service provided
- The complexity of the tax issue
- Attorney’s experience and reputation
- Law firm size
Generally, a flat fee will be for a simple service that only requires preparing and filing documents. Hourly rates are typically charged for more complex services requiring extensive time and work on the attorney’s part. When looking for a tax lawyer, you can ask what they charge, and they should be able to explain their fee structure clearly.
In addition, what the attorney charges for their services is separate from your tax liability. If you owe back taxes, penalties, or tax court fees, these are separate and additional to the cost of your attorney.
Kestenbaum explains that tax attorneys’ charges can vary based on several factors. This makes it important to talk with tax lawyers in your area to determine what you can afford. “Generally speaking, lawyers do it in one of two ways on a criminal case. They could charge a flat rate for a certain amount of services up to a point. Or they charge by the hour. You’re not permitted on a criminal case to do what’s called a contingency fee. But in a civil case, some lawyers take contingency fees. My firm does not charge this, so it is important for the client to decide what they are comfortable with.”
How Do I Find a Tax Attorney?
Finding and hiring the right tax attorney will help you find tax relief. The first step is to identify a tax attorney who provides the type of representation services you need. Once you have a short list of lawyers, you can schedule a consultation with each to determine which would be the right fit for your budget and needs. When you find the right lawyer, sign a representation agreement so that the lawyer can begin representation. Super Lawyers makes it simple to find a tax attorney by maintaining accurate and detailed resources of attorneys and law firms. You can browse the database and find top attorneys offering the type of tax representation you need.
For more information on these legal issues, see our reviews on what to expect in tax court and what to do in a tax audit.
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