It’s difficult to find someone that doesn’t hate paying taxes. It doesn’t matter who you are, Republican or Democrat, young or old, rich or poor, paying taxes is not fun.
Is there a bright side to taxes? The only positive is that filing has gotten a little easier because of tax software and pop-up tax preparers at the corner of every street.
However, even with readily available technology and help, things go wrong, and that’s when it’s time to hire a tax lawyer. When you hire a tax lawyer, they can defend you during an audit. They can fight a tax evasion or tax fraud charge. A tax lawyer is also very knowledgeable about business taxes and property taxes.
In this article, we’re going to teach you some general information about tax law. This information will help when you meet with a tax lawyer at an initial consultation. We’re also going to explain different ways that a tax lawyer might be able to help your situation. Finally, at the end of the article, we link to our guide which lays out the specific steps to take on how to get a lawyer.
Before we go further, you need to know that the information in this section is only general information about tax law. It is not legal advice, and it is not even specific advice. Instead, it is general information to prepare for your meeting with a tax lawyer. At the meeting, the lawyer can accurately advise you on how tax law applies to the facts of your specific situation.
Income Tax Issues
In most situations, unless you are super wealthy or have a business, you probably don’t need to hire a tax lawyer as an individual. You can easily do your taxes yourself using DIY software or using a tax preparer. Any of these different ways to file your taxes should cost less than a few hundred dollars.
However, there are some times when hiring a tax lawyer as an individual is beneficial. Here are some of those times:
The tax code in the United States is extremely complex and changes every couple of years. If your taxes are complicated, or you are worried that something isn’t right, you should at least consult with a tax lawyer for a second opinion. A consultation could be free, or it might cost a few hundred dollars, but it could help you avoid an audit.
A complicated situation could be when you are deciding whether to exclude or deduct certain things from your adjusted gross income and have not in prior years. It may be possible to exclude certain items from your adjusted gross income depending on your circumstances.
Here is a list of possible exclusions which you could talk to a tax lawyer about:
- Employee benefits (ex., meals, lodging, fringe benefits)
- Transactions in property
- Life insurance proceeds and annuities
- Discharge of indebtedness
- Damages and related receipts
- Higher education credits
Next, here is a list of possible deductions which you can run by a tax lawyer for their opinion given your specific circumstances:
- Cost of moving to a new house and job
- Extraordinary medical expenses
- Education expenses
- Interest on educational loans and higher education
- Health savings accounts
- Clean fuel vehicles
- Energy star deductions
- Below the line deductions such as medical expenses, taxes, interest, casualty losses, charitable contributions, and certain business expenses
For most people, an IRS audit is like the boogeyman. It’s frightening, but hardly ever seen. However, for those unlucky few that do get audited, life can quickly get terrifying.
Reasons for an Audit
There are many reasons why the IRS might select you for an audit. The IRS could choose you because you failed to report all of your income. Another thing that could happen is the IRS might have discovered math errors in your return, or identified discrepancies compared to your prior year’s tax return.
Another reason for an audit could be because you were randomly selected. Each year the IRS selects a specific number of returns at random to audit. Sorry. Someone has to lose each year, right?
The IRS also designs algorithms which generate “norms” based a statistically valid set of random sample tax returns. When your tax returns fall outside these norms for similar returns, their systems might trigger an audit.
Notification of the Audit
The IRS will only notify you of an audit via mail using the United States Postal Service. You should ask your tax lawyer if someone is claiming to be from the IRS and you’re unsure whether they are legitimate.
In recent years, scammers have targeted millions of people through phone calls where the scammers claim to be from the IRS. They demand immediate payment using either a credit card or gift card; otherwise, they threaten jail time or hefty fines. Unfortunately, many people have fallen victim to these scammers.
Now, this isn’t to say that the IRS will never communicate with you over the telephone. But the IRS will always initiate the communication using the United States Postal Service.
Administering the Audit
The IRS will either carry out the audit through the mail or at an in-person interview. The in-person interview is usually at either an IRS office, your home, place of business, or at an accountant’s office.
Your tax attorney can help you through the audit process regardless of its location. They can handle the paperwork and the discussion with the IRS agent.
Your tax lawyer can also help you prepare for the interview by collecting all relevant information which the IRS might request. Here is a list of records that the IRS might have you bring to the meeting:
- Receipts – prices, dates, and notes on what was purchased.
- Bills – including an identity of the person or organization receiving payment and the type of service that was purchased
- Canceled checks
- Legal papers – ex., divorce settlements, custody agreements, criminal or civil papers, property acquisition documents, tax prep or advice
- Loan agreements
- Logs or diaries
- Medical records
- Theft or loss documents
In their digging, the IRS can go back as far as three years, but in some extreme cases, they can go back six years or more. Your tax attorney should know the specifics of what they can and can’t legally do before your meeting.
Conclusion of the Audit
An IRS audit has three possible conclusions:
- No change – you substantiated all the items, and the IRS states there is “no change”
- Agreed – the IRS proposed changes, and you accepted
- Disagreed – the IRS suggested changes, and you disagreed
You will have an opportunity to appeal the decision if you disagree with any of their changes. In this situation, your tax lawyer can prepare all the necessary documents to mount an effective appeal.
Tax Evasion and Fraud
In an audit, a lawyer is very beneficial if you find yourself overwhelmed. However, if you’re facing criminal charges for tax evasion or fraud, then a lawyer is critical unless you want to go to jail or face steep penalties.
Before you hire a tax lawyer to help you fight a tax evasion or tax fraud charge, make sure that they have experience dealing with these matters. We will get into it more below, but you want to hire a lawyer with experience. Your future is at stake, and you shouldn’t risk going to jail or ruining it by making the mistake of defending yourself.
Property Tax Issues
In addition to income tax issues, a tax lawyer can also help with property tax problems. While there are many ways a tax lawyer can help, the two main areas are with challenging an assessment and back taxes.
Challenging an Assessment
A tax lawyer can help you with unfair assessments. Some of the ways a lawyer can try to discredit an unfair assessment is arguing that the details used to create the assessment were flawed or inaccurate. For example, maybe the report was generated using outdated or incorrect information.
The lawyer might also look at the local market valuation for nearby comps and recent sales. Lower-priced comps might suggest that your assessment is too high.
Each year, taxpayers face bills from either the IRS or local tax authorities for back taxes owed. You might not have the money to pay right now, and you’ve probably seen all those commercials on television that promise to reduce your back taxes. They promise that you will only have to pay a fraction of what you owe to the IRS using a trick called “offer in compromise.”
In many cases, these promises to reduce your tax burden are false. The IRS usually gets what it’s owed. The only exceptions could be if you’re in the hospital about to die or completely disabled and unable to get a paying job. Unless you fall within these two categories, you’re probably going to have to pay what you owe. But as always, consult with a tax lawyer for advice on your situation.
So what can a tax lawyer do for you regarding back taxes? At most, they can help delay the payment deadline or restructure the payment into installments through a payment plan.
Business Tax Issues
Business tax issues are a very complex area of law, much more so than individual income taxes. In these situations, a tax lawyer is invaluable and can save your business a lot of money.
The most obvious way that a tax lawyer can help is structuring your business based on your taxation requirements. Here are some of the different types of businesses that a lawyer might recommend:
- Sole proprietorship
In each of these business structures, the tax liability can change. Some of the tax issues affected by the business structure include who gets taxed, whether double taxation is present and how to avoid it, and how to handle business losses.
Deductions and Record Keeping
Tax lawyers can also help ensure your business is getting all the deductions it deserves. Part of this involves keeping your books accurate and up to date.
Unlike individual income tax, there are many more deductions available to businesses. The most common deduction is for business expenses.
Deductible Business Expenses
Business expenses are expenses that are ordinary and necessary expenses paid or incurred in carrying on your business. It might sound simple, but there are a lot of rules and exceptions that go into what constitutes a business expense. During an initial consultation with your tax lawyer, they should explain what constitutes a deductible business expense.
Your tax lawyer can also teach you about the IRS requirements for reporting business expenses. It’s not enough to pay or incur business expenses. You must also keep detailed records of the expenses. Usually, you have to record the amount of the expense, time and place of the expense, and the business purpose.
Deductions for depreciation is another hot topic for businesses. It allows a business to recover the tax paid, but not the cost of the item itself.
In general, depreciation is for property that is actively used in your trade or business and subject to wear and tear. There are many rules and exceptions. Your tax lawyer should explain what is depreciable and how it works. At the initial consultation with your a lawyer, ask your lawyer about depreciation and see what he or she says. They might give you some useful information free of charge.
How a Tax Lawyer Can Help
If you haven’t already figured it out, there are many ways that a tax lawyer is worth the investment. But here are a few more ways that they can help you and your specific situation:
Experience with Tax Law
Whenever you’re facing the unknown, it’s wise to hire someone with experience. Experience is especially necessary when dealing with complex laws such as the tax code and related laws. A tax lawyer is ideally suited to not only deal with your tax questions but also represent you in front of the IRS or tax court.
Experience with the IRS
As an individual or a business, your only experience with the IRS should be a mailed check at the end of the year. But when things go wrong, and letters from the IRS appear, you might feel like a fish out of water.
In these instances, do yourself a favor and call a tax attorney who has much more experience than you with these matters. A tax lawyer should relieve your stress and guide you through the process, something that they deal with every day. The IRS doesn’t have to be scary, especially when you have someone experienced in dealing with them every day.
One of the biggest perks of using an attorney, compared to a CPA or CFA, is attorney-client privilege. Anything you say to a CPA of CFA can be used against you in court. But when you speak to an attorney in private, that conversation is privileged. Even if you admit doing past bad actions, a court generally cannot compel a lawyer to reveal that privileged information.
Help with IRS Audits
As already discussed above, a tax lawyer is priceless during an IRS audit. They can help you reduce possible penalties by negotiating with the IRS. Also, a tax lawyer should know of the possible outcomes for your situation. They also understand the laws and procedures and can use them to your advantage when dealing with the agent sent by the government.
Advice on How to Lower Your Taxes
If you have a significant net worth or are running a business, sitting down and talking about your tax options with a lawyer could save you tens if not hundreds of thousands of dollars.
Usually, a consultation is free and provides an opportunity to feel out the attorney and probe his or her mind. In the first few minutes, you can gauge if this is someone you want to work with and someone that can provide valuable insight into lowering your tax burden.
Representation in Tax Court and Appeal
You might not know this, but there is a special court that only hears tax cases. It is possible to represent yourself, but that is not advisable. The court will not hold your hand and walk you through the rules and procedures. You have to come prepared, and very few people are ready for what’s necessary.
A tax lawyer is experienced in this area and can expertly represent your interests before the judges in the tax court. They understand the rules of procedure and the court. The complex set of rules might require them to spend a considerable amount of preparation time on your case to ensure the best possible outcome.
In addition to representing you in tax court, a tax lawyer should also be familiar with the appeal process. In some instances, it’s possible to appeal an unfavorable decision. You should speak to your tax lawyer about this, but the issue itself might be premature unless you’ve already lost your initial case.
Reduce Anxiety and Frustration
The single biggest thing a tax lawyer can do for you is to reduce your anxiety and frustration. It is never fun dealing with the government, let alone an agency at the government that wants to take your hard earned money.
There is so much worrying that’s involved, wondering if you have sent the right information, or whether the IRS is going to leave you with a massive fine that you can’t pay.
Even if you end up not hiring a tax attorney, you should at least speak to one at a consultation. If you call around, you can usually find a tax lawyer in your city that provides free consultations. Take advantage of their offer and see what they have to say. If you walk away feeling better, maybe you should hire them and reduce the stress you’ve built up in dealing with the IRS.
How To Get A Tax Lawyer
If you’ve come this far, then you should have enough general information about tax law to assist a lawyer in advising you about your specific situation. Also, you should have a general idea about how a tax lawyer can help your situation.
But before you start searching for a local tax lawyer, there is one more step you should take. We highly recommend reading our guide about how to get a lawyer. In the guide, you will learn many things about how to get a lawyer. Here is an example of what you will learn:
- How to find a lawyer experienced with tax law.
- How to research the lawyer’s background.
- Questions to ask before an initial consultation.
- Questions to ask during an initial consultation.
- Observations to record about the lawyer
- How to decide whether to hire the tax lawyer.
Once you read this guide, you should be prepared to hire a lawyer to help with your tax needs.