Guest Blogged By: Tax Law Offices of David W. Klasing
Some tax situations seem straightforward, allowing you to feel comfortable handling your taxes yourself or with your tax preparer. Other times, you may turn to a CPA to help you complete your taxes or deal with tax controversy issues.
Regardless of how you prepare your tax return, nearly everyone has at least one moment — probably more than one — where you’re just not quite sure if you’re answering a question from the CPA our your tax preparer correctly or entering the right data into a form. Most people do the best they can to submit the right data, cross their fingers, and hope the IRS or State Tax Authority does not question the issue down the road.
However, if enough of these confusing situations pop up while you’re completing your tax return, it may be time to hire a tax attorney to help. You may want professional advice on just how tax laws affect your tax situation.
Beyond tax time, tax attorneys and business attorneys can provide counsel on a host of situations. Having the knowledge of a tax attorney on your side is beneficial when making financial decisions throughout the year that could affect you later at tax time, as well as if the IRS ever contacts you for an audit.
If you are wondering about when you should hire a tax attorney, we’ve put together a list of eight instances where you will receive significant benefits.
1. IRS Audit Notification
Receiving notification of an IRS audit can be a disconcerting situation. Some audits are simple requests for additional information, so you may not need an attorney.
However, if the IRS wants to meet in person or if you believe this could be a process that is going to take several back and forth submissions of information, an attorney is your best option.
When the IRS requests an in-person meeting at your home or business, its agents may be seeking an opportunity to glance at your belongings, trying to determine if your lifestyle matches up with what you’ve reported on your tax return. When you have hired a tax attorney, you can request that the in-person meeting occur at the attorney’s office, rather than on your property.
2. Facing Criminal Tax Exposure during or after an audit.
If you chose not to hire a tax attorney during the early segments of the audit, you will absolutely need a criminal tax attorney on your side, should the audit lead to the filing of criminal charges against you. However, for optimal results, if you know you have cheated on a return and find yourself under audit, whatever you do, do not hire the original preparer of the returns at issue to represent you. They are very likely to become government witness number one against you if the government chooses to prosecute you. Moreover, they are very likely to pin any noncompliance on you in order to preserve their own reputations. You simply cannot afford to take a chance. Hire a tax attorney.
Regardless of whether the criminal charges arise from tax evasion or tax fraud, these are serious charges. You need to treat them as you would treat any kind of criminal charges, where you would want an attorney representing you in negotiations with authorities and in court.
For criminal charges related to drunken driving, for example, you’d want an attorney with experience defending clients against these charges. Similarly, you want a criminal tax defense attorney to defend you against charges related to taxes.
Remember, a CPA can help you finish your taxes, but the CPA does not have attorney-client privilege like a tax attorney has. This means your CPA could be called to testify against you during a court case, even if they did not prepare the returns at issue, but your tax attorney cannot be forced to testify against you.
3. Suing the IRS
If you disagree with a finding the IRS makes after an audit, you can file a lawsuit against the IRS in Tax Court. It is not easy to defeat the IRS in Tax Court, so you need an experienced tax litigation attorney on your side to improve your chances. A reputable tax attorney will weigh the costs of the litigation against your odds of success and the amount of taxes at issue and advise you if suing the IRS makes economic sense. A CPA or tax preparer cannot ordinarily file a tax court petition without engaging in the unauthorized practice of law, a felony in most states.
If you are uncertain whether filing a lawsuit against the IRS is a good idea, a tax attorney can give you advice on whether your case has a reasonable chance of success, or whether you are better served by paying the judgment against you.
4. Estate Planning
Finding a qualified estate planning tax attorney to handle the planning of your estate is a something that will pay off in the long run. With the right planning procedures in place, you will be able to protect more of your net worth, so you can pass it on to your heirs. At a minimum, just avoiding probate will save your heirs a bundle.
Because estate tax laws and value limitations seem to change on a fairly regular basis, having a knowledgeable tax attorney on your side allows you to keep up with any changes. This means you can make adjustments to the plans for your estate as the laws change, keeping the legal standing of your estate constantly up to date.
5. Starting or Selling a Business
Business tax laws differ quite a bit from tax laws for individual taxpayers. The implications of making a mistake at the time of starting or selling a business could create some serious tax problems for you in the future.
When starting a business, a tax attorney knows how to set up your business to create the most efficient and advantageous tax situation and how to create a legal fire wall to protect your personal assets from liability. If you have already started your business, a tax attorney can study your situation and determine whether you should make any structural changes to improve your tax planning and compliance options going forward.
When you sell a business, you also could have significant tax implications for your business and potentially for your individual income tax filings. A tax attorney can provide advice on how you should set up the sale to create the largest possible tax benefit for you and protect you from a host of associated contractual and off-balance sheet risks.
6. Making Financial and Business Decisions During the Year
You may have times during the tax year where you have an opportunity to make a significant financial decision, either as an individual or as a business owner. Not only do you have to think about how this decision affects your finances now, but you must consider the tax and business implications down the road too.
You certainly don’t want to make these financial decisions without thinking about how they affect your taxes, or you could end up with an unexpected problem at tax time. Asking an attorney for advice after the fact will help you file your tax return properly, but it will not help you protect your net worth.
A tax attorney can give you advice as you need it at the time of the financial transaction, ensuring you are properly prepared for filing your tax return and choosing amongst the most profitable options.
7. Offshore Holdings and Assets
American taxpayers who have holdings in a foreign country must disclose these holdings on tax and information reporting returns. These holdings can consist of physical income generating assets, businesses, trusts or bank accounts in a foreign jurisdiction.
FBAR laws are especially confusing for taxpayers, as these laws require disclosure if the assets exceed $10,000 at any point during the tax year. And the IRS is becoming more aggressive about prosecuting FBAR violations, as more than 100 foreign governments have an agreement with the IRS to report these holdings to American authorities.
A tax attorney will know exactly how to report these assets in the proper manner, meeting all deadlines the IRS requires. International tax planning and optimization is another area where you could substantially benefit by hiring an international tax and business law attorney.
8. Completing Your Tax Return
Depending on the complexity of your tax return, hiring a tax attorney to help you complete your return may be overkill.
However, what you may want to do is consider hiring a dually licensed tax attorney and CPA. You’ll receive the distinct knowledge of both types of experts, which can be invaluable in many different types of tax returns.
To schedule a 10-minute reduced initial consultation with an experienced Tax, Estate & Business Law Attorney and CPA, contact the Tax Law Offices of David W. Klasing. We have on staff dual-licensed CPAs and Tax Attorneys with extensive capabilities, and our team is ready to handle any kind of tax situation you may be facing, making it easier to decide when you should hire a Tax Attorney.