When to Hire a Tax Attorney

Albert Einstein once said: “the hardest thing in the world to understand is the income tax.”

If a genius like that was confused by the tax system, what chance does a regular person have of cracking the code? 

Taxes, audits, penalties–none of it sounds very enjoyable. Who can help you wade through the complexity that is the U.S. tax code? Tax lawyers, that’s who.

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There are simple tax issues, complicated tax issues, and a bunch of variations in between. No matter the complexity, the stakes are high when you deal with the government and want to do things properly. 

Whether you need to hire legal help and when to hire a tax lawyer depends on your specific tax needs.  

What Is a Tax Attorney?

Like a doctor who specializes in medical conditions related to the heart, a tax attorney is a lawyer who specializes in laws and regulations relating to tax issues. All attorneys  go to law school and pass their state bar, and a national multistate exam, before officially practicing law. 

Tax attorneys can work for the government, in private practice, and for nonprofits. Typical tax lawyers deal with these issues:

• State, local, personal, corporate, and international taxes on income, imports, sales, etc.
• tax-dispute litigation;
• Estate planning and tax strategy; and
• Setting up and managing nonprofit, tax-exempt organizations.

What a Tax Attorney Does

Simply put, everyone wants to minimize the amount of taxes they have to pay on their income and investments while also complying with all the tax laws and regulations. The best case is when you overpay your taxes and get refunds of tax. 

If you have an issue with the state or federal tax authorities, you will need someone with experience to help you deal with them. A tax lawyer is essential. 

Some specific tax assistance services an attorney can provide include:

• Assess your personal and corporate financial situation and help you file your taxes in a way that will yield favorable tax treatment and help you save money;
• Track tax legislation and how it could affect their clients;
• Structure wills and estates in ways that avoid tax burdens;
• Counsel clients when dealing with a tax dispute or issues with the Internal Revenue Service (IRS), state government, or in court; and
• Deal directly with the government as their client’s legal representative. 

Let’s say the IRS sends you a letter that you haven’t paid all of your taxes, or that the income you reported on your tax return doesn’t match the figures on your W-2 or 1099 form. That can be terrifying.

Thankfully, you can sign an IRS form that will give your tax attorney power to deal directly with the IRS. Let them deal with the bureaucracy and headaches that can be the IRS experience. Surely, that is money well spent. 

When Should I Hire a Tax Attorney?

There are several situations in which you or your business may need the services of a tax attorney. 

Starting a business

When you are first getting your business off the ground, a tax attorney can be of great help. There are tax implications in every step you take when buying and structuring the business, filling out legal documents, and running the day-to-day operations. Your tax attorney will guide you with tax-smart strategies that will minimize the amount of taxes you pay and increase your company’s profitability. 

Tax disputes

No matter how hard you try to comply with all tax rules, mistakes can happen, or questions can arise. We’ve all heard of the dreaded IRS audit, where the IRS will ask for more information or documents to support what you have claimed on your tax return. 

After the audit, the auditor renders a decision that you think is incorrect. You have the right to appeal. You don’t want to head into negotiations or a lawsuit with the IRS without good legal representation. The experience of a good tax lawyer will be invaluable to you.

Trust and estate planning

Let’s say you have property and assets that you would like to pass on to your family after you are gone. Hiring a tax attorney is wise in these situations. By setting up trusts and getting the most out of annual gift exclusions under the law, you can lower the taxes your loved ones will have to pay when you pass.  

If you have a tax bill

There are many reasons you could end up owing money to the IRS. It could be the result of an error on your part or the government’s part. Regardless of who is at fault, it’s something you want to fix as soon as possible. If you don’t pay your debt by the scheduled deadline, the government could:

• Garnish your wages; 
• Put a lien on your home or property; 
• Freeze assets; and
• File a criminal charge.

None of these are remotely good options. A tax lawyer can help you negotiate a lower tax bill or help set up a payment plan to pay off your debt. They can also help you avoid litigation and wage garnishment.

The IRS is after you

You don’t want to toy with the IRS. If they have suspect you are engaging in tax fraud, hiding income, or claiming fake deductions, you’ll want an experienced tax attorney on your side. Your attorney will work on your behalf to find a way for you to pay less in penalties. 

What to Look for When Hiring a Tax Attorney

Hiring a good tax attorney is essential because the stakes are high. Keep in mind the following criteria as you meet and assess an attorneys’ competence.

Сlient testimonials

Ask around and search online to see what their clients think of them. Friends and colleagues can make recommendations and, at least, tell you who to avoid.

Are they licensed lawyers?

When you’re hiring an attorney, you want to make sure they are a certified attorney in your state. Their licensure can easily be found in an online search of your state’s bar association website.

Are they tax specialists?  

Okay, they have a general law degree, but do they have specialized tax credentials? Look to see if they have a certified public accountant (CPA) license and a master’s degree in taxation (LL.M). 

Can they prepare your tax returns?

Why hire a tax attorney if they can’t prepare your tax returns? Ensure your attorney has a Preparer Tax Identification number (PTIN) from the IRS. This is required for anyone who is paid a fee to prepare tax returns.

Pros and Cons of Working with a Tax Attorney

The benefits and downsides of working with a tax attorney come down to your unique situation. A tax attorney will be helpful if you are dealing with a more complex issue or concern. But the help will come at a pretty high cost as tax attorneys charge a high hourly rate. 

How Much Does a Tax Attorney Cost?

If you are thinking of hiring a tax lawyer, you have to consider the costs of such representation. Tax attorneys can charge between $300 to $400 on average. The more experience the lawyer has, the higher the price could go. If your case is complicated, that bill could add up quickly.

Some lawyers will offer services free of charge for those who can’t afford it. Local low-income tax clinics are also available. If you are involved in tax litigation, the IRS permits tax lawyers to work on a contingency if you want to enter into that arrangement with your attorney. This means they would get a percentage of any settlement or award you win.

When Do You Need a Tax Attorney as Opposed to a CPA?

The job description of tax attorneys sounds similar to that of certified public accountants (CPAs). Each offers a different knowledge base and approach. Whether you need one or the other depends on your specific situation.  

Both tax attorneys and CPAs are professionals who work on tax issues. However, they each bring a different skill set to the table. A tax attorney has a general legal background and specific tax expertise. 

A CPA’s skills are centered on accounting, keeping books, and preparing taxes, among other things. They are typically hired to maintain financial records and prepare tax returns. 

Whether a tax attorney or CPA is better for you depends on the situation and the nature of your issue.

Final Remarks

Like death, no one likes to think about taxes. However, it is wise to do so and to consult with a tax attorney to understand how the tax system works. The attorney can help organize your finances to follow the rules and allow you to get the most tax breaks.

If, for some reason, you find yourself tangling with the IRS, you will want an experienced tax attorney on your team. They will represent you, negotiate for you, and be an effective advocate.