What is a tax attorney? Simply put, tax attorneys are lawyers who specialize in the very complicated and highly technical area of law called tax law, which includes the Internal Revenue Code and administrative taxes. Like any other lawyer, an attorney specializing in tax law has gone to law school and is a member of a state bar association. In addition to their law degree, many tax lawyers also have degrees or advanced training in relevant topics like finance, business, accounting, and economics in order to best serve their clients.
A tax lawyer, sometimes redundantly called a tax lawyer attorney, a tax attorney lawyer, or a tax law lawyer, has two main functions.
The Tax Attorney as a Tax Advisor
First of all, a tax law attorney can be invaluable in preventing tax problems from arising. This isn’t the role that most people normally think of them as having, however, because for most of us any questions about taxes are simple enough that an accountant can answer them. But people who have large and complicated estates including various types of assets like real property, antiques, collectibles, investments and other wealth recognize the value of tax attorneys and routinely consult them when making a will, setting up a trust, or taking other actions that will affect the amount of taxes owed both during their lifetimes and after their death. And tax lawyers are extremely helpful if you need to file an estate tax return with the IRS.
But while tax law attorneys can certainly help individuals with tax planning, they are more often called upon by businesses to give tax advice. And while one usually associates tax lawyers with large multi-national corporations, in most cases even the smallest companies, including sole proprietorships and partnerships, can benefit from the services of an income tax attorney familiar with IRS tax law who can advise them about how to specifically structure themselves in a way that minimizes their tax liability while also obeying the complicated and constantly-changing tax laws in the US.
It is understandable that a small business might initially be reluctant to seek the services of an income tax lawyer, and may feel that simply having an accountant review their finances and make sure that all taxes are paid properly is enough, especially given the typical hourly cost of any kind of legal advisor. However, while an accountant can make sure that a business fulfills all its tax obligations, tax attorneys provide additional services that can result in tax savings that in many cases more than cover their fees.
Through careful evaluation of a business’s income sources, expenses, and liabilities, tax lawyers can give individualized planning advice to optimize organizational operating procedures in order to reduce the company’s overall tax burden to the minimum legally required. A tax attorney generally has more insight into the business taxes that your organization is obligated to pay, the tax benefits that your business qualifies for, and legal aspects of tax minimization strategies than an accountant does, and can use this knowledge to your advantage. In fact, most businesses find that having their own “tax team” of an accountant working together with a tax attorney is the best way to avoid tax problems while legally paying the minimum in taxes that the law requires of them.
Tax lawyers can be especially helpful if you are just starting your business and need legal advice as to how to set up your new enterprise. An attorney specializing in IRS tax laws can explain the tax advantages and disadvantages of various forms of businesses including sole proprietorships, partnerships, LP’s, LLC’s, S Corporations, and C Corporations. They can answer questions about nonprofit vs for-profit corporations, clarify the various small business and self-employment taxes your company may have to pay, and help you choose the best and most advantageous structure for your business from a tax standpoint.
And if your company has international dealings you will definitely want the services of a tax lawyer to help you with contracts, income reporting and other legal issues that will arise in this complicated situation. The paperwork requirements for transferring funds internationally, reporting on sales and purchases outside the US, maintaining non-US bank accounts, and other international business financial issues are extremely complex, especially in the post-911 world, and realistically you will need the services of an IRS tax expert to order to both report everything correctly and structure your international holdings and transactions in a way that minimizes your US tax liability.
Tax lawyers as Client Advocates in Tax Disputes
Given how complex and rapidly-changing the US tax laws are, it’s no wonder that sometimes, in spite of their best efforts, a business or individual finds themselves facing a tax audit from the IRS, or even dealing with allegations of fraud or criminal misconduct due to the information that they reported on their tax returns. If you should ever find yourself or your business dealing with an audit notice or any legal communication from the Internal Revenue Service, it is best to contact a tax attorney immediately.
While the situation can seem frightening and there may be a temptation to ignore it and hope it goes away, prompt action is generally the best response. IRS problems do not disappear simply because you don’t reply to them, and in fact penalties and fees will continue accruing daily until the issue is resolved. This continuous process means that tax fines and fees can quickly mount up until they are even higher than the amount of tax that is in dispute. Procrastination in dealing with an IRS notice, therefore, is not only likely to be extremely costly, but in some cases it can result in jail time as well.
So what can a tax lawyer do for you if you have tax troubles? Hiring a competent tax attorney can give you peace of mind when dealing with a confusing and complicated tax situation because any experienced tax lawyer has dealt with the IRS on numerous other cases. This means they are aware of misunderstandings and common errors that can give rise to an audit notice, and are also familiar with the fastest and most effective ways to clear up these problems.
From a practical standpoint, your tax lawyer can communicate with the IRS for you to clarify any issues regarding the tax problem. He can also help you gather all the paperwork and supporting documentation that you need to prepare for an audit, and accompany you to the meeting with the IRS agent. A good tax attorney can help explain your calculations and deductions to the IRS, and may be able to have fines reduced or liens removed in some cases.
If you are not able to resolve the problems that lead to the audit, or if you receive notice that you are facing criminal charges related to your taxes being filed incorrectly, or even not being filed at all, then a tax lawyer can be an invaluable aid making sure that you are treated fairly, that your rights are respected, and that you have the opportunity to present your side of the story in tax court.
A tax attorney can also file a lawsuit against the IRS on your behalf if there is evidence that they are pursuing an invalid claim against you, or have violated your rights in any way. Furthermore, a tax lawyer can be your advocate if you seek to have your case independently reviewed by the US Tax Court, and your attorney can also file an appeal if the court’s decision about that review goes against you. In fact, only an “enrolled agent” like a tax attorney or certified public accountant who have passed a special examination are allowed to argue a taxpayer’s case in tax court.
How to find the best tax attorney?
Finding the best tax lawyer to give you professional tax planning advice for yourself or your business, or help you deal with IRS tax problems, is not difficult, but it does take some work. Since this is an issue that may potentially affect thousands of dollars of your income, or more, you will want to be sure that you hire someone who is extremely competent and trustworthy. Begin by asking friends and other business owners if they can recommend a tax attorney that they are happy with. And if you have any attorneys that you work with for other issues, ask them for tax attorney recommendations as well.
Your local bar association may also have a list of attorneys organized by specializations. Although a bar association may not endorse any particular attorney, being a bar association member is a sign that an attorney is viewed as competent and respected by his peers.
Once you have a short list of possible tax attorneys that you are considering working with, it is time to look at their qualifications and select a few to meet with to see if they can take you on as a client.
Specific questions to ask before or during the meeting include:
- Does the attorney have extensive experience, or have they just been in practice a year or 2?
- What is their rating in the Martindale-Hubbell directory?
- Are they a member of the American Bar Association and their state and local bar associations?
- Can they provide references from satisfied clients that they have assisted with tax issues?
- Do they have any advanced training in tax law, such as a master of laws (LL.M.) degree in taxation?
- Do they also have any accounting training, including being a Certified Public Accountant?
- Is there some particular area of tax law that they specialize in (estate tax planning, small business tax planning, IRS audits, etc)?
- What is the attorney’s fee schedule and the arrangements for payment?
In conclusion, it is important to remember that while dealing with tax planning, audits and other tax issues can definitely be complicated and confusing, finding the right tax lawyer to help you through it can make all the difference to both your peace of mind and your financial bottom line.
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