Tax attorneys represent others in legal matters involving taxation. Tax lawyers play many important roles, although the role itself can vary greatly. In the most general sense, tax lawyers provide leverage for individuals, organizations, and corporations against the Internal Revenue Service and State Franchise Tax Boards.
Hiring, or not, a tax attorney could make or break both your legal records and finances. Find out which financial situations might require legal representation.
The Role of a Tax Attorney
Under certain circumstances, hiring an attorney is not only advisable but necessary. A tax attorney can help with a number of different legal issues too big to tackle on your own, such as:
- Keeping clients out of jail for tax fraud or tax evasion
- Creating partnerships and structuring complex estate plans
- Assisting with nonprofit organization formation, mergers and acquisitions, offers in compromise and other complex business matters
- Some tax attorneys are also accountants, but most are rarely involved in filing tax returns. Like other types of legal specialties, tax attorneys might work as sole proprietors, in small firms or within large business law firms or partnerships.
- In some states, tax attorneys might also handle real estate sales transactions.
6 Times You Might Need a Tax Lawyer
If you’re on the fence about hiring a tax attorney, ask yourself if you’re in one of the following situations. If you are, hiring a tax lawyer could be in your best interest. Here are six times you might need a tax lawyer:
1. Starting and Running a Business
The Federal Income Tax System is incredibly complicated and many states have complex tax laws as well. A total of fourteen states and the District of Columbia allow cities to levy separate individual income taxes. If you are considering starting a business, it is important to have an advocate to help you understand your legal obligations, options and rights relating to taxation. Additionally, some business transactions could trigger a costly tax event that could be prevented with the help of a tax attorney.
Even the most profitable businesses might fail without proper structuring and management. A tax attorney can assist with business transactions and potential tax consequences of financial decisions. For example, if you were forming a consulting firm with several other attorneys, a tax attorney could:
- Review your objectives and advise you whether you should structure your firm as a partnership or a corporation.
- Advise how to treat large capital gains and losses, or writing off non-performing assets.
- As your company grows, a tax attorney could also assist with structuring profit sharing or defined benefit pension plans.
2. Gaining Tax-Exempt Status for Nonprofits
Nonprofit organizations, including churches, private schools, private foundations and charities, might benefit from a section 501(c)(3) status. A tax attorney can assist with the IRS application for nonprofit status by determining eligibility for exemption from federal income taxation.
3. Being Selected for an IRS Audit
If you have received a notice that you’ve been selected for an audit by the IRS, you have the right to an attorney of your choice who can represent you in communications with the IRS. IRS Form 2848 allows you to give someone power of attorney, in which the individual named can represent you before the IRS and to receive your tax information for the designated tax matter and tax year or reporting periods specified on the form. You also have rights to appeal many actions the IRS might make following a tax audit. A tax attorney can help you with an offer in compromise, or OIC, to settle a debt with the IRS.
Related: 30 Ways to Prevent a Tax Audit
4. Handling Probate Matters and Filing Estate Tax Returns
Tax attorneys can help with both death and taxes, both before and after one’s passing. Many estate planning attorneys also handle probate matters and assist with final tax returns including filling out Form 706, if the gross estate of the decedent is valued at more than the filing threshold in the year of the decedent’s death. Attorneys might handle all of the work, or they might work with a CPA or Enrolled Agent for the actual return preparation.
5. Failing to Pay Taxes and Tax Fraud Criminal Investigations
If you are under criminal investigation by the IRS, you should consider consulting with a tax attorney — penalties for tax fraud can include prison time. Under your attorney-client privilege, your tax attorney is exempt from testifying against you, unlike your CPA. When a tax lien is filed against an individual, a tax attorney can help release the lien and find payment options to settle tax debt over time.
6. Protect your Rights
It is important to remember, a CPA or a financial advisor cannot replace a tax lawyer. If you are facing an investigation by the IRS or a state tax agency, do not wait to speak with an attorney, and begin protecting your legal rights.