The Internal Revenue Code (IRC)—the tax code—is confounding. Tax attorneys dedicate years to becoming well-versed with federal tax law, as well as state, local, and international tax issues. It’s through years of education and experience they’re able to guide you through challenging tax situations. But you might not be sure about when to handle an issue yourself or call a tax attorney for advice.
9 Signs It Is Time to Hire a Tax Attorney
1. You Owe a Considerable Amount in Back Taxes
As an individual, couple, or business, it is all too easy to accrue a significant tax liability. Back taxes can happen when you make employment, business, or financial changes without the proactive advice of a Certified Public Accountant (CPA) or tax attorney. If you owe thousands to the IRS, you can confer with a tax lawyer about setting up a short- or long-term payment plan with the IRS
2. You Have Unreported Income
You might not realize everything you are supposed to report as income, such as money you earn from a side hustle, interest, gambling earnings, or canceled debt. The IRS’s definition of taxable income is broad. If you haven’t reported all income in the past, talk with a lawyer about how to correct the mistake.
3. You Want to Protect Valuable Assets From the IRS
If you’re worried about back taxes, talk with an attorney about protecting valuable assets from the IRS. Your lawyer will explain the IRS tax lien and seizure processes, how to navigate them, and how to best protect your property.
4. The IRS Sent You a CP Letter
The IRS sends taxpayers an IRS Notice, known as a CP, for many reasons. You can often address a CP yourself. If you’re concerned about the contents of the letter, though, it can help to hire an attorney to communicate with the IRS on your behalf.
5. The IRS Is Auditing You
An IRS audit is intimidating. But hiring an experienced tax lawyer helps you handle it efficiently. More importantly, if it turns out you owe the IRS money, your attorney will strive to negotiate a fair settlement through an offer in compromise, penalty abatement, or installment agreement.
6. You’re Starting, Buying, or Selling a Business
You should always talk with tax professionals before starting, buying, or selling a business—no matter how small or large the venture. “A tax attorney is essential to determining the most tax-efficient structure for the sale and often adds significant value in finding areas of tax savings,” said attorney Elizabeth Atkinson, a partner at Whiteford Taylor Preston LLP. “Tax attorneys play an important role in the due diligence process when businesses are bought and sold. They also add value in reviewing contracts, corporate documents such as LLC operating agreements, and shareholder agreements.”
7. You’re Planning a Major Business Transaction
Buying, selling, and forming a business aren’t the only significant transactions that require tax advice. Experienced tax professionals should review any move your company is planning. “Since South Dakota v. Wayfair was decided, it is even more important for businesses to be able to assess potential liability for state and local taxes under the umbrella of attorney-client privilege and to submit voluntary disclosures, if necessary,” said Atkinson. “Working with a tax attorney helps the client step back from the day-to-day and see how their long-term business strategy is affected by federal, state, local, and even international taxes. Business owners often expand eagerly into new markets without realizing that can come with a host of new tax burdens. In addition, businesses are increasingly global in their reach and need help with international issues.”
8. You’re Estate Planning
When you want to leave money, valuable real estate, or personal property to others, you have to consider how it’ll affect their finances. Working with a tax attorney helps you to strategize the best way to structure your estate for the next generation, including limiting your estate and beneficiaries’ tax liabilities.
9. The IRS Is Pursuing Criminal Charges
If the IRS has begun criminal charges, or you think they are going to, contact a lawyer as soon as possible. “It is essential to hire a tax attorney when attorney-client privilege is needed to protect the client,” said Atkinson. “This would include criminal tax investigations by IRS or state/local authorities, including situations where there is a possibility of a criminal investigation, such as trust fund taxes, including payroll or sales taxes, withheld taxes, or cases where income taxes may have been underreported.”
Don’t Confuse a CPA with a Tax Attorney
A CPA is critical to planning tax-related transactions, while an attorney is essential if there’s a dispute with a legal authority. “There can be significant overlap between what tax attorneys do and what tax accounting professionals, such as CPA and Enrolled Agents do,” said Atkinson. “Ideally, the tax professionals work as a team to ensure the most efficient way of providing service to the client while protecting the client. In most cases, a CPA or Enrolled Agent handles the initial stages of an audit and sometimes administrative appeals. But if the case goes to court, a tax attorney handles the case. If a case is likely to end up in court, it is important to have a tax attorney involved at an early stage to help guide the case strategy.”
If you’re not sure you need a lawyer, schedule a free consultation with an experienced local tax attorney to learn more about how they can help.