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What Does a Tax Attorney Do?
There are very few areas of law that are more complicated than the US Tax Code. The code literally carries thousands of provisions, exceptions, and loopholes that are very difficult for a non-expert to understand.
There is also the issue of running afoul of the code. Making an error in a tax filing could lead to many problems including possible fines and jail time. That is why business owner and individuals turn to a tax attorney when facing complicated tax filing issues.
The most common issues with taxes, or the most heard of issues with taxes usually come from inaccurate tax filings that can be caused by a completely honest mistake or plain deceptive tax filings that can result in a deluge of problems. These two issues usually lead to what is famously known as an audit. A formal IRS audit is a review of financial information and accounts of an individual filer, whether they be a corporation or a person, to evaluate the filings for compliance with the IRS code.
Audits are not as common as you would believe, they happen to a very small portion of filers that are chosen for audit based on a multitude of different reasons. Individual filers may be audited based on an IRS scoring system called DIF or “discriminate information function.” The DIF basically evaluates a filing based on demographically similar peers (based on things like profession and likely income) to determine whether the filing is in-line with the similar cases. If you have a filing that is totally out of its comparable range, and you just might be in line for an audit. Additionally, the IRS may audit filers they suspect of fraud or filers that are members of groups that are regulated more heavily and therefore subject to higher tax scrutiny (large corporations) or groups that commonly have income verification and reporting issues (the self-employed, small businesses and people making over $100,000 per year).
A tax attorney can help you navigate the audit process and give you valuable advice that may save you time and money in the process. It's important that you do not ignore these tax issues. People sometimes ignore tax notices. Ignoring a notice from the IRS is a big mistake and using the excuse that you never received the notice (unless you actually did not receive the notice) will not help.
When would l need a tax attorney?
An audit can be nerve-wracking. An audit can also be surprisingly simple and painless. It's good to go in understanding what the process entails. An attorney can provide a person being audited with the information vital for a smooth audit.
There are several types of audits, some only require a simple correspondence answering for any issues that may be the cause of an IRS audit notice, others may require an in-person interview with an IRS agent. You will want to consult with an attorney before any audit and should probably have representation with you during any IRS interview.
Audits usually involve a basic gathering or materials that can prove the facts claimed in a filing. This is a process that needs to be handled very carefully, especially if the filer did not consult with a tax professional before filing the claim. At this stage, the filer needs to ensure that what they claimed in their tax filing can be supported by documentation such as receipts. An attorney can help you clear up any misleading or inaccurate claims that may be made in a filing. An attorney can also help explain why the mistakes were made to an IRS agent.
A business owner or simply any person with complicated finances or a large amount of income should consult with an attorney or tax professional before they file their taxes. Doing so will not only help ease the tax burden the individual may incur, but it may also prevent future audits as the attorney or tax professional will be able to steer you to law abiding and accurate tax filings.
You can seek out the advice of a tax attorney for any kind of complicated tax question. You may have questions about itemized deductions, capital gains or charitable contributions for tax purposes. All situations would be appropriate to speak to an attorney about.
Signs you need to speak to a tax attorney
- You are being audited
- You are starting a business and want to know which legal structure is best for tax purposes
- You owe the IRS a significant amount of money
- You have been accused or charged with tax evasion/fraud
How do you choose a Qualified Tax Attorney?
Choosing the right attorney for you can be a simple process if you put in the right amount of research initially. You will want to gather as much information as you possibly can in order to gain a better understanding of the attorney you will be hiring. Luckily, attorneys now provide a plethora of information about themselves on their websites. Additionally, various websites have formed with the objective of putting together attorney profiles that will let you see what former clients and other attorney’s think about the profiled attorney.
Step 1: Determine Your Needs
First, you will want to determine your needs. You can do this by answering some simple questions first. The first major question you want to ask yourself: Do I need to speak with a tax attorney or will a CPA suffice? Well, CPA’s handle more of the financial planning aspects of a matter. If you need help with organization of accounts or finances or you would like to get investment advice, a CPA might be better for you.
On the other hand. If you are dealing with an issue that will have a significant legal effect on you, you are better served speaking to an attorney. As mentioned before, audits can happen over simple mistakes, make sure you take the time to realize how the gravity of whatever situation you are in. Also, keep in mind that some CPA are also licensed, attorneys.
Once you have determined that you need to speak with an attorney, you will need to understand whether it is a local question or a federal issue. Many people forget that they have tax obligations to the state as well as the federal government. Be sure you understand your case fully by knowing who has jurisdiction over your filing. If you have a business that earns income in multiple states, you need to be dealing with multiple states income tax law in addition to the IRS. If this applies to your situation, keep that in mind when searching for an attorney. You may need an attorney that is licensed in more than one state.
You will also want to consider whether you are under the threat of an audit or whether you need help with pre-filing questions like deciding which deduction to take and what proof you may need to show in case of an audit.
Step 2: Research Online
Use all the online sources at your disposal to help you make your decision. Check attorney websites for their individual information. After you have gathered, their names look at attorney rating sites like Avvo.com. There you will have access client reviews for the selected attorney. Pay attention to what people say about the attorney especially the attorney’s communication skills. The tax code is full of technical jargon that is not easily understood. A good tax attorney should be able to explain what the code is saying about your situation in an easily comprehendible manner. Avvo also has a section where you can ask an attorney a question online and get a response fairly quickly. Take a look at some of the questions posted or try posting your own question, the responses there can give you a little more guidance and let you know you are on the right path.
Another item you may want to be on the lookout for is the LLM designation for attorneys. An LLM is a a masters degree for lawyers. It signifies a lawyer who took additional schooling to get a specialization in a particular area of law. Tax law is one of the areas in which many attorneys get an LLM specialization. While conducting your search, take note of attorrneys that have the LLM tax law specilaztion mentioned on their profile pages. It is likely that if an attorney took the time to get the extra education, they will have a special interest or passion regarding tax law.
Step 3: Check the State Bar Association’s Website for any Disciplinary History
You will next want to take the names you found and search the attorney's state's bar association. The state bar association is responsible for attorney discipline. Their website should have a searchable database that will let you see any disciplinary actions taken against the attorney in question.
Step 4: Schedule an Appointment with a Tax Attorney
After you have done your homework, you will want to take the final step of calling and setting an appointment to speak with an attorney. Many tax attorneys offer a free consultation so make good use of the initial consultation by having a bunch of questions for the attorney. Good luck!