If filing your tax forms is typically a seamless and straightforward process, you may not consider turning to a tax professional or accountant for help preparing a return. However, in other cases, seeking assistance from…
If filing your tax forms is typically a seamless and straightforward process, you may not consider turning to a tax professional or accountant for help preparing a return. However, in other cases, seeking assistance from a tax attorney may be unavoidable, depending on your financial situation. For example, if you own a property overseas, you may want a lawyer’s guidance and expertise so you can take advantage of exemptions and avoid owing more than necessary.
“Many business dealings or life events have considerable tax consequences,” says Jerry Ivery Jr., assistant general counsel for the Tennessee Department of Revenue, the state agency that administers and collects state and local taxes for Tennessee. “Tax [law] is a very specialized, niche area of law that can be quite complicated,” he says. For this reason, you may want to hire a tax attorney instead of a business attorney or a lawyer who handles family and estate matters. “If you have an attorney helping you with your affairs, unless they have studied tax law, they may not be able to advise you of the tax consequences of your actions,” he says.
As is the case with most legal matters, keep in mind hiring a tax attorney can be expensive. You can expect to pay at least $200 to $500 per hour for a tax attorney’s services. With that in mind, if you’re wondering how to identify if you need a tax attorney, here are tricky legal scenarios where hiring a tax lawyer makes sense.
You’re buying or selling a business. “Someone selling a business will want an allocation that maximizes capital gain, while someone buying a business might want a different allocation to recover the purchase price faster through depreciation,” says Leslie Grodd, a tax attorney at Halloran Sage, based in Westport, Connecticut. “How this ends up playing out can be quite complicated, and while a business attorney may have some knowledge in this area, it can make a big difference to have an attorney who specializes in taxes on your team,” he says.
You are starting a business. Grodd says that this is also a scenario in which you may want to turn to a tax lawyer. “A tax attorney can anticipate potential tax outcomes associated with different entity types — such as LLC, S-corp or C-corp — with a level of nuance and complexity that might be outside the expertise of a business attorney,” he says.
In other words, a tax attorney can help a business attorney avoid possible IRS penalties and unnecessary interest you might otherwise pay and keep you out of legal trouble. It can be especially helpful to have a tax attorney if you’re doing business in other countries and need to stay attuned to another country’s tax rules and regulations.
A tax attorney can also guide you through the pros and cons of choosing a Limited Liability Corporation, S-corporation or C-corporation designation. For instance, if you make your business an S-corp, the business itself isn’t actually taxed. You would report the income on your personal tax returns. Conversely, with a C-corp, the business is taxed. And if you make your business an LLC, you’ll be protected from personal liability if somebody would want to sue your business. If the different options sound complex, remember that’s why people hire tax attorneys.
If you start a business and intend to keep it, not only should you hire a tax attorney — you should also keep his or her phone number on file. “Every business owner should have a tax attorney that they consult as a part of making major decisions. Engaging a tax attorney on the front end may save you bunch of money and frustration later,” Ivery says.
You want to leave money or property to your heirs. If you want to leave money for family members in your will, you could go to a tax attorney, but you ought to consider going to an estate planning attorney who understands the nuances and tax ramifications involving any gifts. If you do consult with a tax attorney, however, you’ll want to make sure they have a lot of experience in estate planning. Generally, you only need to worry about filing an estate tax return if the amount you’re leaving is over $11 million, according to IRS.gov. But even if you do have some money in the bank but not that high of an amount, it’s not a bad idea to discuss your situation with an estate planning attorney who can help you beyond tax concerns.
You’ve been accused of doing something wrong with your taxes. If you’re being audited, fret not: It doesn’t necessarily mean you’ve done something wrong. It simply means the IRS is doing a formal examination of your tax records. If your taxes are getting audited, Ivery suggests working with a certified public accountant. “Having an attorney involved in an audit can create a presumption that you’ve done something wrong,” he says.
However, if after the audit you want to appeal it, or if you end up being taken to the court during the course of the audit, then Ivery recommends getting a tax attorney to represent you.
You owe back taxes. If you do owe money to the federal, state or local government, don’t automatically hire a tax attorney. In many cases, you can handle this on your own. For instance, there are long-term monthly installment payment plans that the IRS offers, which you can find and set up on your own by going to IRS.gov. If you need general advice on paying back taxes, you could also consult a tax accountant or tax preparer. But if you owe a significant amount of money, you might want to hire a tax attorney to help you work out a formalized agreement with the government, according to Brian Thompson, a certified public accountant and tax attorney in Chicago.
“The attorney can likely work out a deal with the IRS for payment of the tax debts in installments or an offer in compromise whereby the taxpayer pays less than the full amount of IRS taxes, penalties and interest due,” he says.
Put another way: Tax attorneys know tax law in ways that accountants do not. However, before you recruit a tax lawyer, Thompson cautions that you ought to ask how long the attorney has been practicing tax law, if they have experience with doing taxes in your industry and how much he or she charges. Ideally, your tax attorney will have a Master of Laws degree in taxation, called an LL.M.
In other words, do your due diligence. There are plenty of scams and shady companies that prey on taxpayers at tax time. Television ads will try to entice customers to call and the companies may ask for upfront fees into the thousands of dollars — only to later tell their new customers that they can’t work out an arrangement with the IRS. Proceed with caution before hiring an attorney.
Also keep in mind that tax attorneys are costly, so it’s best to conduct plenty of research and avoid putting yourself in a position where not only do you owe the IRS, but also must pay exorbitant legal fees for lackluster service. For a successful outcome, the key is selecting a tax attorney who can offer advice and expertise for your particular tax needs.