For most people, say the word “taxes” and the first thing that comes to mind is waiting for their refund after meeting with their accountant to file a return. The accountant fills out some forms, performs some calculations, and it’s done — and not thought of again until the next year.
However, there are some situations where a certified public accountant (CPA) or other tax professional doesn’t have the knowledge or experience to handle everything needing to be done. In those cases, an attorney who specializes in taxes and tax law is imperative to avoid hefty fines, penalties and other problems.
Some of the more common reasons people hire tax attorneys include:
You’re Starting a New Company
Starting a new company requires attending to a number of details, not the least of which is determining how to structure your business for tax purposes. For example, choosing to operate as a sole proprietor versus a limited liability corporation can have major implications for how you file taxes, your overall tax burden and your financial liability should things go awry. While a CPA can help you manage your books for the structure you’ve chosen, a tax attorney ensures you choose the correct structure in the first place and navigate the paperwork required for that designation.
You Have a Dispute With the IRS
Once you’ve filed and paid your taxes, receiving any communication from the IRS can be nerve-wracking. And when the IRS thinks you owe more money than you do or questions something on your return, you feel a bit like David versus Goliath. While you might think it’s easier to give the agency what they are asking for so they will go away, if they have incorrect information (and you can prove it) it’s in your best interests to dispute their claims. You do not want to go it alone, though. When you’re fighting the IRS, it’s best to have a qualified tax attorney who can communicate with the IRS and use the full force of the law on your behalf.
You’ve Committed Fraud — Either Knowingly or By Accident
Mistakes happen — we’re only human. But making a mistake on your taxes, whether it’s a simple mathematical error or more serious violation, can land you in hot water and bring with it hefty penalties and even prison time. If you realize you’ve committed fraud, your first step is to contact a tax attorney who can help you determine the best course of action and work with the IRS to keep the penalties as palatable as possible. While no tax attorney can promise you won’t face any consequences as a result of your actions, with a professional’s help the consequences won’t be as dire.
You Conduct Business Internationally
Navigating the international business arena is tricky before you bring taxes into it. Tax law relating to businesses that operate in multiple countries or for businesses that sell products and services overseas is complex. Unless your CPA is versed in international tax law and issues, you could face a large bill from the IRS — or worse. A tax attorney with experience in international business (like graduating from an online graduate tax program that offers an international specialization) can ensure your returns are correct and your international affairs are handled properly.
You’re Handling Estate Issues
When you’re the executor of a state, you have certain legal responsibilities, not the least of which is to determine how much tax — if any — is owed on the estate and whether the estate needs to go into probate. Since most people are not familiar with the laws and intricacies of making these determinations, a tax attorney is vital to ensuring everything is handled legally and the necessary taxes are paid.
There are other times when a tax attorney can be beneficial, such as when you owe a significant amount of money to the IRS — over $10,000 — and need to negotiate a settlement, or when you receive a notice from the IRS you do not understand. If you’re in doubt, contact an attorney to discuss your situation and determine what you need to do.
About the Author: Elaine Morris is a Boston-based tax attorney. She blogs about tax law and tax-related issues, particularly those related to small-business owners, for a major legal site.