WHEN DO YOU NEED A TAX LAWYER?
Posted on 10/01/2009
Many individuals and entities have a relationship with a CPA who is very capable regarding matters pertaining to the filing of tax returns and responding to routine IRS notices. There are occasions, however, when one would be better served by involving a lawyer experienced in tax matters in addition to or in lieu of the accountant. Some of these are:
- When income tax returns have not been filed: The often knee-jerk reaction of most CPAs to file immediately is a trap for the unwary. The failure to timely file tax returns can be a civil tax or criminal tax matter. If it is a criminal act, filing the tax return later does not erase the crime. There is no red-line separating neglect from willful conduct. As a lawyer I can investigate and advise you about the consequences of filing delinquent tax returns. An accountant tax return preparer cannot be clothed in the attorney client privilege for tax return preparation or criminal tax matters.
- When prior filed tax returns contain serious errors or omissions: The considerations are similar to filing delinquent returns in that the amendment does not erase a crime committed although is can be offered to suggest that no crime was intended. Filing an amended tax return is an admission that the return filed was inaccurate and of the amount of understated tax on the original return. As a lawyer I can more safely investigate and advise you whether tax returns can be safely amended without waiving attorney-client or Fifth Amendment privileges or increasing the risk of criminal sanctions or excessive civil penalties.
- When tax returns under audit contain the potential for tax fraud to be charged: This is sometimes called an "eggshell audit." In a sense you are walking on eggshells hoping that the revenue agent will not reach that conclusion. If an IRS Revenue Agent feels there is fraud, he will suspend the audit and refer the case to the IRS Criminal Investigations Division. The taxpayer wants to cooperate as long as the case is not a criminal matter and he or she is not thereby waiving Fifth Amendment rights. I am experienced with these delicate audits which should not be handled by a CPA.
- When an IRS audit has resulted in a large proposed additional tax liability: As a lawyer I can properly consider the optimum procedure for appealing the disagreeable result. While a CPA can file a protest, which may or may not be appropriate, he or she cannot usually practice in the United States Tax Court and is less familiar with concepts of choice of venue in tax disputes.
- When IRS records tax liens against your property. Even if a spouse has filed separate income tax returns, a recorded tax lien against the other spouse can attach to jointly owned property. The priority of tax liens is a legal matter that should be handled by a tax lawyer. I have years of experience in dealing with IRS regarding these matters.
- When you have received an IRS summons, Notice of Federal Tax Lien, Notice of Intent to Levy, Statutory Notice of Deficiency or similar formal notice from IRS. These are important procedural notices that require definite steps to preserve your legal due process rights under the Internal Revenue Code. As a lawyer I can properly assess the implications of legal tax notices and advise you of your rights.
- When an IRS Special Agent contacts you. The Special Agent is a criminal tax investigator. He doesn't care about collecting the tax. He job is to collect evidence that will put you, and sometimes your transactional lawyer or CPA as well, in jail. I can protect you in these matters that you do not waive legal rights and that IRS obtains from you only that evidence (albeit documents or statements) to which it is entitled under law.
- When IRS contacts you about a tax debt that you believe attributable to your former spouse. Form 8857, Request for Innocent Spouse Relief, is a tricky, legal document that requires knowledgeable legal preparation. I have authored articles on this subject and can help you assert your innocent spouse defense.
- When a reorganization involving the transfer of assets or a stock exchange is contemplated. For example, a division of marital assets in a divorce proceeding anticipates a transfer of money or property out of one spouse's controlled corporation. Corporate distributions may have unintended tax consequences unless the transfer is made part of a properly structured corporate redemption or reorganization. As a lawyer I can make certain that these complicated legal transactions are properly concluded.
- When family estate planning is to be undertaken involving the use of wills and trusts, loans to family members, buy-sell agreements, gifts, charitable giving, family limited partnerships or the like. As a lawyer I can help you avoiding properly structure these arrangements.
- When IRS has designated you as a "responsible person" liable for the 100 percent penalty for the trust fund amount of taxes withheld from employee wages at a company where you had worked.
These are some occasions when a tax attorney and not only an accountant should be consulted. As a lawyer, if I feel that accounting assistance is necessary, I will engage an accountant to assist in rendering legal advice to you. In this way, the accountant comes under the attorney-client umbrella and communications and documents may be protected from discovery.
Adapted from author's article in ABA Section of Family Law Family Advocate, Winter 2008, Vol. 30, No. 3, page 53
Copyright 2008 by Robert S. Steinberg, All rights reserved.