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When Should You Hire a Tax Attorney During an IRS Investigation?

March 21, 2024 Uncategorized

When Should You Hire a Tax Attorney During an IRS Investigation?

Dealing with the IRS can be intimidating. Their letters full of legal jargon, threats of penalties and interest, and the looming possibility of criminal charges are enough to make anyone break out in a cold sweat. Your first instinct may be to try handling an IRS investigation yourself to save money on hiring a professional. But that can be a costly mistake.

A tax attorney has the expertise to guide you through an IRS audit or investigation and help protect your rights. They know how to communicate with the IRS on your behalf to resolve issues as favorably as possible. Having experienced legal representation can make all the difference in the outcome of your case.

When Is It Time to Call a Tax Attorney?

Here are some of the most common situations when it pays to have a tax lawyer in your corner:

You’re Facing Criminal Tax Charges

If the IRS believes you willfully attempted to evade paying taxes, they may pursue criminal charges. This is no time for DIY tax resolution – you need an experienced criminal tax defense attorney. They understand how the IRS builds these types of cases and the defenses that can weaken their argument. A tax lawyer knows how to negotiate with prosecutors to get charges reduced or avoid prosecution altogether.

You’re Going Through a Tax Audit

Getting that letter from the IRS saying you’re being audited can make your stomach drop. Tax audits dig deep into your financial records to verify you reported income, deductions, credits, etc. accurately. Even minor mistakes can trigger additional tax, penalties, and interest. Audits create a lot of anxiety and uncertainty. A tax attorney provides a knowledgeable guide throughout the process so you don’t go it alone.

You Owe Large Amounts for Back Taxes

If you get hit with a huge tax bill for unfiled returns or mistakes in prior years, the debt can be crushing. The IRS is very aggressive collecting back taxes and will resort to wage garnishment, bank account levies, and property liens. A tax lawyer has many options to help you get back tax relief, including payment plans, penalty abatement, innocent spouse relief, and offers in compromise. They know how to work with the IRS to settle tax debts for less than you owe.

You’re Worried About Asset Protection

If you have significant assets, you want to shield them in case you end up in the IRS’s crosshairs down the road. A tax attorney can set up protective trusts and other structures to legally safeguard your property. They also look for ways to reduce your future tax liability through proper estate planning.

You Have Unreported Foreign Accounts

If you failed to disclose foreign bank accounts or offshore assets to the IRS, you could be at risk for extremely high penalties under FATCA and FBAR rules. There are IRS amnesty programs that allow you to avoid criminal prosecution and reduce penalties. However, the application process is complex. Tax attorneys are experienced in obtaining the best resolutions for clients with unreported foreign accounts.

You’re Facing Tax-Related Litigation

Lawsuits related to tax matters require legal representation to protect your interests. A tax attorney handles issues like negotiating settlements in legal disputes over tax liability, defending against shareholder actions related to unpaid taxes, and filing suit to recover penalties paid to tax authorities. Their courtroom experience gives you an advantage.

How Can a Tax Attorney Help You?

When you’re in hot water with the IRS, a tax lawyer provides these invaluable services:

Communicating With the IRS

Your tax attorney serves as the liaison between you and the IRS. They handle all contacts and negotiations so you don’t have to. The IRS communicates more cooperatively with tax professionals than directly with taxpayers.

Interpreting Tax Laws

With thousands of pages of complex tax codes, you need an expert to assess your unique tax situation and determine the optimal strategies under the law. Attorneys are also up-to-date on the newest IRS rules and regulations.

Gathering Documentation

Proving your case requires producing lots of financial records. Your tax attorney will manage the document collection process and make sure you have everything you need.

Preparing Your Defense

Before any meetings with IRS agents or tax court hearings, your lawyer will thoroughly prepare your case. They will identify the weaknesses in the IRS’s position and strengthen your defense arguments.

Negotiating Settlements

Tax attorneys are skilled negotiators. They know how to work with the IRS to settle tax debts through offers in compromise, penalty abatement, payment plans, and other options to save you money.

Providing Tax Planning

As part of resolving your tax issues, your lawyer can advise you on tax planning strategies to avoid problems in the future. They may recommend setting up trusts, making certain business entity elections, restructuring assets, and other proactive steps.

Attending Audits & Hearings

If your case goes to an IRS audit or tax court hearing, your tax lawyer will be by your side to defend your case. Having a legal expert there gives you confidence and levels the playing field.

How Much Does a Tax Attorney Cost?

Tax attorneys typically charge between $200 and $500 per hour. The exact rate depends on factors like:

  • Attorney’s experience and reputation
  • Geographic location
  • Complexity of your tax issues
  • Whether it’s a smaller firm or large national practice

It’s important to understand how tax attorneys charge for services so you aren’t caught off guard by costs. There are usually three billing methods:

Hourly Billing

With hourly billing, you pay a lawyer a set dollar amount for every hour (or portion of an hour) they work on your case. Time is tracked and billed in increments as small as 6 minutes. Hourly rates can range from around $150 for new attorneys to $500+ for experienced tax partners at major law firms.

Flat Fee

Some tax resolution services like filing an offer in compromise or setting up an IRS payment plan may have a flat fee. The rate is typically $1,000 – $5,000 depending on the specific work involved. Flat fee billing provides cost certainty but may encourage attorneys to do less work.

Contingency Fee

For certain types of tax cases like whistleblower claims or disputes over tax liability, your attorney may work on contingency. This means they only collect a percentage of the money awarded if you win the case. Contingency fees are usually 33-40% of the total award. There is no fee if you lose.

6 Questions to Ask When Hiring a Tax Attorney

As with any professional you entrust with important matters, you want to vet tax attorneys thoroughly. Here are some key questions to ask during your search process:

1. Are you licensed in my state?

Tax attorneys must be licensed to practice law in your particular state to represent you. It’s illegal for lawyers to provide counsel across state lines where they don’t hold an active license.

2. What is your background in tax law?

Look for extensive experience handling tax cases similar to yours. Ask how many years they’ve practiced tax law and what percentage of their workload is tax-related. Their degree credentials should also include tax law.

3. What will your representation cost?

Get fee estimates in writing. Ask what can increase costs and if there are options like flat fees for certain services. Understand the billing method and what expenses you pay.

4. Who handles most of the work?

At larger firms, junior associates often do most of the detailed casework. Find out who you’ll interact with and if the lead partner will be directly involved. Make sure the team has experience with your type of tax issue.

5. Can you share past case results?

Any reputable tax attorney should provide references from former clients and examples of favorable case outcomes they’ve achieved. This demonstrates their ability to get real results.

6. How responsive will you be?

Ask how quickly the attorney gets back to client calls and emails. You want someone who is readily available to update you on progress and respond to your questions.

The Bottom Line

Dealing with IRS tax problems like an audit, unfiled returns, or criminal investigation is daunting. A tax attorney levels the playing field and protects your rights. Their expertise can literally save you from financial ruin. If you’re facing serious tax issues, investing in legal representation offers peace of mind. And it may be far less costly than trying to resolve matters yourself.

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Todd Spodek

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JEREMY FEIGENBAUM

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ELIZABETH GARVEY

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CLAIRE BANKS

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RAJESH BARUA

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CHAD LEWIN

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