In TV, movies, and sometimes real life, when the prospect of hiring a lawyer comes up, it’s viewed with skepticism. One reason for this is because it will make the client look guilty or attract unwanted attention. These reasons can sometimes apply to the decision-making process for tax lawyers.
If you’re facing a tax problem, you might be thinking about hiring a tax attorney. However, you wonder if doing so will cause more harm than good. Perhaps you think it will raise suspicions at the IRS that you did something wrong or otherwise make your situation worse. The goal of this blog post is to explain how this is seldom the case. We’ll discuss why by showing how a tax attorney can help with IRS problems and the benefits legal representation provides.
Key Takeaways
- It might seem like hiring a tax attorney makes you look guilty with the IRS or alert the IRS to your tax situation, but the truth is that the IRS probably already knows about your tax issue and any difference hiring an attorney makes will help, not hurt you.
- A tax attorney can not only help prevent tax problems from arising in the first place, but also minimize the negative consequences of an already existing tax challenge.
- The only major reason to not have an attorney is because the financial cost of hiring one outweighs the benefits.
- A tax attorney could hurt your case, but these are very rare instances and usually revolve around your attorney acting negligently or unethically.
Where the Fear of Hiring a Lawyer Originates
The fear of hiring a tax lawyer is understandable. After all, the adage, “the guilty dog barks the loudest,” exists for a reason. So it might feel like hiring a lawyer means you’re admitting guilt. Then there’s the fact that retaining a lawyer might result in an escalation of your tax case, where anything can happen. The hope in not hiring a lawyer is that by staying quiet and unseen, the IRS will leave you alone, or at least be less inclined to take action against you.
The IRS Probably Already Knows About Your Tax Issue
If you’re in a situation that causes you to believe you might need an attorney, the IRS probably already knows what’s going on. The IRS has complex computer systems that can detect noncompliance or other tax discrepancies before the IRS contacts you.
This is particularly true when you owe back taxes or have unfiled tax returns. The reason it feels like the IRS hasn’t taken any action is because they can sometimes be slow in sending notices to you about a missing tax return or an unpaid tax bill. In some cases, if you get a letter about a tax balance due (such as CP14) or an unfiled tax return (such as CP59), it will concern a tax return or tax from two or more years ago.
Because of this delay, ignoring the tax problem will often make things worse, such as ever-increasing penalties and interest for an outstanding tax balance.
How a Tax Attorney Can Help
The benefits that come from having a lawyer represent you before the IRS can be broken down into two categories: reducing the risk of having a problem with the IRS and minimizing negative consequences from existing tax problems.
Reduce the Risk of a Problem with the IRS
Preventing tax problems is better than fixing them after they arise. Here are a few of the ways a tax attorney will reduce the risk of having a problem with the IRS.
- Communicate with the IRS on your behalf so there’s less of a risk of you revealing too much information or not effectively communicating your position when challenging an IRS decision.
- Assess your audit risk given your current tax situation and financial practices.
- Avoid errors when trying to handle a tax matter by yourself, whether it’s filling out a form or choosing a tax relief solution.
- Explain difficult-to-understand legal processes and tax procedures.
- Provide legal advice about what you should or shouldn’t do concerning your taxes. Thanks to attorney-client privilege, you can freely discuss what you’ve done (or plan on doing) and what the legal ramifications of those actions are (or will be).
- Analyze your personal finances or business operations to identify potential problems, such as mistakenly claiming a deduction or not properly reporting financial information to the IRS (like cryptocurrency or foreign bank disclosures).
- Assist in the preparation of a tax return, whether a current or a past-due return.
Keep Existing Problems From Getting Worse
If you’re trying to decide if you should hire a tax attorney, there’s a good chance you have an existing IRS tax issue to deal with. Despite already having a problem, it’s not too late to hire an attorney and here’s why. An attorney can:
- Negotiate a tax settlement with more advantageous terms, whether it’s requesting a payment plan, installment agreement, offer in compromise, or penalty abatement.
- Provide legal advice during or after an IRS criminal investigation concerning topics such as Voluntary Disclosure Practice.
- Communicate with the IRS on your behalf to help prevent you from making self-incriminating statements during an audit or criminal investigation for criminal tax evasion.
- Explain to the IRS why it should forgo using a tax levy or tax lien against you.
- Demonstrate that you’re serious about resolving your tax issue with the IRS.
- Represent you during an audit and help you differentiate between information you need to provide and information you don’t have to disclose.
- Ensure the IRS doesn’t violate your rights or deviate from proper procedures.
- Decide when and how to file unfiled tax returns to minimize penalties and other adverse actions by the IRS. Filing old returns generally doesn’t draw new attention to your case, but some taxpayers worry that it might.
- Discuss whether filing an appeal to challenge an IRS action is in your best interests and if so, represent you during the appeals process.
When to Question the Benefits of Hiring a Tax Lawyer
Instead of asking whether an attorney will help or not, a more relevant question is whether the cost of the representation is worth it. This can’t always be easy to determine, as some of the benefits from legal counsel are intangible. This includes getting a second opinion about your case or being reassured that your approach to tackling your tax problem is the best one.
To help decide if hiring an attorney makes financial sense, many tax lawyers offer free consultations. During these meetings, they’ll examine your specific tax situation and not only give you an idea as to what your best course of action is, but confirm whether or not it’s financially worth it to hire them. It’s possible that hiring a tax lawyer might be overkill and if that applies to you, your attorney will let you know. Despite all this, there are rare cases where hiring a tax attorney could backfire.
Unethical Conduct
This can include situations where an attorney might overcharge for their services, make promises they can’t keep, or use legal arguments that are frivolous or unfounded by the facts or legal precedent. Finally, an attorney might agree to take your case when you could have easily handled it yourself and saved money.
Poor Representation
An attorney can also lack the ability to properly handle your case. This could come from inexperience, but also insufficient training in a particular area of tax law. What could also happen is the attorney is perfectly capable of handling your tax matter, but is overextended and overworked because they took on more work than they can handle.
In instances where a client is unhappy with how their legal representation went, it’s sometimes because they withheld important information from their attorney. This is sometimes deliberate, but it might occur because the client doesn’t realize they need to reveal certain information to their lawyer. In this latter situation, it’s up to the lawyer to ask the right questions and spot issues of concern their client might be unaware of. Luckily, scenarios where hiring a lawyer goes wrong are rare.
A Tax Lawyer Can Help You Take Control of Your Tax Matter
The fear of alerting the IRS or making an existing problem worse by hiring a legal tax professional is understandable. However, the benefits from hiring a tax lawyer almost always outweigh the drawbacks. Using a tax attorney from the W Tax Group for your tax problem will help you regain control of your situation by giving you the clarity to make a more informed decision and offering a tax professional to guide you along the way. To find out how, schedule a free consultation using our online contact form.
Tax Attorney Alerting the IRS FAQs
Can hiring a tax attorney really trigger an IRS audit?
No, whether or not you hire a tax attorney has no bearing on whether or not the IRS decides to audit you. The reality is the exact opposite in that hiring an attorney can help you avoid an audit by reducing red flags on a tax return.
What does a tax lawyer do that I can’t do myself?
They can do many things, such as examining your tax situation and identifying your available options, as well as the probability of success with each option. They can also help you negotiate with the IRS, especially when settling a tax debt. Then there’s helping you comply with document requests and interview questions during an audit and representing you in court should your tax issue result in litigation.
The most important thing a tax attorney can do for you is spot potential issues you weren’t aware of. After all, “you don’t know what you don’t know.”
How much does it cost to hire a tax attorney?
It depends on the attorney’s billing practices and the nature of your tax issue. If it’s a relatively simple issue, such as helping prepare a tax return, the attorney might charge a flat fee of a few hundred dollars. In more involved tax matters, a flat fee of a few thousand dollars is common, but flat fee arrangements approaching $10,000 are possible for cases that involve more work.
For complicated tax cases where it’s unclear exactly how much time it will take to resolve, a tax attorney will usually charge an hourly rate. These usually range from $200 to $600 an hour.
Will the IRS think I’m guilty because I hired an attorney?
It’s unlikely, as IRS employees understand how complicated tax issues can be, and that some taxpayers prefer to let someone else handle their tax cases for them. What’s more likely is that the IRS will think that the tax issue, such as an audit, might take more time and effort on their part. In other words, if the IRS thinks you did something wrong by hiring an attorney, it will be because you made their job more challenging, not because you’re guilty.
Keep in mind that the IRS isn’t a law enforcement agency. And while they do have a criminal investigation division, any cases requiring criminal prosecution get referred to the U.S. Department of Justice.
What if I can’t afford to pay my tax debt right now?
A tax lawyer can help you decide what tax settlement option is right for you, such as a payment plan, installment agreement, offer in compromise, or penalty abatement. Then, once you decide what you want to do, your tax attorney can contact the IRS on your behalf to negotiate a tax settlement.
Sources
– https://www.irs.gov/compliance/criminal-investigation/how-criminal-investigations-are-initiated
– https://www.findlaw.com/tax/tax-problems-audits.html
