When It’s Worth Hiring a Tax Attorney

Tax problems are always unpleasant, especially when they result in owing back taxes. And sometimes, in addition to being unpleasant, tax issues can be confusing. Depending on your situation, you can resolve your tax problem on your own. However, there are scenarios where you’re probably better off hiring a tax pro instead. But which tax professional should you hire as there are several types, the most common being Certified Public Accountants, enrolled agents, and tax attorneys?

In this article, we focus on tax lawyers and when and why you might want to hire one. The right tax lawyer can help you with almost any tax situation, and while they’re not always necessary, their help is sometimes critical. To better understand when it’s worth hiring a tax attorney, we’ll focus on three situations: when you usually don’t need a tax attorney, when it’s often a good idea to hire a tax attorney, and when it could go either way, depending on your situation. 

When You Usually Don’t Need to Retain a Tax Attorney

As you might imagine, you usually don’t want to hire a tax lawyer when your tax issue concerns a small amount of money. For example, let’s say you receive a notice from the IRS indicating you have to pay a tax penalty for the underpayment of estimated taxes. This letter indicates you have a penalty of $175.19. You disagree with this penalty, and after doing some online research, you think you have a winning argument.

Could a tax attorney help you present your case and fight the penalty? Absolutely. But would it be worth the cost of an attorney to pay a penalty of $175.19? Probably not. This isn’t to say you have to accept this penalty assessment and pay it, but it might be more economical to dispute the penalty yourself.

Another scenario where you probably don’t need to hire a legal tax counsel is if your tax issue is simple. Despite having a large tax balance, a little bit of time spent on the IRS website might be enough to help you figure out what you need to do to resolve this tax issue quickly and easily. Alternatively, if you’d feel more comfortable with tax assistance, a Certified Public Accountant or enrolled agent might be a more affordable alternative.

Finally, obtaining a tax lawyer to represent you normally isn’t needed if you largely agree with the IRS or other tax authorities but can’t afford to pay the tax amount (and it’s less than $10,000 or so). This is because the IRS has payment options such as a payment plan or installment agreement that allow you to pay your tax bill over time. In most situations, you can set these up with the IRS by yourself. 

When It’s Usually Worth It to Hire a Tax Lawyer 

There are several situations where you’re probably better off hiring a tax lawyer to help you with your tax issue. First, you’re dealing with a complex tax problem with a lot of money at stake (or where a mistake could lead to you having to pay a lot of money to the IRS). For instance, you might owe a lot of money to the IRS that you can’t pay. By large amount, we’re usually talking about more than $10,000.

Recall from earlier that just because you can’t pay your tax bill immediately doesn’t mean you need to hire a lawyer, as you can usually get more time to pay without hiring a tax professional. Yet it might be worth it to hire a tax attorney when dealing with large unpaid tax balances because the IRS has special programs (such as an offer in compromise and currently not collectible status) that may be able to reduce how much you owe, where the taxes you no longer have to pay can outweigh the cost of a tax attorney. These programs aren’t always easy to apply for, and it’s often critical to have a tax attorney help with the process and confirm it’s worth your time and effort.

Second, your tax predicament requires you to make important decisions, and choosing the wrong one can create major problems. A good example of this is when you want to appeal an IRS tax assessment or decision. The appeals process can be confusing sometimes, with special conditions or requirements for having an IRS decision changed.

Another example is the IRS tax audit. Some audits you can handle yourself, but if your audit deals with multiple years and/or involves the review of extensive financial records (like if your business gets audited), then it it’s often worth retaining the services of a tax lawyer.

Also, there’s a chance that you don’t fully understand what (or why) the IRS wants to review during the audit. Having a tax lawyer can provide explanations as to what the IRS is really trying to find and what documents you do (or do not) have to provide. The last thing you want to do is provide information that the IRS didn’t ask for and bring to its attention a potential tax issue the IRS didn’t previously know about.

Third, you have a tax problem where time is of the essence, such as when the IRS sends you a Notice of Intent to Levy. Here, you may have as little as 30 days to resolve your disagreement with the IRS before it starts taking your property away from you. Even though you can handle things yourself, you may not have the time, skills, or knowledge to do so quickly enough.

Fourth, the IRS (or a state or local tax agency) is accusing you of tax fraud or evasion. These are allegations that could result in hefty civil monetary penalties and even criminal charges that could lead to more financial penalties plus jail or prison time. Facing the possibility of criminal wrongdoing is one of the few tax problems where it’s almost always going to benefit you to hire a tax lawyer.

Fifth, you’re not currently in any trouble, but you want to use tax strategies and aren’t sure as to their legality. If these questions are more economic or financial, then a Certified Public Accountant might suffice. But if they concern an interpretation of a statute, regulation, or court case, then having a tax lawyer to help you figure out what to do is probably a better choice. 

When the Value of a Tax Attorney Depends on the Situation 

There are plenty of cases where a tax attorney might be worth it for one person, but not for another, despite them having similar tax problems. A great example of this is if you have prior experience handling tax matters with the IRS. Perhaps you used to work as a tax preparer or are already an attorney, but practice a type of law other than tax. Or maybe you have a close friend or family member who’s a tax professional and is willing to help you solve your tax problem.

In either of these situations, you could have access to information and resources that allow you to resolve your tax issue. Sure, you’re no tax attorney, but you certainly know more about taxes than the average person. Therefore, you’re in a better position than many taxpayers to handle things yourself.

There’s also the case where you know you can handle a tax problem yourself, but you prefer to have someone else handle it for you. This could be because you don’t want to spend time going through documents or doing research and would rather pay someone else to do it for you.

Another reason to let the tax attorney handle something you can do yourself is if you want the peace of mind that comes with hiring a tax professional. You can find the answer to your tax question yourself, but you’re only 95% confident in your answer. Paying for a tax attorney might be worth having the extra 5% confidence so you can sleep better at night.

This peace of mind is even more beneficial for “you don’t know what you don’t know” situations. You might think you know what the tax issue is and how to deal with it, but you’re afraid there’s something you’re missing. A little bit of knowledge can be a dangerous thing, so hiring a tax lawyer can provide peace of mind to know someone else is covering all your bases and ensuring you didn’t miss anything.

Lastly, you have a unique financial situation. It could be the fact that you’re very wealthy with a lot to lose if you get your tax situation wrong. Or you’re suffering from extreme economic hardship where you might be eligible for special considerations from the IRS. In either extreme, it could be worth the money to hire a tax attorney as they can identify special programs or exceptions that don’t normally apply to the average taxpayer. 

Getting More Information: Should You Hire a Tax Lawyer 

After reading the above information, you might still be unsure if a tax attorney is worth it to you. The good news is that more information is readily available to help you make your decision. One of the best sources of this information is a tax lawyer consultation.

The vast majority of tax lawyers offer consultations, often for free. This is a fantastic opportunity to get the help of a tax professional without hiring one. During the consultation, you get to explain what’s going on, and the tax attorney will identify any potential concerns you need to be aware of, such as an upcoming deadline. The tax attorney can also tell you whether you need their services.

The tax attorney could do this by simply telling you where to go for more information so you can resolve your tax matter by yourself. Or, they might spot critical issues that can make or break your case. If these are complicated issues, then the tax attorney will let you know the services of a tax lawyer are required. The consultation is a great way to make sure you’re not forgetting anything and have all the necessary information to decide what you need to do next.

Even if the consultation isn’t free, depending on what the attorney charges, it could still be worth the money to know what your next steps should be and have the peace of mind that those steps are the correct ones to take. Also, if you end up hiring the attorney you had the consultation with, whatever you paid for the consultation will often get credited towards your final legal bill with that attorney. 

Alternatives to Hire a Tax Attorney 

Just because you need extra help handling your tax problem doesn’t mean you have to hire a tax lawyer. Depending on your needs, an enrolled agent (EA) or Certified Public Accountant (CPA) may be able to easily resolve your tax issue for less money than a tax attorney. In cases where they cost the same as a tax attorney, you might prefer working with an EA or CPA because you’ve used them in the past.

CPAs and EAs also work for situations where you’re pretty sure you can handle the issue yourself (like filing an amended return or setting up a basic payment plan) but want a tax professional to double-check your work.

Still Deciding on Whether to Hire a Tax Lawyer?

The W Tax Group offers free consultations where a tax pro can explain your best course of action based on your specific tax facts. You can use this consultation to decide whether you want to hire us to represent you or decide if you even need to hire a tax lawyer at all. Either way, we have years of experience solving tax problems for our clients and are more than happy to see how we can help you with yours.