Let’s face it, the US Tax code is incredibly complex, often contradicts itself, and is open to interpretation. At the same time, tax attorneys can be very expensive. When the IRS comes calling, how do you know when you can do it yourself, when you need to hire a professional, or when only a tax attorney will do?
There are basically three types of tax professionals who are authorized to represent taxpayers before the Internal Revenue Service.,Tax attorneys, CPA’s and Enrolled Agents. It may help to realize that tax attorneys are attorneys first, CPA’s are accountants first, and Enrolled Agents are tax professionals. Tax attorneys and CPA’s are licensed by the states, and Enrolled Agents are licensed by the federal government. Of the three, tax attorneys generally are the most expensive.
For most people a tax attorney is not needed for filing routine tax returns, responding to routine IRS letters, and even at the first level of IRS audits. CPA’s and Enrolled Agents are well qualified to handle these situations. It is when you need the benefits of an in-depth understanding of tax law that you should hire a tax attorney. Tax attorneys are best when you have a complicated tax situation, or you need the legal protections that you can only get from an attorney.
Businesses who work internationally often need the services of a tax attorney. Multiple countries and multiple taxing entities require an in depth understanding of complex international tax law to avoid paying excess taxes or penalties.
Even small businesses may choose to consult with tax attorneys when forming the business. Tax attorneys can determine the best entity for tax purposes (corporation, LLC, or partnership), they can review contracts and other legal documents for tax consequences, and are essential for when a business dissolves or declares bankruptcy.
Individuals should consider a tax attorney when estate tax returns and trusts. An attorney can help you maneuver the complex tax and legal issues that arise and help you avoid unintended consequences.
If you are bringing a case before the US Tax Court you will need a well qualified tax attorney. Tax court is a specialized type of court and it is best to be represented by someone who is not only a tax attorney, but a tax attorney who specializes in representing persons before the US Tax Court.
Finally, if the IRS suspects fraud or criminal activity, you must have a tax attorney. While CPA’s and Enrolled Agents are bound by confidentiality laws, only tax attorneys have attorney-client privilege. This means that anything you tell your attorney is completely private and the courts cannot force your attorney to divulge this information. You do not have the same protection with a CPA or an Enrolled Agent. In rare cases, your CPA or EA could be compelled to reveal confidential information, and could even be required to testify against you.
For most people with most tax situations, a tax attorney is not needed. Your CPA or EA will be well qualified to prepare your tax return or represent you in audit. However, you must pay the price and hire a tax attorney when you are appearing before the tax court, or when the IRS suspects fraud or criminal activity.