Being audited by the IRS is no laughing matter, and it can be an incredibly stressful experience. But do you need a tax attorney? A lot of times, the answer is no.
An innocent calculation mistake, a financial hardship that caused you to “skip” a year of taxes, or some creative accounting might have triggered an alert for the IRS to audit you.
Or, you might have been randomly selected by the IRS to be scrutinized. It’s not personal, just the luck of the draw.
Though your first instinct might be to lawyer up, most of the time, this approach is overkill. The IRS just wants verification of your financial records, and, in most cases, a qualified tax expert is equipped to provide you with all the help and representation you need.
In this article, we’ll discuss the situations in which you probably don’t need legal representation, as well as the circumstances where working with an attorney is the prudent choice.
When You Don’t Need a Tax Lawyer
If you’ve done nothing illegal and no crime has been committed, you can probably get through the audit process quickly and relatively unscathed.
When you first receive an audit notice, you’ll usually be presented with the questionable item or items that triggered the audit. It could be the size of a charitable donation, a larger than average home office deduction, or a suspicious-looking unreimbursed employee expense.
No matter the inquiry, it’s prudent to act quickly to gather any records or evidence you need to prove the legitimacy of a deduction. In some cases, answering these basic questions can end the audit without further action.
Having a tax expert by your side to represent you can also help ensure a favorable outcome. Tax professionals familiar with the latest Internal Revenue Service codes, laws, and loopholes will work with the auditor to verify your records.
In the event that you made a mistake, and that mistake is affordable, you can pay the taxes and any penalties you owe and be on your way. If the amount you owe is too much for you to pay in one lump sum, your tax professional can educate you about the various options you have to settle your bill, including installments, negotiations, and more. The goal here is to formulate a plan that satisfies the IRS without making you insolvent.
There is quite a bit of overlap between what a tax professional and a tax attorney are capable of. For example, both groups can negotiate on your behalf and structure settlements. They will both explore all available options to arrange favorable payment terms and even reduce your debt.
Some of the options that both tax professionals and tax attorneys may explore include:
Payment Plans: Pay your tax bill over time with interest and penalties
Offer in Compromise (OIC): Get a reduction in your tax bill
Applying to the Fresh Start Program: Pay your tax bill with waived interest and penalties
Declaring Currently Non-Collectible (CNC) Status: Get a temporary halt in collection activities
Declaring Economic Hardship: Proving that a wage garnishment would cause an unfair financial burden
Filing an Appeal: Mistakes happen, and the IRS might have made one. Both an attorney or tax expert can potentially identify any IRS errors and resolve the situation entirely
Innocent Spouse Relief: If you’ve filed a tax return jointly with your spouse and your spouse made an error that you’re on the hook for, you could be released from liability if you can prove that the mistake wasn’t yours
When Tax Lawyers are Necessary
The main reason to hire a tax attorney is you’re being charged with a crime. The two tax-related charges are tax fraud and tax evasion.
In these cases, a lawyer can provide legal advice and expertise that goes beyond what a tax expert with a law degree can provide.
Most tax audits don’t go to court or require this type of representation, especially if no crime was committed, but it’s helpful to know your options, especially if this situation applies to you.
There are four reasons you may need a tax attorney to handle your audit defense:
1. Lawyers are Exempt from Testifying: If you have done something illegal, only a lawyer with attorney-client privilege can avoid testifying against you. Again, this is only if you end up in a legal battle. In this event, a CPA or financial planner could be made to testify, which might not be in your best interest.
2. You Need a Ruthless Negotiator: A skilled tax professional can move mountains, but sometimes, there’s nothing more convincing than a letter written on legal stationery. Depending on your time constraints, a tax lawyer may be able to resolve a matter more quickly.
3. You’re Being Threatened with Criminal Charges: If you’ve avoided IRS letters and the balance you owe is high, the Internal Revenue Service might be more aggressive, threatening you with criminal prosecution. If this occurs, you’ll want an equally aggressive attorney on your side.
4. You Want to Demonstrate that You’re Taking the Matter Seriously: Though you needn’t hire an attorney just to prove you’re serious about an audit, if there’s any whiff of criminal charges, it can’t hurt. Having a lawyer on your side from day one can signal to the IRS that you intend to avoid criminal charges, and you have qualified representation in your corner.
Levy & Associates Offers the Best of Both Worlds
At Levy & Associates, we have a full stack team of tax professionals, including former IRS revenue officers, CPAs, accountants, and attorneys. Whether you’re undergoing an audit due to a minor clerical error or you’re facing criminal charges for tax evasion or tax fraud, we can help.
Regardless of the level of representation you need, the key is to act quickly and avoid delays. The longer you wait to respond to the IRS, the worse the situation can become. Contact us today for a free tax analysis.