We get asked this question a lot and our answer may shock you. In many cases, you don’t need a lawyer. Tax lawyers, CPAs and even enrolled agents pretty much do the same things. As a general rule, however, lawyers are more expensive. The better question, then, becomes, “Do I need a tax lawyer?”
People usually call our law firm when they receive a notice from the IRS or realize they made errors on their return. Sometimes they call when they have not filed any returns.
Our general rule is that if you made a small mistake on your return, contact an accountant or enrolled agent. Depending on the individual’s experience, enrolled agents and accountants can handle a wide variety of audit, collection and filing issues.
If you feel there is any chance that things could go south, however, contact an experienced tax lawyer immediately. Ditto if you have failed to report any foreign bank accounts.
Why? Great question.
There are several reasons why tax lawyers are the preferred method of dealing with the IRS in these situations.
- Only conversations with your lawyer are protected by the attorney – client privilege. Accountants and enrolled agents don’t qualify. That means the IRS can call your CPA to testify against you. This may not sound fair but it is the law.
- Taxpayers with lawyers get treated better. Once again, this may not be fair but it is reality. IRS agents have to take you seriously when you have a lawyer. They know that the chance of an unfair assessment or practice being appealed to U.S. Tax Court is much higher when a lawyer is involved in the case.
- The IRS has virtually unlimited resources. Only a small percentage of taxpayers are audited and even fewer targeted with a criminal investigation. If you are one of the unlucky few, however, the IRS can bring a lot of resources to bear against you. Having a good lawyer early in the game sends a message to the IRS that you are not going to be bullied. Often, early intervention by a tax lawyer can keep a problem contained and avoid a full-blown criminal investigation.
- If your worst fears become true and you are selected for a criminal investigation, only a lawyer can represent you.
- When it comes to unreported offshore accounts, the potential penalties are huge and the rules change constantly. For offshore cases, we suggest finding a tax lawyer that specializes in offshore work. Very few do.
This post isn’t to suggest accountants and other preparers are somehow not as “good” as a lawyer. For tax planning or auditing, accountants are often the better way to go, for example.