Is Hiring a Tax Attorney Worth It?

Benefits of Legal Guidance and Other Options for Taxpayers

Taxes are confusing and can sometimes lead to financial and/or legal problems, especially if you’re dealing with complex business tax requirements.

Some tax issues require the help of a tax professional, but with so many tax pros available, you might wonder, “Do I need a tax attorney, or can an enrolled agent or CPA handle my issue?” This is a valid question, as each of these types of tax resolution professionals offers specific benefits.

This article will look at when you might need to hire a tax lawyer for your individual or business tax concerns – and when hiring an enrolled agent or CPA would likely be a better option. To get help now, contact us at 20/20 Tax Resolution today. Our team of experienced tax attorneys and other tax professionals can help you address your tax problem so that you can move on with your life and get back to running your business.

The Different Types of Tax Professionals

When dealing with tax issues, there are three tax professionals who can represent you or your business in front of the IRS or your state revenue agency:

• Certified Public Accountants (CPAs),
• Tax attorneys, and
• Enrolled Agents (EAs).

CPAs

CPAs are state-licensed accountants who must complete at least 150 semester credits of post-secondary education. As most bachelor’s degrees require 120 semester credits, CPAs typically have graduate degrees. CPAs must also pass the CPA exam (which consists of multiple parts) and most states require CPAs to have at least one year of accounting experience.

Tax Attorneys

Tax attorneys are lawyers who focus on tax-related law. To become a lawyer, a person must earn a bachelor’s degree, a Juris Doctor degree (a graduate degree that usually takes three years to earn), and pass a state bar exam. These attorneys may also opt to get a Masters of Law in taxation (LLM).

Enrolled Agents

EAs are federally authorized tax advocates who can represent taxpayers before the IRS. To become an EA, an individual must either pass a comprehensive IRS test that consists of three sections and covers business and individual tax returns or have sufficient experience as an IRS employee.

Despite these differences in training, all three types of tax professionals must take continuing education courses after they’ve become licensed, certified, or authorized as long as they wish to continue practicing with their respective job titles. Tax lawyers, CPAs, and EAs are also similar in that they generally have the same practice privileges before the IRS.

All three of these tax pros can represent the same type of taxpayers in the same types of tax controversies involving the IRS, such as audits, tax collection (this includes negotiations and disputes), and appeals. All three types of tax professionals can also help with tax planning and compliance issues for businesses and individuals. However, a tax attorney is generally the only tax pro who can represent you or your business in a court of law or in front of the Tax Court.

When Hiring a Tax Professional Is Necessary

Before deciding which tax professional to hire, you need to first decide if hiring a tax pro is even necessary. You’ll usually want to consider consulting with a tax professional in the following situations.

Significant tax debt

First, you might want to hire someone if there’s a lot of money at stake. Even if you think you understand the IRS’ position and what’s going on, having a lot of money on the line typically means it’s worth getting a second opinion. For example, if the IRS says you owe them $75,000 or another significant amount, you may want to confirm that the amount is correct by consulting with an EA, CPA, or lawyer before entering into a payment plan.

Complex tax issues

Second, you’re dealing with one or more complex tax issues. For instance, imagine your state’s tax authority claims your business didn’t collect and remit the required sales taxes to them. Here, hiring an attorney, CPA, or EA to help you understand what went wrong or explain why the state’s tax agency is incorrect in its conclusions is probably worthwhile.

Personal liability for business tax or penalties

The IRS can pierce the corporate veil in many situations, and sole proprietors and unincorporated partnerships always have personal liability for their business taxes. Dealing with business taxes can be more complicated than individual taxes, and whether you’re dealing with corporate income tax, payroll taxes, trust fund recovery penalties, excise taxes, or state business taxes, it’s critical to work with a professional who has experience with this aspect of the tax code.

Multi-state tax problems

Individuals have to deal with multi-state tax obligations if they are a part-year resident of multiple states or if they work in a different state than they live. However, businesses are even more likely to deal with multi-state tax problems. In particular, if you have multiple locations in different states or provide remote sales to multiple states, you may need to deal with withholding or sales tax in multiple states. An experienced tax attorney can help you navigate this situation.

Peace of mind

Third, you want peace of mind. You’re a smart person and may be able to figure out a resolution to your tax situation on your own. However, to sleep better at night, you want a tax specialist to “double-check your work” and make sure you didn’t miss anything. After all, you don’t know what you don’t know.

You can usually get by without hiring a tax professional for simple tax matters that are easy to understand and where you agree with the IRS’ conclusions. Maybe you didn’t send enough money from your earnings, whether through paycheck withholdings or estimated quarterly payments from your business profits. Either way, you know you didn’t pay enough and the penalty the IRS is asking you to pay looks right and is a relatively small amount.

In this case, you probably don’t need to hire a tax professional. You can also likely handle other relatively small tax matters on your own, such as amending a tax return or setting up a basic payment plan for a small outstanding tax balance.

Situations Where You Should Hire a Tax Lawyer

For the majority of tax problems, an EA, CPA, or tax lawyer can help you. But there are some situations where you should only hire a tax attorney. The biggest is when you’re facing a legal problem involving taxes. This includes any dispute that could end up in court. Not only is a tax attorney usually better suited to handle legal matters, but only attorneys can represent you in court.

Hiring a tax attorney is also a good idea if you’re facing criminal prosecution for alleged tax crimes, like tax evasion. Not only are EAs and CPAs not legally allowed to represent you in criminal proceedings, but the complexity of the legal issues involving case law and criminal statutes means a tax lawyer’s experience and skills will be essential to mount the best legal defense possible.

Finally, a tax attorney is recommended for tax questions that rely on the interpretation of law. Whether a particular tax reporting requirement applies to you might not be able to be answered by a simple reading of a tax regulation. Instead, a nuanced reading of case law might be required. A tax lawyer’s skillset really stands out when you’re facing a tax question with no definitive answer, but you still need a recommendation to make the best decision possible using the limited information available.

When to Hire a CPA or EA Instead of a Tax Lawyer

Because tax lawyers usually have a broader range of tax practice privileges, you might think you should always hire a tax attorney instead of a CPA or EA. There are at least three reasons why hiring an EA or CPA might be a better option.

First, an EA or CPA might have more experience and skill to handle a particular tax matter. The tax field is rather large, although most matters will fall under either the tax planning or the tax controversy umbrella.

As its name implies, tax planning relates primarily to finding strategies and creating plans to reduce your tax liability. This could be in various contexts, such as estate planning, individual income taxes, and business transactions. A tax planning professional can help decide what business structure to use for a new business, how to organize a business’ workforce to maximize tax savings for the client, and when to invest in capital assets to optimize tax savings. All else being equal, a CPA is often the best-suited professional for these roles, given how their focus is on accounting and financial matters.

As for tax controversies, these are tax matters where the taxpayer and the IRS or other taxing authority takes an adversarial stance with one another. For example, litigating a tax question in the U.S. Tax Court, completing an audit, or dealing with a tax appeal are examples of tax controversies. Outside of situations where the law prohibits EAs or CPAs from practicing in a particular context (like the courtroom), these are matters where the tax professional’s experience and skillset will be the primary deciding factor in who you should hire.

For example, let’s say you learn that your small business is being audited by the IRS. You can choose to hire an EA with years of experience handling small business audits, a CPA who works with corporate clients in developing ERISA-compliant retirement plans, or a tax attorney who focuses on representing clients charged with criminal tax fraud.

All else being equal, the EA would likely be the ideal choice to help you with your tax case. EAs really shine during IRS negotiations when trying to resolve tax disagreements (like penalties) or settle tax debts (with programs like an offer in compromise). Not only would this hypothetical EA have the right experience and skills for your situation, but they’ll likely be the more affordable option, too.

Second, tax attorneys are usually more expensive than EAs and CPAs. However, this isn’t always true, as certain CPAs and EAs with unique experience in particular tax specialties can sometimes command a higher price. Price isn’t everything, but it can be the single, most important factor, especially in smaller tax cases where the tax amount at issue could be about the same amount as the total cost of hiring a tax lawyer.

Third, you might feel more comfortable with a particular EA or CPA as opposed to a tax lawyer. Hiring the right professional for a job is a bit like going out on a date. A person can “check all the boxes,” but if things just don’t feel right, then it’s probably best to part ways.

For your tax professional to provide the best service possible, you have to be comfortable with them and trust that they can handle your tax problem effectively. If you don’t trust them or don’t feel like they can provide the help you need, you may decide not to follow their recommendations. You might also decline to divulge certain information to them, which could make their job more difficult, if not impossible. In other words, whether a tax professional can help you depends more on your comfort level with them and less on their professional title.

What You Should Do When Facing a Tax Problem

The first step is to decide if you need the help of a tax professional. You can sometimes do this on your own by carefully reading any notices or letters you’ve received from the IRS or other state/local taxing authorities and doing a bit of research online. But if you do your research and are still unsure of what you should do next, it’s time to talk to a tax resolution professional, such as those found at 20/20 Tax Resolution.

If you want help with your business or individual taxes, you can contact us to set up a free consultation where our tax experts can assess your situation and decide what your best course of action should be. If it turns out you need a tax resolution specialist, we’re ready to help. But if it’s something you can handle on your own, we’ll be happy to get you started in the right direction.