People greet tax time with different levels of enthusiasm. Those who are receiving a big refund are excited to file their taxes. Those who owe money will dread tax day. Plenty of other emotions exist in between those two extremes.
The time when all taxpayers’ emotions match up is immediately after opening a piece of mail that says the IRS is requesting an audit of their taxes. At that point, we all feel a panic in the pit of our stomachs.
Hiring a CPA, EA or CTEC certified tax preparer to defend you in a tax audit doesn’t usually result in the best outcome. Most CPAs, and some EA’s know tax law, but he or she is not trained in criminal tax defense law and how to avoid criminal tax charges related to your tax audit. Matter of fact they are likely to have a conflict of interest with you in that they must protect their own reputation at the expense of yours if they prepared the return under audit. Even if they did not prepare the return at issue, they are likely to become government witness number one should you be prosecuted because anything they learn about your tax situation is not under the attorney client privilege, as they are not attorneys.
Instead, hiring a tax attorney to defend you in a tax audit is the better solution. You’ll be protected by someone who intimately understands your constitutional rights while under audit or criminal tax investigation, how tax law truly works and how to be persuasive where the facts and the law are in your favor. The absolute best possible criminal tax defense counsel can be obtained by hiring a dually licensed Tax Attorney and CPA with a Master’s Degree in Taxation.
Here are some specific ways a tax attorney can help you during a tax audit.
Defending Against Criminal Tax Charges Including Income Tax Evasion
The IRS may accuse a taxpayer of tax evasion when he or she has not been filing taxes or when the accused has been attempting to hide funds in a collection action or failing to report the proper taxable income for tax purposes.
Tax evasion is a serious crime, meaning you need to defend yourself vigorously. Unlike a CPA, a Tax Attorney has the training to understand how charges of tax evasion work and how to defend his or her client against these charges. CPA’s, EAs and CTEC certified prepares can be charged with the unauthorized practice of law if they get too involved with representing a client in a criminal tax matter.
An accusation of tax evasion can result in the imposition of felony charges with potential penalties of 3 to 5 years in prison per count (most investigations span 6 tax years) and fines up to $100,000 (or up to $500,000 for a corporation). This is over and above any tax, penalties and interest assessed or quantified as tax loss in a criminal tax prosecution and ordered as restitution.
Defending Against Charges of Tax Fraud
The IRS can accuse someone of tax fraud when it believes it can prove the person has willfully committed reporting substantial errors when filing. As with tax evasion, tax fraud charges could result in jail time. You need a Criminal Tax Defense Attorney to defend you against these charges. Only an Attorney can help you avoid the accusation of fraud in a high-risk tax audit in the first place. CPAs, EAs or CTEC certified preparers are not trained or experienced in mitigating your exposure in circumstances where you willfully and substantially understated your tax liability on the returns under audit.
Tax attorneys also know how to interact with the taxing authorities in criminal tax cases. This is helpful when you’re trying to reduce your tax, penalties, interest and criminal tax exposure as an accusation of tax fraud carries the same potential criminal penalties as tax evasion.
Full Understanding of Tax Law, Tax Planning and Tax Compliance
The laws regarding filing taxes read completely differently than the tax form instructions themselves. Tax laws are written by lawyers, and a Tax Attorney is the best qualified person to interpret and apply them to your situation that ultimately resulted in the audit. The dually licensed Tax Attorney & CPA knows the internal revenue code and the technicalities involved with tax preparation process intimately so he or she can provide you the best of both worlds, especially when facing an income tax audit. Additionally, tax laws change regularly. Someone who specializes in solely preparing tax returns may not be fully up to date on changes to the tax laws. You do not want to be relying on someone for tax advice who does not understand how tax laws work which quite possibly led to your audit in the first place. If you make a mistake in choosing a representative for your high-risk tax audit, you could be subject to multiple civil or criminal penalties including jail time and restitution.
Staying on Task
When you are facing an IRS audit, you will have to meet certain deadlines for presenting information and evidence to the IRS. These deadlines are important to follow, so you can avoid the possibility of further penalties. If you are relying on a CPA, EA or CTEC certified tax preparer to help you with your audit, there will be certain times of the year where they will be extremely busy filing other people’s taxes, meaning a critical audit deadline or two will often be missed.
Additionally, it is vital that all supporting information be presented to the IRS or state taxing authorities in the most comprehensive and persuasive format. A Tax Attorney will quite often have a team of employees that are trained to ensure that this is accomplished. Tax Attorneys and their staff deal with these types of tasks daily.
Communicating With the IRS
A Tax Attorney is likely to understand the procedural steps and has the contacts to be able to engage in effective and direct communication with the correct departments and individual IRS personnel about your case. This is an important benefit, as the IRS is notoriously poor about communicating with individual taxpayers and their representatives. By communicating directly with those involved in the audit and appeals process at the IRS, your Tax Attorney can better craft your defense and determine exactly what information the IRS needs. With direct lines of communication, the Tax Attorney can assure the IRS that you are doing everything possible to meet your obligations, which will be helpful as your case moves forward.
Providing Good Advice
When the IRS makes requests during the audit process, you may feel like you have to follow them immediately and exactly. And you should … most of the time. A Tax Attorney knows when and how to say no to the IRS. For example, the IRS may make a request to meet with you in person at your home or business. The Tax Attorney will often tell you to not agree to this type of meeting because the IRS may just want an excuse to inspect your home and see if your lifestyle matches up with your history of reporting taxable income. Instead, the Tax Attorney will arrange a meeting at the attorney’s office or at an IRS office and will often attempt to leave the taxpayer out of it.
Appealing the Results
Should your audit result in an unfavorable financial outcome for you, and the IRS got either the facts or the law wrong in reaching an assessment of additional tax, penalties and interest, it may be advisable to file an appeal. Tax Attorneys know how and when it makes economic sense to file an appeal, so you’ll be in position to resolve your case in the most advantageous and economic fashion.
Finding the Right Tax Attorney
Audits with straight civil exposure may be handled without a Tax Attorney’s help, such as when the IRS just wants a missing form or when you may have juxtaposed a couple of numbers on the return and you own an extra $20. But if you feel as though the audit could lead to large life changing financial or criminal tax exposure, it’s probably time to hire a Tax Attorney. If you believe your audit could be the start of a potential criminal tax case, you definitely need to hire a criminal tax defense attorney to protect your rights, ensure the IRS treats you fairly, and keep the audit solely about money where possible.
To schedule a 10-minute call with an experienced tax attorney to discuss your notification of a tax audit, contact the Tax Law Offices of David W. Klasing.