Accountants and tax attorneys can both help in your hour of need, but the term "attorney" has an ominous ring. It implies that you're not just wrangling with numbers—you're fighting the law.
It's true that tax attorneys can handle things that accountants can't, but you don't have to be in the legal fight of your life before an attorney's services can be more helpful than an accountant's. In fact, both accountants and attorneys can help you handle both past problematic events and help plan your best course in the future.
Here's when tax attorneys are most likely to be helpful.
When Would You Need a Tax Attorney?
Tax attorneys are lawyers who specialize in the complex and technical field of tax law. They're best for handling technical and legal issues associated with your tax situation. An attorney can step in after you have a problem, but consulting with one in advance can also help you avoid problems in the first place.
Tax attorneys must have a Juris Doctor degree, commonly referred to as a "J.D." They must be admitted to the state bar to practice. These are just the minimum requirements—tax attorneys should also have advanced training in tax law. Most will have a master of laws degree in taxation, referred to as an "LL.M."
Some tax attorneys also have backgrounds in accounting, but they don't all have experience in preparing tax returns. Their expertise is focused on the legal implications of tax situations. If you're facing a complex accounting problem as well as a legal matter, you might want to look for an attorney who's also a certified public accountant (CPA) or enrolled agent (EA) so you can cover both bases. Keep in mind that you'll likely have to pay much more for an attorney who's also an accomplished accountant.
If You Have a Taxable Estate
The Internal Revenue Service (IRS) has its fingers in a lot of pies and not all of them strictly pertain to personal tax returns. Estates must file returns with the IRS, as well.
Your estate is taxable in tax year 2020 if its total value at the time of your death exceeds $11.58 million. In the 2021 tax year, this exclusion amount increases to $11.7 million. That high exclusion amount means that most people won't have to worry about estate tax planning, but your heirs would have to pay an estate tax of up to 40% of the balance over the applicable threshold if your estate does exceed these levels.
The estate tax exemption was effectively doubled in 2018 by the Tax Cuts and Jobs Act (TCJA). However, like many aspects of the TCJA that apply to personal taxes, the estate tax is set to revert to its pre-TCJA status after the 2025 tax year.
A tax lawyer can help you devise estate-planning strategies to help you stay below the exemption threshold and reduce your tax liability as much as legally possible.
If You're Starting a Business
There are a lot of wonky legal questions you have to answer when you start a business, and many of those questions have tax implications. What type of business entity should you set up? Do you want to incorporate? Can you function as a sole proprietor?
Any business setup you choose will have tax ramifications. Legal counsel can advise you about the structure and tax treatment of your company, including some non-tax issues you might not otherwise have considered.
If you engage in international business, that will complicate your contracts, tax treatment, and other legal matters. The assistance of a tax attorney can be invaluable in this type of situation.
If You Have Legal Issues
If you plan to bring a lawsuit against the IRS, if you're under criminal investigation by the IRS, or if you want to seek an independent review of your case before the U.S. Tax Court, you'll require the help of a knowledgeable, experienced lawyer. You'll want someone familiar with a courtroom. Certain non-attorneys can represent clients in court, but it's almost always better to be represented by someone well-versed in the law.
It's especially important to seek out a tax attorney if you've committed tax fraud, such as knowingly claiming deductions or credits to which you weren't actually entitled.
Your relationship with your attorney and anything you say to or confide in them is typically privileged. This means they're under no legal obligation or duty to divulge to the court anything you tell them. This is not always true of accountants.
Questions to Ask a Tax Attorney
It's important to vet and interview any tax attorney before hiring them. Here are a few questions to ask when you initially meet with a prospective attorney:
- Are they admitted to the state bar?
- What area of tax law do they specialize in?
- How much does the attorney charge?
- If the attorney can't personally help you or it doesn't seem like a good fit, do they know of another tax attorney who might be more familiar with your type of problem?
Free and Low-Cost Legal Assistance Options
Tax clinics provide free or low-cost legal assistance to low-income taxpayers throughout the United States. They're funded in part by grants from the Taxpayer Advocate Service, which is an independent organization within the IRS. The employees and volunteers who work here are not employees of the IRS or the federal government, but they can help you with taxes and similar matters.
You can find a complete list of low-income tax clinics by state on the Taxpayer Advocate Service website, along with the languages served at each clinic. Income limits apply, but the exact income ceiling depends on the size of your family. For example, a single person filing for only themself qualifies for free assistance with resolving any tax disputes in 2020 if they make $31,900 or less.