When Is It Time To Hire A Tax Attorney?

Picture this. You receive a notice from the IRS regarding some errors and omissions on your income tax return. If these errors or omissions or minor and do not have a significant impact on the amount of gross income you reported, you can probably deal with the IRS directly or by giving your tax preparer a "heads up."

However, if there is any chance that things could go south, you should waste no time in contacting an experienced tax attorney. Think of it this way: if you're asking yourself whether it's serious enough to merit calling a tax attorney, then it probably is.

Consider these two true life stories:

Ever heard of Ty Werner? He was the billionaire creator of Beanie Babies, which hit it big in the 1990s when Beanie Babies became some of the nation's hottest toys and collector's items. While Beanie Babies have largely faded from the public consciousness, they've made a fortune for Warner. Forbes Magazine estimates his net worth as of September at $2.6 billion.

In January 2014, Mr. Werner was convicted for hiding millions of dollars in secret Swiss bank accounts to evade taxes. Specifically, he evaded $5.5 million in taxes owed on the $27 million in interest accrued from millions of dollars stashed away in a Swiss bank account. What was the sentence? Two years of probation, 500 hours of community service, a $ 100,000 fine, and a civil penalty that would make your grandmother roll over in her grave: $ 53 million. And oh yea, don't forget the unpaid taxes of $ 27 million. Clearly, not chump change, even for a billionaire like Werner.

Then there was Daniel Thody, a defense contractor. Just a few months earlier, Mr. Thody was found guilty of five counts of tax evasion for failing to report $ 15,000 and $ 50,000 in taxes, respectively from $ 1.8 million earned as a contractor for the Department of Defense. He faces up to twenty-five years in prison – five years for each count.

Time for a quiz: Which one do you think hired a tax attorney and which one thought representing himself would be the smarter move? If you guessed that Mr. Werner hired counsel and that Mr. Thody decided to go it alone, you are correct.

There are three good reasons why you should consider hiring a tax attorney when dealing with the IRS:

1. Taxpayers with legal representation are treated better. As unfair as this might sound, it is true. After sizing you and every other taxpayer up, if the IRS agent thinks that he can get away with bullying you into his interpretation of the law, then he probably will exploit that vulnerability. A tax attorney can ensure that the IRS is playing by the rules and treating you fairly. IRS investigators are much more careful about asking inappropriate questions or wasting your time with unnecessary requirements, if they know that you are represented by a tax attorney.

Lest you think that hiring a tax attorney will cause a revenue agent to automatically assume that you're "guilty" of filing a false return or underreporting income and that you've "lawyered up" out of fear of what will happen if it is discovered, nothing could be farther from the truth. Nor do you have to worry about an IRS agent blowing a gasket upon learning that you've hired a tax attorney to represent you.

On the contrary, the good ones prefer to work with tax professionals because they don't have to waste precious time explaining you the fundamentals of a tax audit or the basic IRS guidelines for a criminal investigation. In fact, as surprising as this might sound, hiring a tax attorney is generally seen as a sign that the taxpayer wants to resolve his tax issues in good faith.

2. The IRS Is An 800-pound Gorilla. The IRS is a goliath of an agency, ranking among the most powerful governmental agencies in the entire world. For example, from 2008 to 2014, the Criminal Investigation division of the IRS has overseen hundreds of investigations into taxpayers with undisclosed offshore accounts, including "enablers" that have been complicit in helping U.S. taxpayers hide their money abroad. During that time, fifty bankers from around the world have been indicted for aiding and abetting wealthy Americans hide billions of dollars in offshore accounts.

If you think this is just smoke in mirrors, just ask former banker Raoul Weil. In October 2013, he was scooped up in Italy while on vacation and extradited to the United States. He is now on trial for conspiring to help thousands of Americans hide $20 billion in undisclosed offshore accounts at UBS.

In 2013, the IRS also penetrated what was once seen as sacrosanct: Switzerland's airtight bank secrecy laws. How so? It got UBS, the largest Swiss Bank, to divulge confidential information on American tax evaders. And in order to avoid criminal prosecution, UBS had to enter into a settlement with the U.S., agreeing to pay a whopping $780 million penalty.

3. Only a Tax Attorney Is Qualified To Represent You in a Criminal Investigation. When it comes to tax planning, balancing your budget, and asset management, there is no question that a CPA is the right professional for you. But when you have a dispute with the IRS, and especially if that dispute has escalated to the point of referral to CI, the only intelligent choice is to hire a tax attorney.

Tax attorneys are the only professionals who can represent you in a court of law and who can provide you with practical and sound legal advice for making a well-informed decision. Most importantly, information that you discuss with your attorney is protected under the attorney-client privilege. In other words, unlike accountants, attorneys cannot be subpoenaed to testify against you in a criminal proceeding.

What Should You Do?

Tax attorneys have been in the trenches. They know how the IRS works. So they know what to say and what not to say when negotiating with IRS representatives. Hiring a tax attorney sends the IRS a strong message that you're taking the investigation seriously and that you want to "get right" with Uncle Sam. At the same time, it sends a message that you're not going to allow the agent to push you around like you're a rag doll.

Tax problems can be serious and can cause a significant amount of stress and anxiety in your life. They must be handled appropriately. Therefore, it's important that you hire the best lawyer to represent you – one who has the skill and expertise to handle tax matters and who can effectively represent you before the IRS, State Tax Agencies, and in federal court if the matter is ever referred to the Department of Justice for criminal prosecution.

Don't let another day go by. Speak to a tax attorney today.

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