What Is Tax Law?

Filing your tax returns may be a straightforward matter of declaring your federal and state withholding and sending in the forms. If you have real estate, own a small business, or have received an inheritance, tax issues can become a problem. Individuals often discover they’ve violated tax laws when income tax season rolls around.

Tax professionals help taxpayers comply with filing requirements. They can also help resolve tax issues like audits, back taxes, and tax fraud. Tax law provides legal avenues for taxpayers to plan, report, and appeal tax obligations. 

When do you need a tax attorney? What makes a tax attorney different from an accountant? There are different types of tax professionals, and knowing which one you need is important. Let’s break down what they do.

The Tax System

Taxes create revenue for state and federal governments. This revenue pays for public services and other needs. Some taxes have specific purposes, known as “earmarks.” For instance, gas taxes get redirected to subsidize road construction, fuel transportation infrastructure, and refineries.

Most people are most familiar with federal and state income taxes. Currently, nine states do not have a state income tax. All states require employers to withhold federal income taxes unless an exemption is claimed by certain types of workers, such as contractors. State taxes include sales taxes (which can also be local), property taxes, and inheritance taxes.

Tax Attorney vs. Certified Public Accountant 

When it’s time to do taxes, many people turn to a certified public accountant (CPA). A CPA handles everything tax-related before a person or business finds themselves in tax trouble, such as:

• Setting up a payroll account
• Auditing or managing your business accounts
• Handling your personal or business tax liability
• Financial estate planning
• Annual tax preparation

A CPA is the one you need for tax planning. If the IRS calls for an audit or if something else has gone awry, it might be time to consult with a tax attorney.

When You Need a Tax Attorney

You may need a tax attorney when dealing with complex financial planning services. For instance, if you’re beginning your estate plan and need to know the legal implications of different types of trusts, a tax attorney can supply the answers you require. They’re experts on actual tax laws and how they will affect your other legal matters.

Business owners should consult a tax or business lawyer when starting a new business. This helps to ensure their initial tax filings and disclosures meet the legal requirements.

Other reasons to consult a tax attorney include:

• Creating or altering a trust or other estate plan in which there may be legal issues involved in any money transfers
• Investing or divesting during any major life change such as a high-value divorce, marriage, or prenuptial agreement that can have serious tax implications  
• Purchase or sale of real estate

If the tax matter turns on an interpretation of the laws instead of the taxes themselves, then the attorney is the person you need.

When the IRS Is Involved

Despite its reputation, the Internal Revenue Service (IRS) seldom performs tax audits on average citizens. Failing to file your taxes one year does not immediately constitute tax fraud. If there is a discrepancy between your total and the IRS total for your annual personal or business tax return​, the IRS generally sends you a notice advising you that you have a balance due. The notice explains how much you owe and where you can appeal the amount.

In most cases, the balance due is small and people pay it without much argument. If you plan on appealing the IRS decision, you need an attorney. A tax attorney can explain how to complete the forms and what evidence to include in support of your claim.

Back Taxes

If you fail to pay taxes for several years or miscalculate them for several years, you may owe back taxes. Back taxes eventually accumulate interest and fines that can exceed the original amount of the tax. In this situation, you can use either a CPA or a tax attorney. They can access your IRS account and determine how much you owe in taxes and penalties.

Your options include:

• Make an offer in compromise: The IRS may accept a lump sum payment to clear your back taxes in full. Your attorney can negotiate a smaller amount than what you owe, but you may still owe a significant amount.
• Begin a monthly payment plan: Most taxpayers with tax arrears opt for a monthly payment plan. The IRS lets you make monthly payments over a three-year period. You must keep your payments current.
• Suffer wage garnishment: If you can’t make your monthly payments or pay off the total owed in full, the IRS may garnish your wages until you pay off your back taxes. An amount will be deducted from each of your paycheck until your debt is satisfied.

It’s unlikely you’ll face criminal charges for missing payments. The IRS prefers that people pay their taxes if there is no evidence of intentional fraud or wrongdoing.

Tax Audits

Unless they have reason to suspect fraud or criminal behavior, most IRS audits are random. Certain groups of taxpayers may be marked for auditing. 

Returns selected for audits may include:

• Any return that deviates from the statistical norm for the tax bracket
• High-income earners
• Self-employed earners and business owners, especially if they file their own returns
• Returns using the Earned Income tax Credit (EITC)

If the IRS selects your return for audit, you will receive a letter from the IRS. It doesn’t mean you have a tax problem or that you need an attorney, but you may want to get legal advice if the IRS contacts you for more information. The IRS will never call you on the phone to inform you of an audit.

Tax Fraud and Tax Evasion

A good way to catch the IRS’s attention is to engage in tax fraud. Tax fraud, or tax evasion, means you have intentionally engaged in a pattern of avoiding payment or concealing income to defraud the government. 

Tax avoidance is a lawful strategy many people use to lower their tax burden. Tax avoidance includes things like putting money in a retirement account or investing in your home. As long as you do this properly, it is not fraud. 

Avoidance becomes fraud when you deliberately conceal your income or lie on documentation. Tax evasion doesn’t require overseas accounts and money laundering.

Tax avoidance can be as simple as:

• Underreporting your income: Working under the table or off the books doesn’t mean you didn’t earn the money. If the IRS learns of your additional income, they will expect you to pay taxes on it.
• Unearned deductions or expenses​: You can reduce your taxes by writing off certain business expenses and deducting costs of depreciation or home improvements. If those expenses didn’t actually exist, the IRS penalizes for putting them on your return.
• Deducting business expenses on your personal returns and vice versa: The IRS reviews small business owners for evidence they’re using their business as a personal piggy bank. The larger the company, the more trouble owners are in when the IRS catches them.

The best way to avoid targeted tax audits and other issues is by reporting your taxes honestly and paying them promptly. If you have a tax debt you cannot pay, speak to an attorney to deal with the situation immediately before the situation is out of hand.

Get Legal Advice From a Qualified Tax Attorney

A good tax attorney can help you with more than an IRS audit. A tax attorney can assist with bankruptcy, estate taxes, and other related issues. If you have a serious tax situation involving the IRS, contact an experienced tax lawyer