Red Flags for Business Owners: When To Call a Tax Attorney, Not a CPA

When it comes to filing taxes, a small business owner should turn to an accountant or CPA. However, when your business finds itself in trouble or needs to deal with a touchy business issue, your needs are better served by a tax attorney, not a tax professional.

There’s no doubt that a CPA is your go-to professional for tax preparation. They can help with your company’s IRS tax filing and ensure that you take advantage of every tax credit and tax deduction available to you.

When it comes to addressing a corporate tax issue or restructuring your company, a CPA may not be your best option. Instead, a local tax lawyer with experience in these matters is a better choice.

This article examines some of the red flags that should indicate that it’s time to call an experienced tax attorney instead of a tax professional. It also explains how a local tax attorney can help your business resolve immediate tax problems and prevent trouble down the road.

The CPA vs. Tax Attorney: Fork in the Road

If you’re a small business owner, you know how difficult it can be to deal with the Internal Revenue Service (IRS). Even before your business is up and running, you’ll have to make decisions that impact your business taxes. This is why so many business owners decide to seek legal representation.

A tax lawyer can be helpful in a variety of situations, including:

• If you decide to expand your business or take on a new partner
• Have questions about the tax laws
• Need legal help setting up or restructuring your business
• Disputes with the IRS over back taxes
• Need to petition the U.S. tax courts
• Are going through an IRS audit

This is not to say that there aren’t times when your company needs a CPA. A CPA is helpful with your small business tax preparation and bookkeeping. They can also handle your personal income tax returns.

While a CPA is beneficial in these situations, there are times when there’s no substitute for the critical help a local tax attorney can provide. A skilled tax lawyer can help protect your company from legal risk and help you avoid personal liability for business tax debt. Let’s take a look at some of the red flags to watch out for.

Red Flag #1: You Are Structuring (or Restructuring) Your Business

One of the most important decisions you’ll make when setting up your company is your business structure. There are tax implications depending on the type of organization you choose. Given the enormous importance of this decision, it’s a good idea to consult an attorney before making any final moves.

Your attorney can answer any questions you have about the advantages and disadvantages of each type of business structure. For instance, if your primary concern is personal tax liability, you may want to opt for a limited liability company.

Regardless of which type of business structure you choose, you’ll need an attorney to help draw up your formation documents. For example, if you’re opening a corporation, you’ll need to draft your incorporation papers.

The same is true for a partnership. You’ll want an attorney to help craft a partnership agreement that will protect your interests and govern your relationship with the other business owners.

Red Flag #2: You Have Unpaid Payroll Taxes

In a perfect world, your company will maintain internal procedures to ensure that it pays all sales taxes, payroll taxes, and other business taxes. Alas, we don’t live in a perfect world. People make mistakes, which can lead to larger problems.

While a CPA can help with your tax filing and maybe even tax planning, they can’t really help if you find yourself in trouble with the IRS. If your business fails to pay payroll taxes by their due date, you will face an extraordinary tax burden in the form of penalties, interest, and fees. You may even open your company up to an IRS audit.

In either of these situations, a skilled tax lawyer is the professional help you’ll need. Not only do they know the tax laws inside and out, but they also have years of experience dealing with the IRS. They’ll work to negotiate a fair resolution so you can pay any overdue payroll taxes without accruing an inordinate amount of interest and penalties.

One of the most serious penalties is the Trust Fund Recovery Penalty. This penalty applies to businesses that fail to deposit monies withheld from their employees’ paychecks. When your payroll department withholds payroll taxes, it holds the money in trust for employees and the government.

This money is held in trust and never belonged to your company. It is money earned by your employees that you must deliver to the federal government. By failing to deposit payroll taxes to the IRS, you are violating this trust.

An experienced tax attorney will know how to resolve this issue. They can negotiate a payment plan or “Offer in Compromise” with the IRS so you can pay the payroll taxes and penalty over time, instead of all at once. This will also help prevent the government from levying against your bank account or placing a lien on your real estate or business (and personal) assets.

Red Flag #3: The IRS Is Auditing or Investigating Your Company for Tax Fraud

A tax audit is a frightening thing for any business. Whether the audit is regarding unpaid employment taxes, tax fraud, or tax evasion, there’s good reason to be concerned. Even if you are confident that your company maintains tax compliance, it’s a good idea to have legal representation when facing an audit.

A certified public accountant can help you with tax planning and explaining changes to the tax code, but they aren’t much help in an audit or fraud investigation. You need a qualified local tax attorney to help with this.

Not only will an attorney be by your side throughout the audit or investigation, but they will also work with the government to resolve any legal issues. A CPA cannot represent clients in tax court unless they pass a Tax Court Examination for Non-Attorneys.

The IRS will also want to see that you completed your due diligence as far as your business taxes are concerned. This is especially true when you’re dealing with a tax evasion or tax fraud investigation. If you can show that you made business decisions under the advice of a tax attorney, it helps show the government that you operated in good faith.

A criminal tax investigation is a serious matter that can have dire consequences for you, your company, and your employees. You don’t want to open your business up to criminal charges or tax liability if you can help it.

Red Flag #4: You Need a Business Succession Plan

Some business owners forget the importance of addressing what happens if they or another business owner passes away or leaves the company. It’s never a good idea to assume that your business partner will handle things fairly once you’re gone.

Succession planning is similar to estate planning. It outlines how a company’s debts and assets will be distributed (or assigned) upon an individual’s death or when they are no longer involved with the business.

This is why it’s a good idea to seek legal advice about your succession plan before you open your doors. Your tax attorney can help do this. This will give you peace of mind knowing that your family will be taken care of should something happen to you.

Disclaimer: State and federal tax laws change frequently due to new legislation, higher court rulings, and other means. While FindLaw strives to provide the most current information, consult a local tax attorney to confirm the current laws.

Contact a Local Tax Lawyer for Help With Your Business Tax Matters

Most business owners don’t need an attorney for day-to-day business operations. However, there are bound to be times when the advice of a skilled tax attorney will prove helpful with your business needs. This includes having a lawyer review your partnership agreement or help with probate if your business partner dies.

Whether you need help with a tax dispute or want to ensure your company is compliant with the tax code, it’s a good idea to consult a seasoned tax attorney. Hiring a tax attorney can help you avoid major issues with the IRS. Anything you discuss with your lawyer is protected by the attorney-client privilege.