When Should You Use a Tax Attorney for a Tax Audit?

Do you need to hire a tax attorney for your tax audit? It depends on exactly what you’re getting audited for. Here’s what you should think about when making your decision.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

Are you under criminal investigation?

Criminal investigations only make up a very small portion of tax audits. To get charged with a tax crime, you need to do more than just making a mistake on your tax return or even not paying your taxes.

If criminal charges are a possibility, you should always talk to a tax attorney first. CPAs and Enrolled Agents can represent you before the IRS, but they can’t help with your criminal case. In addition, a prosecutor can force your accountant to tell the prosecutor what you told your accountant. Anything you say to your lawyer is protected by attorney-client privilege.

Criminal charges are most common in the following types of situation.

  • Tax fraud (you were cheating on your taxes)
  • Tax evasion (you were taking steps to avoid filing a tax return or paying your taxes)
  • Unpaid payroll taxes if you’re an employer
  • Very large dollar amounts of unpaid taxes that the IRS might think was tax evasion even if you had a reasonable explanation
  • Several years worth of unfiled tax returns that the IRS might think was tax evasion even if you had a reasonable explanation

If you’re not sure if you need an attorney, call one, and they will usually tell you. Most tax attorneys are very busy and won’t try to sell you on services you don’t need.

How clear is the issue the IRS is auditing?

Some tax issues are very black and white. Others may not even have a correct answer until you go to court.

If your audit is routine, such as claiming your college student as a dependent when they made too much money, there’s usually no point in hiring a lawyer. The numbers are what they are, and a CPA or Enrolled Agent can help you see if you can reduce the penalties.

If you’re dealing with complex deductions or sources of income, there may be multiple ways to argue how the law should apply. That’s exactly what tax audit attorneys are good for.

How much money is at stake?

Let’s say you did something new that the IRS doesn’t have much guidance on. A few years back, this would have been cryptocurrency, but the IRS has clearer rules for crypto now.

Whatever the next crypto was, you were an early adopter. The IRS audits your tax return and says you owe $100. Every tax attorney you call wants at least $10,000 because of the time it will take to research the issue and fight with the IRS.

You know you’re right, but is the money worth it? You’ll probably decide it’s best to try to write your own response letter or even that it’s not even worth fighting.

The opposite thinking applies when the IRS says you owe a lot of money. Maybe you made a much larger investment, so the IRS says you owe $1 million instead of $100. Even if you think the solution is simple, the cost of an attorney is more than worth it considering what you have at stake.

Do you want to keep working with the same person all the way to the end?

You may have a tax issue that you want to fight until the end. There are multiple steps involved — it starts with letters, moves up through different IRS offices, and then could go to court.

If you use a CPA, they’re not going to be able to represent you in court most of the time. At that point, you’ll need to get a tax audit attorney.

Your attorney will usually work with your CPA to learn about your case, but it’s not the same as if they were there from the beginning. If you think there’s a high chance you’ll want to keep appealing all the way to court, you may want to hire a tax audit attorney from the start.

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