You may need a tax attorney or a tax lawyer if:
We often are asked this question in various different forms. For example some clients ask, “Will the IRS be suspicious if I hire a tax litigation lawyer?”
The answer is usually no. Most IRS agents, and IRS Revenue Officers are actually happy when a tax lawyer gets involved. That’s because the agent doesn’t have to spend a lot of time explaining the basics to a tax lawyer, because we have been through it all before. In cases that involve significant dollars amounts, or complicated questions of tax law IRS agents are used to having tax lawyers on the other side of the table.
Occasionally we have heard of IRS agents saying to clients “Oh you don’t need a tax attorney.” Or even “If you hire a tax attorney I am going to make things more difficult for you.” If that happens you need a tax attorney more than ever. The tax law provides in Internal Revenue Code Section 7421(b)(2) that the IRS must stop an interview if a taxpayer states he would like to consult with a tax attorney, or CPA, or enrolled agent. So an IRS agent who tries to talk you out of engaging a tax attorney may be violating the law.
Definitely not! The United States Tax Court (Tax Court) is an independent court in Washington, D.C. Congress created the Tax Court as an independent judicial authority for taxpayers disputing certain IRS determinations. The Tax Court’s judges preside at trials in 60 U.S. cities, and its Special Trial Judges preside at trials in those cities and 15 additional cities. All of our tax attorneys have been admitted to practice before the Tax Court, as well as many other courts. A 2008 Tax Court case, Porter v. Commissioner, 130 T.C. No. 10 outlined the history of the Tax Court largely as follows:
The precursor of the Tax Court, the Committee on Appeals and Review (the Committee), was part of the Bureau of Internal Revenue. This Committee was not a fact finder; instead, it operated under its own version of a record rule. The taxpayer was generally permitted to introduce evidence to the Committee only in affidavit or documentary form and could not adduce evidence that had not been considered by the Income Tax Unit.
Pressures to replace the Committee resulted largely from two factors: (1) The Committee was not independent of the Bureau of Internal Revenue; and (2) the proceedings in the Committee were not adversary, were not public, and did not permit the introduction of new evidence. To address these concerns, the Revenue Act of 1924, ch. 234, 43 Stat. 253, replaced the Committee with the Board of Tax Appeals (the Board). Originally, the Administration had proposed that the Board be created as an informal hearing body within Treasury. Under the original Administration proposal, the Board was to consider its cases "on the basis of Bureau files. Since under the proposal the Board was to be a part of Treasury, there was no impediment to access by the Board to Bureau files.
In the 1924 legislation, Congress changed this plan to make the Board an independent agency in the executive branch; it was generally required to follow formal judicial procedures. Moreover, the Board's record had to be independently compiled. Thus, the Board stressed that '[w]hat has been submitted to or considered by the Bureau of Internal Revenue is beyond the ken of this Board. . . . [E]vidence that has been presented before any other department of the Government must be reintroduced before this Board before we can consider it.
The Revenue Act of 1924 left the resolution of most procedural and evidentiary issues to the discretion of the Board. In 1942 the Board of Tax Appeals was renamed the Tax Court of the United States. This name change did not significantly affect the jurisdiction, powers, or duties that previously had belonged to the Board.
Representation by a tax attorney rather than an accountant provides significant advantages including the attorney-client privilege. Generally, statements you make to your tax attorney can not be revealed to the IRS, or anyone else. While there is a limited federal accountant client privilege, it doesn’t apply if the IRS decides to bring a criminal tax case against you. IRS criminal tax investigators are trained to contact a taxpayer’s accountant if they suspect tax fraud. It is not unusual for a client’s accountant to be forced to testify as a witness against his own client. The federal accountant client privilege also does not apply, even in non-criminal cases, to state tax audits or an investigation by another federal agency such as the SEC or the INS.
Tax attorneys are trained to analyze the law to find loopholes that can be legally used to save you money. The tax law is very complicated. It start with the Internal Revenue Code which is the statute passed by Congress and changed frequently. According to the National Taxpayer Advocate, there have been more than 3,250 changes to the tax code from 2001 to 2008, with more than 500 changes in 2008 alone -- setting an average of more than one change a day. In its 2010 report the President’s Economic Recover Board stated that there had been 15,000 changes to the code since 1986. Furthermore, the code is extremely long and continually growing: The number of words is more than 3.7 million, compared to a 1.4 million in 2001.
Once Congress writes the law the IRS's tax attorneys issue their interpretations of it, including Treasury Regulations (both final and proposed), Revenue Rulings, Revenue Procedures, Private Letter Rulings, General Counsel Memorandums, Technical Memoranda, Technical Advice Memoranda, and Actions on Decisions. The courts including the Tax Court, the Court of Federal Claims, the District Courts, the Bankruptcy Courts, 13 separate Federal Courts of Appeal, and the United States Supreme Court all write opinions interpreting the tax law. Unfortunately even the IRS doesn’t understand the tax law. According to the GAO the IRS gave an incorrect response to tax law questions more than 20% of the time! It takes a tax attorney to find all the provisions of the law and interpret them in a manner which helps you.
When faced with a tax controversy between you and the IRS, you may feel like you are at a disadvantage. The IRS has a giant team at its disposal to pursue its case against you. However, you do not need to face tax issues alone. Hiring a tax litigation attorney can give you the expertise you need to fight and win your case as well as protect your rights.
Most tax controversies arise during or after an audit. This can be at the federal level with an IRS agent or with state tax auditors. Unlike tax attorneys that help you plan your business affairs or personal estate, a tax litigation lawyer is there to fight on your behalf when there is a discrepancy. This is a distinct set of skills that not all tax attorneys may have. When faced with owing back taxes, penalties, interest and even criminal charges, you want a tax litigation lawyer on your side.
When to Hire a California Tax Litigation Lawyer
Since most tax controversies start with a tax audit, it may behoove you to hire a tax litigation attorney to represent you as soon as you are notified of an impending tax audit. Since you do not know the outcome of the audit, it is best to have a tax attorney that understands the possible results of an audit and how to fight a negative outcome. As in most legal situations, a good offense is the best defense; having a tax litigation attorney that can prepare you for the audit and counsel you through the process can help prevent many tax controversies from occurring.
If your tax audit with a state tax or IRS auditor does reveal a tax liability or leads to a criminal investigation, a tax litigation attorney can help you pursue the best line of defense. Your attorney can offer you options for protecting your assets and represent you if your tax dispute cannot be resolved at the audit or appeal level. Having a tax attorney that is skilled in the litigation measures needed to fight these complicated and potentially life-changing cases can help reduce your liability and protect your legal rights.
Are you behind in filing your tax return? If you have not filed a tax return for one or more years, you could be facing some steep penalties and interest on your past due tax returns and payments. Penalties for failure to file and interest on back taxes can quickly becoming a large financial burden. Consider this information from our IRS tax specialists at Brager Tax Law Group to limit your penalties for failure to file and reduce your debt to the IRS.
IRS Tax Penalty for Failure to File
First of all, if you do not owe taxes, failing to file by the deadline is not penalized by the IRS. It is only when you owe taxes and do not file a return by the deadline that you can be penalized. The standard IRS penalty for failure to file is charged at the rate of 5% per month up to 25%. However, if fraud is involved, the penalty can be significantly higher at 15% per month up to 75% of the taxes owed.
Keep in mind that if you have not paid your taxes by the tax deadline, usually April 15th, you will also be facing interest charges on top on the penalties for failure to file. There is also a separate penalty for failure to pay the taxes when due. When combined, these extra costs can be quite burdensome, and should be avoided if possible.
Reducing IRS Tax Penalties
If you have not filed a tax return in one or more years, you are facing IRS tax penalties for every year you did not file. Not only will penalties for failure to file be added for each tax year, interest is added to any tax debt owed. However, with the help of a IRS tax attorney, you may be able to reduce the amount of penalties you must pay.
The IRS will forgive or remove tax penalties for failure to file if there is reasonable cause for why the tax return was filed late. With the help of an expert IRS tax lawyer, you may be able to reduce the penalties on your tax debt, or even have them completely removed. Contacting a tax attorney as soon as possible to determine the best way to proceed when you owe the IRS back taxes that you cannot pay is the best way to avoid excessive penalties and possible other consequences such as bank account seizures, wage garnishments and other property levies.
Internal Revenue Code Section 6212 requires that certain notices and other documents be sent by the Internal Revenue Service to the taxpayer at his "last known address." Indeed most IRS notices that afford procedural rights are required to be sent to a taxpayer's last known address. Some examples of IRS notices that must be sent to the taxpayer's last known address include:
The last known address is generally the address that appears on the taxpayer's most recently filed and properly processed tax return unless the IRS is given clear and concise notification of a different address. Treas. Reg. Section 301.6212-2(a). The IRS has published Rev. Proc. 2010-16 which lays out its view of how it determines whether it has received proper notifications. The best way to notify the IRS of your address change is to use IRS Form 8822, Change of Address. The IRS can also be notified of a change of address orally, either in person or by telephone, to an Internal Revenue Service employee. The problem with this method is that if the RIS employee fails in his duty to update the Internal Revenue Service's computer records, there is no way of proving that you notified the IRS.
The IRS also has a procedure whereby it will update its database of last known addresses by means of using the NCOA database pursuant to Treas. Reg. Section 301.6212-2. The NCOA database is the National Change of Address database which is maintained by the United States Postal Service.
It is important that the IRS have your correct last known address because if something is sent to you at that address and you don't receive it, you are still responsible for responding to it.
An inquiry into a taxpayer's last known address is based on all of the relevant facts and circumstances. Generally, the courts will examine what the IRS knew or should have known regarding a taxpayer's last known address at the time the notice was issued. There are many cases decided by the courts, setting out additional rules for determining a taxpayer's last known address. Generally speaking, the IRS is required to exercise "due diligence" in ascertaining a taxpayer's correct last known address. This is especially true where the IRS has been put on notice of an incorrect address because a letter or other document has been returned by the U.S. Postal Service.
For example, it has been held that a power of attorney submitted to the IRS on Form 2848 listing a different address than the one on the most recently filed tax return given IS clear and concise notification of his new address. In the Tax Court's opinion in Hunter v. Commissioner, T.C. Memo. 2004-81 the Court pointed out that the "steady advance of technology" heightened the duties placed on the IRS to update its records for information readily available to it.
Generally, if a notice is not sent to the last known address, it is not valid and the IRS may in some cases be prevented from collecting taxes which otherwise might legally be due. On the other hand, if you receive an IRS notice - even one that was not sent to your last known address - it is not safe to ignore the notice. An IRS notice, such as a Statutory Notice of Deficiency, will be considered valid if it was received by the taxpayer in sufficient time to meet the deadline for responding to the notice.
If you believe that a notice was not sent to you at your last known address, you will have the burden of proving that fact to the IRS or a court.
One of the steps that our tax lawyers take in appropriate cases is to determine whether a notice was sent to the last known address. In one matter, our client told us that he had not received any notice from the IRS before a levy on his bank account. We filed a Freedom of Information Act (FOIA) request and discovered that a proposed assessment of a Trust Fund Recover Penalty (TFRP) notice had been sent to an address which our client had not lived at for some time. Furthermore, we discovered that the Revenue Officer had notes in his file that the mail carrier had informed him that our client had moved from the address in question. Based upon this and other evidence, the IRS Settlement Officer assigned to our client's case agreed that because the notice of proposed assessment had not been sent to our client's last known address, the Trust Fund Recovery Penalty had to be abated.
"FATCA" stands for "Foreign Account Tax Compliance Act" and sets reporting requirements for both foreign financial institutions and U.S. taxpayers who hold certain foreign assets. If your foreign financial institution is located in a country that has an agreement with the United States, then you will be asked whether or not you are a U.S. person for tax purposes. Answering "Yes" to this question will trigger a requirement on behalf of the financial institution to report your account information to the IRS. Answering "No", if in fact that is a false statement, may eventually lead to an IRS prosecution for tax fraud.
By requiring foreign financial institutions to report account information for U.S. taxpayers, the government and the IRS have made it easier to track tax evasion by individuals who are hiding money in foreign bank accounts. In addition, taxpayers must file their own report of their foreign accounts, which is done on Form 8938.
Form 8938 is filed along with your individual tax return. Note that this filing requirement is in addition to any Foreign Bank Account Report (FBAR) filing requirement you may have. The threshold and criteria for filing Form 8938 and FBARs are also different.
While an FBAR filing requirement is triggered if your aggregate account balance exceeds $10,000 at any time of the year, Form 8938 has different threshold amounts depending on your tax filing status and whether you live abroad or in the United States. Even for single taxpayers who live in the U.S., Form 8938 is only required if the value of specified foreign assets exceeds $50,000 on the last day of the tax year, or more than $75,000 at any point during the year. The definition of specified foreign financial assets can be tricky so you should reveal ALL of your foreign assets to your tax preparer so that he or she can decide whether or not it needs to be listed.
Because of the different thresholds and other requirements, you may have to file an FBAR, but not Form 8938. However, you may also need to file both. The penalty for failure to file Form 8938 is $10,000, with an additional penalty of 40% of the tax due on non-reported income attributable to the foreign assets. You may be able to get these penalties waived if you can show that your failure to file was due to reasonable cause.
Offshore disclosure methods, such as Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedures can also be used to come into compliance under FATCA. You should talk to a tax controversy attorney to determine whether you have FATCA or FBAR violations to disclose, or both. You will also need to figure out how many years of non-compliance you need to disclose, along with determining if your failure to report foreign assets will likely be considered willful or non-willful by the IRS.