Tax Law

Tax Laws: When You Need a Lawyer

When is it wise to consult with a tax lawyer? Any time you have a question about income, estate, sales and any other excise taxes.

And why should you contact a tax lawyer rather than an accountant? Because while accountants follow the IRS and state tax guidelines, a tax attorney has experience in resolving what can become very difficult legal issues regarding how to treat items on a tax return–or how to deal with the financial and legal implications of late or inaccurate returns, or when returns were never filed. An attorney is the only person in this equation that will work with the goal of servicing your best interests.

Above all, if a tax lawyer is engaged to prepare the tax return, the taxpayer gains continuity of representation. The taxpayer will not be shuttled off to others if the tax authority issues a notice and demand, or an audit notice or any other correspondence that may require an amount of advocacy regarding the tax authority.

Contact a Tax Attorney During and Prior to Tax Return Preparation

When an accountant prepares a tax return, it is as if the Internal Revenue Service is doing so (meaning that many tax income and deduction items that could save a taxpayer money but are not clear-cut as to taxability, are reported by the accountant with a bias for the Internal Revenue Service and not the taxpayer). Tax lawyers will treat the very same items with a bias in favor of the taxpayer, not the Internal Revenue Service. Accountants cannot practice law–but tax lawyers have advanced degrees in tax law in particular, as well as their law degrees and licenses, and solid experience in litigation.

Contact a Tax Attorney After Filing Tax Returns 

  • If you are not sure you agree with your accountant.

If an accountant has prepared a tax return and not sufficiently explained taxation of certain items, or, has treated items such that you disagree with the treatment, it is time to receive an opinion from a tax lawyer. Typically changes can be made with an amended tax return as long as it is filed within 3 years of filing the original return.  

  • If the IRS or Maine State Revenue Service disagrees with what you filed.

If you receive notice from federal or state tax authorities that there is a problem with your return, or that a tax is being assessed for a year in which a tax return was not filed, consult a tax attorney immediately! Getting this handled quickly is important. The law allows taxpayers only a limited period of time to arguer the facts and law regarding tax authority changes. If you wait too long, our opportunity is gone.

  • If you receive notice of an audit.

An audit notice typically means that there exists one or more items on a filed tax return that, based on a complex statistical analysis, are not within a federal or state tax authority’s pre-determined “mean.”  While a “no change” audit, where the tax authority makes no change to your return at the conclusion of an audit, is infrequent, an audit notice does not mean that the authorities have already decided that your tax return was incorrect. It is like a subpoena–the tax authority is simply requesting proof or supporting documentation for whatever audit items triggered the notice. A tax lawyer can intercede between the taxpayer and the tax authority allowing the client to concentrate on other important matters (functioning in her/his employment or running her/his business). 

Contact An Attorney Immediately If Your Account Goes Into Collections!

If you receive a “CP” Letter Notice from the Internal Revenue Service or a “Billing Notice #...” from the State of Maine or other state tax agency it means the argument about whether or what you owe is over, and now the question is when and how you will pay.

Generally, the tax authorities have several years in which to collect the tax debt by any legal means. These means include filing liens against personal property and real estate, seizing the property impressed with a lien, taking some or all of a taxpayer’s wages and other income, and her/his bank accounts, pension accounts, and other retirement accounts, with some exceptions. Seizure/levy notices from most tax authorities are sent “certified mail return receipt requested.” Resolving these issues successfully will require familiarity of the law under some combination of legal areas, such as the laws regarding liens, the mechanics of the registries of deeds, the workings of the secretaries of states offices, and the various uniform commercial codes.

Finally, Contact a Tax Attorney When Your Accountant or Tax Preparer Files an Incorrect Tax Return or Otherwise Acts Improperly

To error is human. Certified public accountants generally have professional liability insurance to pay for their errors. (This may not be the case with non-certified public accountants, enrolled agents, and general tax preparers.) The procurement of liability insurance is an admission that errors, alleged and actual, may occur in the professional practice. If a taxpayer has been economically harmed by an accountant’s error, a tax lawyer should be immediately consulted. In accountant/tax preparer malpractice matters, the time period in which a lawsuit can be commenced to seek recoupment is a major issue. Generally, the lawsuit is an action for breach of contract and for negligence, and the limitation period in most cases is 6 years for a tort (negligence in the preparation of the taxes) and less than that period for breaches of the contract between the client and the accountant.

Tax issues are better headed off and avoided ahead of time, than repaired afterwards. Consider consulting a tax attorney for any but the simplest of tax returns–and always as soon as any problem is identified.

Legal Terms Related to Tax Law

Note: These definitions are stated generally for information purposes only. There are several distinctions, exclusions and exemptions applicable to the stated definitions pursuant to the Internal Revenue Code.

Audit: Formal examination of a taxpayer’s books and records to determine compliance with the tax codes.

Cash: Includes any equivalent, including foreign currency, bearer obligations and any medium of exchange.

Compensation: Any form of remuneration paid for services.

Deficiency: The amount of tax that according to the tax authorities that should have been reported by a taxpayer, that exceed, the tax reported on the taxpayer’s tax return.

Dependent: A child or descendant of a child (or a brother, sister, step brother, or stepsister of the taxpayer or a descendant of such relative) under the age of 19 (or under 24 if a student) for whom the taxpayer provides one-half of the annual support OR a qualifying relative whose income is less than the annual exemption amount.

Exemption Amount: The amount allowed each year, adjusted for inflation, as a reduction in adjusted gross income reportable on a tax return; for tax years ending December 31, 2013 the amount is $3,900 for personal exemptions (subject to a phase out for high-earning taxpayers).

Jeopardy Assessment: The legal means by which tax authorities may immediately assess tax and seize assets upon a belief that the taxpayer is leaving the United States (or a state), or seeking to hide assets, or doing any other act that would impede collection of tax allegedly due.

Lien: A charge on either all of or on specific taxpayer property (real estate, personal property, tangible property and intangible (stocks, promissory notes, inheritances, etc.) including property acquired after the existence of the lien and rights to property imposed by the tax authority to secure tax allegedly due.

Levy: The power of the tax authorities to seize property by any lawful means.

Notice and Demand: The communication from the tax authorities generally required within 60 days of making an assessment of additional tax to give notice stating the amount of tax due and demanding payment thereof.

Penalties. Action of the tax authorities to increase the debt of a taxpayer for certain actions taken or not taken (failure to file a tax return, failure to pay tax and/or estimated tax, filing of a “frivolous” tax return, substantial understatement of tax due or of the valuation of an asset the transfer of which is reportable on a tax return, engaging and reporting a transaction that lacks “economic substance,” failure to accurately report a transaction involving a foreign asset. 

Power of Attorney (Tax): A taxpayer’s designation and written authorization to have Another individual/entity represent the taxpayer’s interests in dealings with the tax authorities. 

Resident Alien: A non-U.S. citizen treated as a resident (generally holder of a green card and lawfully admitted. 

S Corporation: A corporation organized under the laws of a state with less than 100 shareholders (none of which may be non-resident aliens) and one class of stock. 

Statute of Limitations (for assessment and collection): The period for which the tax authorities may assess additional tax or collect tax due (generally, tax must be assessed within 3 years of filing the tax return and collected within 10 years of the assessment). 

Taxpayer Bill of Rights: Legal requirement stating that the Internal Revenue Service must provide every taxpayer being audited with details regarding the taxpayer’s rights and the Internal Revenue Service’s obligations during an audit, appeals, and refund and collection processes 

Third Party Summons: Issuance by a tax authority of legal process requiring a third party recordkeeper (attorneys, enrolled agents, banks, brokers, accounts, etc.) and other parties for the production of records concerning the business transactions or affairs of a taxpayer. 

Wages: All remuneration from employment including cash and the cash value of remuneration (benefits) paid in any medium. 

For a Maine or Federal Tax Law Attorney

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This is for general information only. It is not intended as legal advice.