Like so many other stressors, the thought of taxes can stay conveniently buried. With its abundant amount of legalities—and possibly expensive consequences—knowing when to call in the professionals could be the difference your tax situation needs. But that leaves the daunting question: When do I need to hire a tax attorney?
Bart Saettele, of Paule, Camazine & Blumenthal, says that the need for tax attorneys can broadly be broken into two categories: tax controversies and estate planning. Jim Loranger, of Spencer, Fane, Britt & Browne, echoes similar thoughts. “There’s two ways to look at this: Are you in trouble, and do you need an attorney to help you get out of it? Or, are you about to take some kind of action where if you consult with a tax attorney you can avoid future problems?”
When it comes to tax controversies, Saettele says a combination of issue complexity and dollar amount would determine whether you should hire a tax attorney. “An attorney can help during the beginning phase, which is an audit, or sometimes further along in the process, dealing with the IRS appeals or courts,” he says, noting that the latter is the smaller aspect of his work.
“If you have confidence in the person who prepared your [tax] return, there’s usually no issue with having them just meet with the auditor,” says Loranger, adding that a field audit does not necessarily require an attorney. “If you have pushed the envelope—or you know you have put some false information on your return—I think it’s very important that you engage a tax attorney because if it reaches the point of potential criminal exposure, the communications between the taxpayer and the attorney are protected by the attorney-client privilege—the privilege that the accountant and his client have is much more limited and provides less protection.”
When the other side of tax law is concerned, Saettele explains that trust administration, estate planning and business succession all require tax planning. Loranger gives an example of a family business where one of the children is being brought into the company as an owner. “Typically, the way people do that is through a gift of an ownership interest, and there are all kinds of potential income and gift and estate tax issues that can arise from that. What we see all too often is somebody who tells us, I transferred 45 percent of the company to my son. Are there going to be any tax consequences? Fortunately, the gift tax exclusion is pretty high now, so it doesn’t give rise to the consequences it once did, but you still have to report it, and there are penalties if you don’t.” Similarly, Loranger explains that those starting a new business can benefit from the knowledge a tax attorney brings to the table.
While he says it is less common, Loranger says that “people contact us who want to set up a private foundation or charity—and that is absolutely something that requires the assistance of a tax attorney. There are some fairly confusing procedures that you need to go through in order to get your organization qualified for tax-exempt status, especially if you want to be able to have people make contributions and get a tax deduction for it.”
Loranger notes other instances, such as the sale of a business or death of a family member, that can require or benefit from a tax attorney. “It’s generally a good idea to spend a little money in the front-end, as opposed to finding out a year later that you've a mess that needs to be cleaned up.”