When Should a Tax Professional Consult a Lawyer?
Tax professionals such as Certified Public Accountants (CPAs), Enrolled Agents (EAs), and tax preparers are highly skilled in managing clients’ financial records and ensuring compliance with tax regulations. However, there are scenarios where even the most seasoned tax professionals encounter legal complexities that require the guidance of an experienced tax attorney. Understanding when to bring in legal counsel can protect both the client and the tax professional, while also facilitating more strategic, legally sound solutions.
This article explores the key circumstances when a tax professional should consult with a tax lawyer, with specific consideration for practitioners in Temecula, San Diego, Riverside, San Bernardino, and throughout California.
The Distinction Between Tax Professionals and Tax Lawyers
While CPAs and EAs are experts in tax preparation, planning, and compliance, they do not have the legal training required to interpret complex tax law, represent clients in tax court, or handle criminal tax investigations. Tax attorneys are licensed legal professionals who specialize in resolving high-stakes disputes with the IRS and other tax authorities.
Key Differences:
- Legal Representation: Only tax attorneys can represent clients in U.S. Tax Court.
- Attorney-Client Privilege: Communications with tax lawyers are protected, which can be critical during audits or investigations.
- Litigation Experience: Lawyers are trained to handle disputes, appeals, and court proceedings.
Situations That Warrant Legal Involvement
1. IRS Audits and Appeals
When a client receives notice of an IRS audit, especially for complex matters like business expenses, offshore accounts, or suspected fraud, legal representation becomes essential. A tax attorney ensures that the client’s rights are protected and can challenge findings through formal appeals.
Learn more about IRS Audit Representation.
2. Criminal Tax Investigations
If a tax professional suspects that a client may be the subject of a criminal tax investigation, such as willful evasion or fraud, consulting an attorney immediately is critical. Legal counsel can manage communications with the IRS Criminal Investigation Division and provide a defense strategy.
3. Offer in Compromise and Tax Settlements
Complex settlement options like Offers in Compromise (OIC) or Partial Payment Installment Agreements often require legal argumentation and detailed financial disclosures. A tax attorney can increase the likelihood of acceptance by ensuring the submission meets IRS legal standards.
Read about Offer in Compromise services.
4. Tax Court and Litigation
When a dispute escalates to U.S. Tax Court, tax professionals must refer clients to a lawyer. Attorneys can file petitions, present evidence, and argue on the client’s behalf.
5. Unfiled Returns and Back Taxes
Clients with years of unfiled returns or substantial back taxes may face enforcement actions such as liens or levies. Legal representation can facilitate a structured resolution and prevent aggressive IRS action.
Explore Back Tax Representation options.
6. Foreign Accounts and FATCA Compliance
Failure to disclose offshore assets can trigger serious penalties under FBAR and FATCA regulations. A tax attorney ensures full compliance and handles voluntary disclosures.
See how we help with FBAR and FATCA Compliance.
7. Business Structuring and Tax Planning
When a client is forming a business, merging entities, or planning a tax-efficient exit strategy, legal advice can help minimize liability and ensure compliance with California and federal laws.
Visit our Business Planning page.
The Benefits of Collaboration
- Safeguard Client Interests: Legal issues are handled thoroughly while financial reporting remains accurate.
- Enhance Compliance: Reduce the risk of audits or penalties.
- Protect the Professional: Reduce the risk of liability or allegations of unauthorized practice of law.
FAQs
Can a CPA handle an IRS audit without a lawyer?
Yes, but if the audit is complex or hints at potential fraud, involving a lawyer is wise.
What if a client confesses illegal activity?
Only attorneys offer attorney-client privilege. Tax professionals should recommend the client consult a lawyer immediately.
Is it expensive to involve a tax attorney?
Not necessarily. Early legal involvement can reduce penalties, avoid litigation, and lead to more favorable resolutions, often saving money in the long run.
Know When to Call In Legal Backup
Tax professionals serve an invaluable role, but there are limits to what they can ethically and effectively handle. When legal questions arise, collaborating with a tax attorney can protect both the client and the preparer.
The Law Office of Pietro Canestrelli, A.P.C. offers legal support to tax professionals and their clients across Temecula, San Diego, Riverside, San Bernardino, and beyond. Whether you need help with an audit, a tax court case, or IRS negotiations, we’re here to assist.
