There might come a time when you need to hire a business tax attorney. An experienced business tax attorney can help you structure your company, dispute legal challenges involving taxes, and more.
Do you need to hire a tax lawyer for your business? Learn what tax attorneys do, when hiring one makes sense, and more.
Table of Contents
What do business tax attorneys do?
Tax attorneys are experienced in legal issues involving taxes, including tax debt resolution with the IRS and tax law compliance.
Business tax attorneys can:
- Negotiate with the IRS and other tax agencies
- Represent your business in court over a tax-related issue
- Offer tax planning advice
- Structure your business (e.g., LLC formation)
- Help you understand tax laws
- Create legal documents, like operating agreements, to minimize taxes
- Advise you on commercial transactions to minimize taxes
Tax lawyers must undergo continuing legal education (CLE) to stay up-to-date on tax compliance.
Keep in mind: When you work with a tax lawyer, you are protected by attorney-client privilege. Attorney-client privilege ensures your communications with your lawyer are confidential.
Business tax lawyer vs. CPA
So, what’s the difference between a tax attorney and a CPA? CPAs and lawyers are highly accredited professionals who must pass a licensure exam and receive ongoing education to maintain their licenses.
Although both deal with tax-related issues, tax attorneys and CPAs differ in what they do for your business.
A CPA, or certified public accountant, is an expert in accounting and tax preparation. CPAs can review your books, prepare tax returns, analyze your financial statements, and perform more accounting-related tasks. You might consult a CPA to help you lower your tax liability through credits and deductions.
A tax attorney is an expert in legal disputes, precedents, and tax laws. Lawyers can defend your business and protect your assets in a tax dispute or lawsuit. You might consult a lawyer if your business is in trouble with the IRS. Lawyers can represent you in court—CPAs cannot.
| Business Tax Attorney | Certified Public Accountant | |
|---|---|---|
| Exam for Licensure | Bar exam | CPA exam |
| Ongoing Education | Continuing legal education (CLE) | Continuing professional education (CPE) |
| Specialties | Law: legal disputes, tax laws | Financials: accounting, tax preparation |
The bottom line: You may work with a small business accountant regularly (e.g., preparing your business tax return each year). You may need to work with a lawyer only if specific situations arise (e.g., an IRS tax dispute).
When to hire a business tax attorney
Many situations may require you to work with a tax lawyer. So, do you need a tax lawyer for your small business?
To find out, I spoke with Jonathan P. Blakely Esq. Blakely is a lawyer with 34 years of experience representing businesses and their owners in business formation, transactions, tax, sales and purchases, financial, real estate, and litigation issues.
According to Blakely, “A good tax attorney can save a business, a deal, jobs, and protect assets.” In his experience, here are some situations you may want to hire a business tax attorney:
1. Disputed tax liability
At some point, the IRS or a state or local tax agency may assess a tax liability with which you disagree. When this happens, you can hire a business lawyer to dispute the tax liability.
“The government will often overestimate tax liability when returns are not filed—this is to get the business owner’s attention. A tax attorney working with an accountant can help substantially correct these inflated assessments and can save a business owner a portion or all of the tax in some cases. Penalties and interest can also be avoided in many cases with the right advice.” —Jonathan P. Blakely
2. Settlement of tax liability
You may be able to settle your tax debt with the IRS for less than what you owe if you can’t pay. A tax liability settlement is known as an offer in compromise.
You must meet the requirements to qualify for an offer in compromise. For example, you cannot be in an open bankruptcy proceeding. The IRS will consider your circumstances, such as your ability to pay, income, expenses, asset equity, and age.
A tax attorney can help you apply for an offer in compromise and set up installment agreements with the IRS (or even stop collection activity).
3. Personal liability
Structuring your business as an LLC or corporation offers liability protection, which generally protects personal assets. However, there are situations where you may be liable for business taxes.
You can consult a business tax attorney if you are personally liable for business debts.
“Some business taxes impose personal liability for owners who do not pay them (i.e., “trust fund taxes”). These include employee withholding taxes (i.e., the employer matching portion of Social Security tax) and sales taxes. Many owners are surprised when the IRS files liens and takes collection action against them for unpaid taxes they thought only the business (corporation, LLC) was responsible for. Knowing what taxes also impose personal liability on business owners can help make sure they get paid ahead of other obligations businesses might normally want to pay first.” —Jonathan P. Blakely
4. Stale tax liability
Did you know there is a “Collection Statute Expiration Date (CSED)” on taxes? A business tax attorney can help you navigate tax collection attempts and determine if you’ve reached the statute of limitation.
“The IRS has a 10-year statute of limitation in collecting taxes. There are many options to prevent the IRS or other taxing authorities from seizing assets, shutting down a business, or overcharging a business for taxes it does not owe.” —Jonathan P. Blakely
5. Investment decisions
A business investment is an important decision that can help your business grow. Generally, you can also take advantage of tax deductions when you invest. But not all investment opportunities are worth your time. An attorney can help you weed out the legitimate investments from the scams.
“Many potential investments promise huge tax benefits. Consult a tax attorney before purchasing those. If it sounds too good to be true, it usually is. Some investment products and scams target business owners and persuade them to invest in a financial product. They have sophisticated marketing and seminar presentations that can be very persuasive. Many successful business owners can end up owing tens and hundreds of thousands of dollars in improperly claimed deductions, even when an accountant is involved.” —Jonathan P. Blakely
6. Selling a business
Are you thinking about selling your business? A tax attorney can help you through this process, which can be overwhelming for business owners.
“Selling a business can trigger tax liability. Also, depending on how the sale is structured and what taxes are owed at the time of sale, the IRS or other taxing authority could try to impose liability on the buying company for the selling company’s taxes.” —Jonathan P. Blakely
7. Structuring a business
When you first start a venture, you need to choose your business structure. Some structures (e.g., sole proprietorships) are easy to form, while others (e.g., corporations) can get complicated.
Generally, you can consult an accountant or business tax attorney to help you structure your company.
“Accountants can do a lot of this, but you may want a tax attorney depending on the anticipated complexity of the business organization. For example, if you plan on having lots of employees or multiple owners.” —Jonathan P. Blakely
How much do business tax lawyers charge?
A lawyer’s hourly rate can range from $100 per hour to over $500. How much a business tax attorney charges depends on several factors, such as their location and experience, as well as the service they provide.
Most lawyers charge an hourly rate. However, some may charge a flat fee, especially for straightforward services like LLC formation or wills. In most cases, an attorney first collects a retainer, aka an upfront fee to secure their services.
How to find the right tax attorney for your business
Need to hire a tax lawyer for your small business? The person you hire matters, both in their ability to settle your dispute—and how much they’ll charge doing it.
When searching for a tax lawyer, look for the following:
- Law license in your state
- Experience and education
- Cost*
*Keep in mind that a lower hourly rate isn’t necessarily better. It may indicate that the lawyer has less experience. It may take the less-expensive lawyer more hours to work on your case than a lawyer with a higher hourly rate.
You can look for reviews to learn more about others’ experiences with the lawyer or law firm. Set up a consultation and be upfront about what your business needs.
Final thoughts
Not every business needs a tax attorney. You may need a lawyer for tax-related legal matters, like settling IRS disputes, establishing your tax structure, and reducing penalties and interest. Unlike a CPA, who specializes in accounting and tax preparation, a lawyer specializes in legal disputes and tax law.
Most attorneys charge an hourly rate, which can vary based on their experience, location, and the complexity of the situation. Look for a lawyer whose license is renewed and up-to-date in your state.
If you need a lawyer for your business, don’t panic. Find a lawyer who specializes in your situation, read reviews, and leave the heavy lifting to them.
Be prepared for anything with accurate and up-to-date accounting books. Patriot’s online accounting software makes it easy to track income and expenses, generate financial reports, and share your records with your accountant or business tax attorney.
This is not intended as legal advice; for more information, please click here.
