Whether you should consult with a tax lawyer depends on the specific facts relating to your tax audit. However, there are some circumstances where it is vital that you retain the services of a tax lawyer to make strategic decisions and negotiate with the IRS or state tax authority.
Types of Tax Audits
There are many different types of tax audits. You may be facing any of the following types of tax audits:
An Offer in Compromise (OIC) is a program that allows taxpayers to settle their tax debt for a lump sum which is less than the total amount owed. The IRS will look at your ability to pay, income, expenses, and assets to determine how much they are likely to recover from you. If the IRS is convinced that you are offering them more than they can reasonably expect to recover from you, they may accept your OIC to settle your tax debt.
Why the IRS Accepts OICs
There are three reasons that they IRS will consider accepting your OIC. First, if you can show that you do not actually owe the money to the IRS. This is referred to as an offer in compromise based on doubt as to liability.
An employee can be held liable for their employer’s unpaid taxes in certain situations. While most businesses withhold their employees’ income and payroll taxes and then transmit them to the IRS, there are cases where employers either do not withhold taxes or do not give the withheld money to the IRS. Employees need to be aware of their responsibilities as both taxpayers and a person responsible for collecting and paying a business’s income or payroll taxes.
Liability for Employee’s Unpaid Taxes
If your employer fails to withhold income or payroll taxes from your paycheck, you are still responsible for paying these taxes to the IRS. If you do not pay these taxes personally, you may face tax penalties, and you may not be eligible for Social Security, Medicare, or unemployment benefits.
If you have an interest in an offshore bank account or another type of foreign financial account, you may be required to file a yearly report for the account with the Department of Treasury. The penalties for not filing Form FinCEN 114 are costly, and if you have been putting off disclosing your foreign bank accounts to the IRS, you should be aware of the risks you face by continuing to hide your offshore accounts.
Penalties for a Failure to File FBAR
There can be both criminal and civil penalties for failing to satisfy your Foreign Bank Account Reporting (FBAR) requirements. Criminal penalties can include up to 5 years in prison and a $250,000 fine. The willful failure to file FBAR is also a felony that can result in the loss of your right to vote, revocation of professional licenses for attorneys, doctors, and other professionals, and deportation of green card holders.
A sales and use tax audit in California is initiated by the State Board of Equalization (SBE or BOE), and its purpose is to determine whether a business has properly collected sales and use taxes. It will examine if the business has accurately reported gross sales receipts, deductions and business purchases. A sales tax audit will also establish if the business is applying the correct rate of tax on sales of tangible property.
A California tax lawyer will be able to advise you on the types of records you will need to provide at a sales and use tax audit, since the documentation required will vary according to the type of business that is being audited. The records will generally include income statements, tax returns (state and federal), sales tax returns filed with BOE, customer and vendor invoices and resale certificates. Our tax law team can advise you based on your type of business and the nature of the audit exactly what records you will need to produce.
In a sales and use tax audit, your records will be reviewed going back as far as three years, in some cases even longer. One of the factors that can prompt an audit, in fact, is a significant change in figures from one year to the next, so multiple years will be involved in a sales and use tax audit.
It doesn’t necessarily mean you have done anything wrong, but it still is something every taxpayer should be prepared for: notification of an IRS tax audit. Of course the best approach to preparing for a tax audit would be to ensure that your tax filings don’t warrant any undue attention, but that shouldn’t prevent you from taking every deduction to which you are legally entitled. An audit may simply be based on random selection, but that is very rare. The most prudent assumption is that the IRS believes that there may be errors with your return that need to be addressed. If you’ve been selected for a tax audit, here are some of the important steps to take:
Timely filing of IRS tax returns is always preferable to missing deadlines and facing tax return penalties for doing so. Failing to file tax returns leaves you liable for some potentially expensive penalties. Depending on how late, the amount of taxes involved and how many years of returns are delinquent, the consequences can be quite severe.
Here is a look at the penalties for failing to file tax returns:
When faced with tax problems, managing the debt without destroying your budget can be daunting. Depending on how much you owe, it could take years to get out from under the financial burden. The longer it takes, the more penalties you face, including interest and potential tax liens or levied assets.
Fortunately, the IRS offers several programs to ease that burden and in some cases reduce the total amount you will need to repay. These programs have been augmented to provide greater tax relief as part of an IRS policy change known as the Fresh Start Program.
Offers in Compromise (OIC)
Tax laws vary greatly from state to state, and in fact, nine states don’t even charge a state income tax. With such diversity of tax laws, it isn’t feasible for a tax lawyer to be fully versed in the statutes of all the other 41 states. However, federal tax laws apply to all 50 states, and a tax attorney with experience dealing with the IRS may be able to assist you with federal tax problems even if you live or do business in another state.
A California Tax Lawyer for State and Federal Tax Problems
For federal tax problems, it’s important to find an attorney that specializes in tax matters. The United States Tax Court will admit attorneys that are members of the bar in any state or Washington D.C. without requiring an examination. If you have a case before the Tax Court, an attorney from another state can help you if they are admitted to practice before the Tax Court.
Failure to file tax returns can be classified as tax fraud by the IRS. While that term does manage to make it sound much more serious, failure to file by itself doesn’t often result in jail time. Still it’s not impossible—just ask Wesley Snipes! Usually though, the government wants taxpayers earning money so it can collect those taxes. Sending non-payers to prison isn’t going to facilitate that.
The federal or California state government would have to be convinced that your failure to file taxes was intentional before considering something as severe as a jail term. Failure to file over many years, coupled with other bad conduct such as hiding assets, for example, could be subject to criminal penalties including imprisonment and/or fines. In lesser cases, you are more likely going to be liable for back taxes and civil penalties, plus interest.
Failure to File Tax Returns and Failure to Pay
Tax Problem Attorney Blog
