What Should You Pay for a Tax Attorney?
When facing a tax problem, one of the first questions that comes to mind is simple: How much is this going to cost me?
The truth is, there’s no one-size-fits-all answer. The cost of hiring a tax attorney depends on the size of your liability, the complexity of your case, and how far the government decides to dig.
When You Might Not Need a Tax Attorney
If your liability is relatively small, say $5,000 to $10,000, you may not need an attorney at all.
Why a CPA May Be Enough
In these situations, a CPA or another tax professional could handle the issue at a lower cost. Your liability is essentially capped, so paying for an attorney may not add significant value.
When an Attorney Becomes Essential
The equation changes when your liability grows or when your case becomes more complex.
Contractor Audits as an Example
In an EDD audit, the number of contractors you have matters. Two contractors might require minimal research, while ten or fifteen can demand extensive work to prove they are legitimate independent contractors. Larger cases require more time and resources, which naturally leads to higher costs.
Expanding Scope of Audits
The scope of your audit can also change dramatically. A case that starts with three years of returns could expand to eight years. A liability that looks like $30,000 could turn into $400,000. An experienced tax attorney can anticipate these red flags and prepare you for them.
Why Flat Fees Can Be Risky
Flat fees may sound appealing, but they often create problems. Many clients have come to us after paying a flat fee to another professional who underestimated the complexity of their case.
The Flat Fee Trap
Once that professional realizes the case requires more time than they accounted for, their willingness to help dwindles. In the worst cases, clients are left with unresolved audits and higher liabilities.
What Experience Delivers
With over 200 EDD cases and more than 600 IRS audits, both civil and criminal, Milikowsky Tax Law has developed a workflow designed to reduce liability and resolve cases as efficiently as possible.
Our goal isn’t to scare you. It’s to give you raw facts so you can decide whether hiring a tax attorney is worth the investment.
How much you should you pay for a tax attorney depends on the issue you’re facing. If you’re a business owner, you can expect to pay a little bit more because these cases tend to have more complicated issues. Sometimes, cases can cost $2,000 to $3,000, but it depends on the complexity of the case itself.
What type of Business Entity is being Audited?
A sole proprietor receiving a letter from the IRS two years after filing a return may be able to work with their CPA, instead of a tax attorney. However, it depends on the amount of tax liability. If the potential tax liability is not more than $40,000, it makes more sense to try to resolve it with your CPA first.
There can be a lot of tax legal issues that come along with an IRS audit, but if it’s simple enough, your CPA should be able to resolve it. At Milikowsky Tax Law, we work with a lot of CPAs for these types of cases. Many times, the CPA may do the majority of the work, and we provide the legal support, depending upon the technicality of the issue.
Case Study
Recently, we worked with a client, let’s call her Sandy, who worked as a W-2 employee in a hospital and also claimed to own a business. On that business, the client reported $100,000 of gross income and about $250,000 of expenses. Resulting in claiming a loss of $150,000.
After filing these taxes, the IRS sent the client a letter explaining they didn’t believe the return and requested an interview. Sandy brought the letter to our office before she became a client asking for our help.
During our conversation, I asked her what exactly she did for work because the claim reported her business as telephony, and that she is a W-2 employee at a health organization. Neither form of employment is related to each other.
Sandy explained she invested some money in a foreign country with a man who she didn’t know too well. He would tell her that she made $100,000 in a year but would ask her to wire money to him for expenses. He explained, “we spent $250,000 so you owe me $150,000”
When IRS reviewed her filings, the agency wondered how the client was losing money every year working in telephony. Upon speaking with the IRS agent, our firm’s biggest concern became the 15-year history of tax filings reporting a loss of money. The client essentially zeroed out her taxes through her paychecks.
What appeared to be a very simple issue in the beginning, with not a lot of value, became a bigger concern as we uncovered its complexities with the IRS agent assigned to her case, who we’ve worked with numerous times on these types of cases.
When Should I Hire a Tax Attorney?
When looking to hire a tax attorney, it’s beneficial to call the attorney to receive initial ideas and suggestions. Any attorney who is worth their weight in gold can talk through the issues quickly, and maybe even look through your return.
Our office can assess a case in about five minutes and let potential clients know if their case is one that needs the support of an attorney, or if their CPA can handle the case instead.
See the top questions to ask when interviewing attorneys
Important factors to consider for potential clients before hiring an attorney are:
- Do you understand what documents the IRS are looking for?
- What are the claims?
- What are the issues?
- What years are IRS auditing?
More simple cases include a person facing an audit who failed to report income from a distribution. In these cases, the person facing the audit will most likely pay the additional taxes required. An attorney may be able to help waive the penalty if it’s high enough, but that would be found upon an initial assessment with the attorney.
Keep in mind the fees you, as a potential client, are willing to pay an attorney in addition to audit finding fees or penalties owed. The goal of hiring an attorney is to hopefully pay much less, a fraction of what you could potentially owe, and get a result. Remember that attorneys are not able to guarantee results, however, anybody with significant experience will be able to tell you the likelihood of success.
Questions about the IRS?
IRS performs audits randomly and also when flagged through tax filings. They require important documentation, organization, and meetings with the IRS auditor.
Read our article that answers the most common IRS audit questions here.
Tax Attorney Costs: The Takeaway
The cost of a tax attorney varies. It depends on the facts of your case, the potential liability, and how complex the audit becomes. What you’re really paying for is experience, strategy, and the ability to reduce your liability as quickly as possible.
