How To Hire a Tax Attorney

Make sure you select an attorney who is willing to invest time talking with you to understand your case and see if they can help you.  You want to select an attorney that wants to confirm he or she can provide value.  You are looking for a good fit.  You are interviewing the attorney and the attorney is also interviewing you.  It’s not one-sided. 

Here are five questions to ask when selecting an attorney.  

This list does not include all the questions you should ask but it provides a good starting point:

Before asking your questions, make sure to clearly describe your legal situation.  Summarize your legal issue and provide enough facts for the attorney to analyze your situation.  For instance, if you receive a letter from IRS about an audit, state, “I have an IRS audit“.  It’s really helpful to give dates – when did you receive the letter; what tax year is involved; when did the auditor call you; and when did you start your business?

You may also want to do a little research about your issue so your discussion with your attorney will provide more focus.  You will get better answers to help select an attorney.

Question – #1: Attorney’s Experience in handling cases involving your issue? 

  • In our prior example, if you received an IRS audit letter, you would ask “Do you handle IRS audits?
  • You will want to dig into the attorney’s experience in handling similar matters.
  • Ask how many prior audits the attorney has completed and how recently?

Question #2: Estimated time to complete your case?

  • How long should your case take?
  • If you have an IRS audit, or a government investigation, the time can vary depending on:
  1. Who the auditor is: Some auditors are more efficient than other government auditors.
  2. The agency conducting the audit: IRS or State of California? In CA, EDD audits take between 3 to 6 mos. while sales tax cases with CDTFA can last 6 mos. to 1 year.
  3. The issues involved in your audit: Business audits typically take longer to complete than audits of individuals.  If you have more than one business then the time to complete your audit could be much longer.  
  4. Whether the case is a criminal versus a civil investigation.
  5. How complete your records are: For businesses, good records include bank statements, cancelled checks, invoices, accurate financial statements (GL, P&L, balance sheet), and other transactional documents.

Question # 3: Risks and Benefits

  • What are the chances of success for your case?  Please understand it may be very difficult for an attorney to provide an approximate outcome for your case.  However, sometimes attorneys can provide a spectrum of likely outcomes, but never a guarantee.
  • For audits, an attorney may be able to review your business and personal tax returns and financials and provide key insights to clarify issues – such as expenses on your tax return that appear suspect, income that may appear extremely low, or other issues that you may not be aware of.
  • The attorney can also examine your IRS letter and may be able to provide additional insight into issues IRS may initially identify or from the types of questions and information IRS is requesting.
  • In summary, you want to see if the attorney can provide some clarity into a best case and worst case outcome.
  • A common question I get from new clients is: will the government be suspicious if I hire an attorney?  Will they think I am hiding something or that there is a bigger problem than the government initially suspected?  Most of the time, the answer is no.  Government auditors prefer to work with an experienced attorney who understands the rules and knows specifically what information to provide the government.  Hiring an experienced attorney will help keep the case on track and expedite an audit or final outcome.

Strategy:

  • Ask your attorney to provide a general strategy to resolving your case. 
  • Dig a bit into:
  1. Obstacles the attorney can identify.
  2. What possible strategies do they have to get around these obstacles?
  3. What would be the first couple of steps they plan to take?

Question #4: Who will be working on your case?

  • Will the attorney you are talking to now be the attorney handling your case?  Law firms may have more than one person working on your case.  This can reduce your cost when a paralegal is working on your case and that person has a lower hourly rate.

Question #5: Cost

  • Will the attorney bill you hourly, flat fee, or a contingency?  In some states, attorneys are prohibited from taking certain types of cases on a contingency.  i.e. tax cases, criminal, or family law matters.
  • Contingency fees mean you will pay the lawyer a certain percentage of the money you receive if you win the case or settle the matter out of court. If you lose your case, the lawyer does not receive any payment from you.
  • Fixed fees are commonly used for routine legal matters, such as preparing a simple will. Before agreeing to a fixed fee, find out what it does and does not include, and if any other charges may be added to the bill.
  • Cost is always a difficult question.  It may not be possible to get a specific dollar amount.  However, you may be able to get a range.  Please understand attorneys may provide an estimated cost range for legal fees, but that the range is truly an estimate that can change.  As new facts are discovered, and issues are identified, the case can easily become more complex than the attorney and client originally understood.  
  • At the beginning of every case, attorneys may not have all the necessary information to assess your case.  Important facts may not be uncovered until several months into a case.  For instance, in an IRS audit, an attorney may not know about several large deposits that were not included in the total income you reported on your tax return or missing 1099 forms that were never filed.  There will usually be new facts discovered as the attorney conducts their analysis and legal research and after meeting with the government auditor.
  • To help you better manage your case, ASK your attorney if they can provide you with a mid-month billing update for legal fees.  This will make it easier for you to budget.  If your case requires a lot of work during the month, you can ask the attorney to provide the amount of billed legal fees during the month to prevent surprises of a large legal bill. 

If you have not found an attorney, you can contact your local “Bar Association” in your city.  For instance, if you are in San Diego, you would do a google search for “San Diego County Bar association.”  Each Bar Association will have a “Lawyer Referral Service” you can call to get a free referral to an attorney based on your legal matter.

What should you pay for an attorney?

How much should you pay for a tax attorney? It 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.

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.

Now, 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 do 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.

Who needs a tax attorney?

In addition to business owners facing IRS or EDD audits, CPAs need a good tax attorney to partner with

CPAs: Building Mutually Beneficial Relationships with Tax Attorneys

Reaching out to tax attorneys in your area to get to know them better. You may have access to attend and participate in networking events in your area or you can utilize your personal agenda to solicit tax advice for your own needs. Share your thoughts and values to see if you think someone will make a strong partner.

It’s easier to work with people you know, so it’s worth your while to invest time into building a relationship. If you’re willing to put in the effort to find the right partner, you may end up finding a tax attorney whose perspective and working style fit with yours.

Be Transparent

Honesty is one of the most important building blocks when forming a mutually beneficial partnership. No partner wants to be left in the dark, and neither do you. You should ensure that you are as transparent as possible and practice clear communication from the start. Doing so will ensure you both have a clear understanding of the partnership at any given point.

Be honest with the boundaries you’d like to set for the professional relationship, what you expect from them, and what they can expect from you.

Share Your Expertise

CPAs may have a broader understanding of tax filings specifically, but tax attorneys have a stronger background in legal matters and how to support their clients in the event of an audit of the tax filings their CPA prepared. Be generous with your expertise and share your knowledge with the partners you engage with. It will help them understand your role more clearly, and better identify whether or not to refer a potential client to you.

Explain the characteristics and needs of your ideal client to help them find referrals, and ask them for the same so you can identify when to refer a client to them. When you have a good understanding of a tax attorney’s expertise, and they have a good understanding of yours, your clients will get better service on both ends.

Refer Clients to Your Network

Once you’ve started building a network of tax attorneys that you know and trust, start referring clients to the ones that are best suited to their needs. This might involve a little professional matchmaking, and your recommendations should be based on the client’s best interests. Don’t be afraid to give the tax attorney a heads-up that you’re sending someone their way. Before you know it, they’ll likely be doing the same for you.

Stay On The Same Page

Whenever you’re working with another professional, it’s important that everyone is on the same page. Ensure that you secure your client’s consent to release their information, to ensure that any requests for records and paperwork are processed quickly and smoothly.

Whether you want your clients to experience more robust service, or you have specific legal concerns about a client and want to make sure you’re protected, partnering with a tax attorney is one of the best ways CPAs can serve their clients. It’s the kind of partnership that’s greater than the sum of its parts and has long-lasting benefits for everyone involved.