The first step in preparing a strong income tax case is hiring an experienced financial lawyer. Every year on April 15, an individual’s taxes are due to state and federal governments. Income taxes are a percentage of an individual’s earnings. Tax laws vary by state and may be difficult to understand.
The amount of taxes an individual pays is generally their income minus any deductions they are allowed to claim. Taxes are collected by the Internal Revenue Service (IRS).
If an individual receives a notice from the IRS, they should act immediately. If someone receives a notice they do not understand, it is perfectly acceptable to contact an attorney for advice. In fact, that is sound advice in any situation.
In most cases, there are deadlines that may trigger serious consequences if they are not adhered to. An experienced tax attorney will be aware of a taxpayer’s due process rights as well as how to navigate the system. Making the right decisions regarding how a debt to the IRS will affect an individual’s future is no small matter.
An individual will need records supporting their position along with any other relevant documents that support their claim. Tax cases are often complex and require the help of an attorney. Seeking the advice of a professional will give an individual an idea of the strengths and weaknesses of their case.
There are many different types of issues an individual may encounter when dealing with their taxes. These may include:
- Owing back taxes;
- Owing back taxes for multiple years;
- An IRS error regarding the amount owed on a tax return;
- An unaffordable payment; and/or
- A significant life event occuring in the tax year, such as a divorce.
There are certain life events that will affect an individual’s taxes. These include a divorce and/or a bankruptcy. If an individual filed their tax return jointly with their spouse, they are both jointly and severally liable for any back taxes and penalties that arise from a joint return. It does not matter which spouse earned the income when filing jointly, both spouses will still be liable for any back taxes.
There are some exceptions to this, however — a spouse may apply for innocent spouse relief and/or equitable relief if a spouse or former spouse did any of the following:
- Failed to report income;
- Improperly reported income; and/or
- Improperly claimed deductions and/or credits.
Certain facts will matter, such as whether the mistake was solely attributable to the other spouse and if the individual was aware of the issue. It may also matter whether or not the parties were separated at the time the tax return was filed.
Filing for bankruptcy can also affect any back taxes that an individual owes. It is important for an individual to inform their attorney of any pending bankruptcies that have been filed. Filing for Chapter 7 bankruptcy may allow an individual to discharge a personal obligation to pay back taxes, it will not remove any federal tax liens on property.
What Type of Documents and Questions Should I Gather Before I Meet with My Income Tax Lawyer?
It is important to gather all relevant documents prior to a consultation with an attorney. It is better to bring more documents than needed than to not bring what is necessary. If in doubt, bring it.
It is especially important to bring any communications from the IRS so the attorney can understand their case and what deadlines must be met. IRS letters contain valuable information. For example, if they changed something on an individual’s return, it will be listed and comparable with the original tax return. These letters will also contain response dates, which may trigger interest and/or penalty charges if not followed properly.
It is important for an individual to bring their tax return and any documents associated with it. If an individual is surprised by the amount they owe, this may be where the error is found. The attorney will want to review the tax return in comparison with any IRS letters received as well as check the return for errors and/or mistakes.
There may be other factors that explain a discrepancy. These may include:
- Missed deductions and/or credits;
- A significantly different tax situation from the previous year;
- Purchasing a home;
- Opening a small business;
- An honest mistake; and/or
- Some other unforeseen error.
In some cases, an attorney can negotiate with the IRS so an individual may receive an abatement that reduces and/or waives any penalties for an honest mistake.
Other important documents and individual will want to bring include:
- Any documents related to a pending divorce;
- Any documents related to a divorce that occurred that tax year;
- Any documents related to a bankruptcy filing; and/or
- Any other financial documents an individual believes may be relevant.
Taxes are complex and cover multiple areas of an individual’s finances. It is reasonable for an individual to have questions about their taxes. It is important to make a list of these questions prior to a consultation so they can be answered thoroughly.
What Makes a Strong Income Tax Case?
A strong income tax is made by documentation and the help of an attorney. It is important to remember that in most cases, a reasonable negotiation may be reached with the IRS.
If an individual cannot pay the amount they owe, the IRS may permit them to pay using an installment plan. If an individual owes less than $10,000, an installment plan will automatically be approved without any additional information. If an individual owes more than $50,000, the IRS will likely require a financial statement to determine their ability to pay.
This will include information regarding the individual’s:
- Cash flow;
- Assets; and
An attorney may be able to negotiate with the IRS in what is known as an offer in compromise (OIC), which usually settles an individual’s tax liabilities for less than the full amount owed. If an individual can show the payment would cause economic hardship, they are more likely to be approved.
What are Some Dos and Don’ts Income Tax Cases?
Some “do’s” for an income tax case include:
- Do: Keep all correspondence from the IRS. This information is extremely important and provides deadlines and requirements.
- Do: Seek the assistance of an attorney as soon as possible. Deadlines may be approaching an individual is unaware of.
- Do: Gather all documentation you can prior to your consultation. This will allow your attorney to quickly review your case and advise you how to move forward.
Some “don’ts” for an income tax case include:
- Don’t: Lie. Do not omit anything from your tax returns. If you did make an omission or a mistake, inform your attorney so it can be resolved.
- Don’t: Panic. In most cases, an issue with the IRS can be resolved with minimal impact on an individual’s life.
- Don’t: Ignore the IRS. They will not go away. Ignoring the issue will only make it worse.
When Do I Absolutely Need an Income Tax Attorney?
An income tax attorney is needed for any income tax related case. Tax laws and tax returns can be very complex and difficult to navigate. An experienced tax lawyers will understand the processes and requirements involved in working with the IRS. They will be familiar with deadlines and negotiation.
It is important to remember that the IRS is a government entity with a large budget and lawyers on staff who deal with these issues daily. An attorney will fight for your rights and the best possible outcome for your case.