Tax controversies can occur with basically any aspect of taxation. It doesn’t matter whether you’re a for-profit business, nonprofit organization, estate, trust, or simply an individual in the US. You might be the subject of a controversy because of income taxes, sales taxes, employment taxes, estate taxes, gift taxes, or any other taxable area.
There are two main types of tax controversy: criminal and civil. These both have very different processes for prosecution, although they can occur simultaneously. An experienced tax lawyer will understand how to approach investigations at both the civil and criminal level. They can help you assess your options.
Civil matters might not come with the risk of criminal penalties, but they can be overwhelming. On top of being charged with back taxes and interest, you might need to pay a substantial percentage of your owed taxes as a penalty. And that’s without counting any fines you might be given on top of that.
In addition, the judicial process is exhausting. Most people don’t have the expertise to understand where to find resources. They don’t know what petitions to file, and appearing at hearings can eat up precious time. Many people choose to accept civil tax controversies without making any effort to reduce their judgment, because they believe that doing so will cost less than fighting.
An attorney will explain the tax laws that are in play during a civil proceeding. They will speak to IRS agents for you so that you don’t potentially incriminate yourself. If you are the subject of an audit, they will help you strategize for how to put together all the necessary paperwork to prove your tax liability. Following a civil judgment, if the outcome isn’t in your favor, your attorney can file appeals at the judicial and administrative level.
If you do get to the point where you’re involved in litigation, your attorney will represent you in court. This option is typically only taken when every other avenue has been exhausted. Depending on the circumstances surrounding your case, your civil tax attorney might be the main person responsible for your tax judgment, or they might just work with your accountant to make the best tax decisions for your future legal health.
With civil proceedings, you’ll usually be subject to an audit first. Once all the materials are collected, the tax authority will assess whether there’s sufficient evidence that you have underpaid your taxes. They will then engage in collection proceedings to obtain the taxes you owe, interest payments, and penalties.
Some tax controversies are begun by the taxpayer instead. If you believe that you are owed a tax refund that the IRS says you don’t qualify for, you can start an appeal process. This might take a while, and it might also get to the point of needing litigation through the US Tax Court. If you’re dealing with local or state taxes and have your case overturned by a local court, you might be able to appeal it federally.
International tax attorneys specialize in international tax laws. For those who are dealing with an international tax controversy, it’s essential to work with an international attorney. They will have important knowledge regarding how to work with the authorities in the other countries, and they might be able to level unique tax strategies on your behalf. For example, they might make a request for an advanced ruling to make sure that you are protected from penalties and know for certain how much you need to pay.
If there are problems with taxes in relation to a foreign treaty, your attorney might file an appropriate request with the other country’s authorities. They can also take preemptive action to prevent potential controversies from arising. For example, they might ask the other country to level advanced prices to make sure there aren’t problems when currency fluctuates. They might also help you get involved in a voluntary disclosure program so you can reduce or prevent the incursion of tax penalties.
Criminal controversies occur when a person is accused of willfully evading taxes. There are a lot of ways that you might do this. Most commonly, people fail to report all of their income, or they try to claim exemptions that they don’t actually qualify for.
In order to be convicted of criminal tax issues, the IRS or state tax authority has to prove that you knew you were evading your taxes and willfully did so anyway. The IRS only starts proceedings against people when they’ve gathered so much evidence that they’re virtually guaranteed of a conviction. Since the conviction rate is so high, it’s even more important that you have the guidance of a lawyer.
If you’re contacted by a federal tax agent, even if you’re not sure whether you’re under investigation, it’s time to consult a lawyer.