Table of Contents
1. What's the difference between a tax lawyer and a CPA?
A tax lawyer and a Certified Public Accountant (CPA) serve fundamentally different roles. A tax lawyer is a licensed attorney who specializes in taxation law. Additionally, a tax lawyer may focus on particular issues, such as tax controversies or corporate tax law. As an attorney, they can represent you in proceedings and appear in court on your behalf.
By contrast, a CPA is an accountant. CPAs receive training in tax preparation, accountancy, bookkeeping, and other day-to-day issues relating to tax filing. However, they are not experts in the relevant law.
2. What's the difference between a tax attorney and an enrolled agent?
An enrolled agent is a federally-credentialed tax practitioner who can prepare tax filings and is authorized to represent taxpayers regarding issues before the IRS. A tax attorney is a lawyer licensed by the relevant state and federal authorities, specializing in tax law. They can advise clients on legal concerns relating to tax filings.
While an enrolled agent can represent clients in IRS administrative proceedings, they can't represent them in court or during criminal matters. In contrast, a tax attorney can represent a client during administrative proceedings and in civil and criminal court.
3. When should you hire a tax lawyer?
The best answer is that you should hire a tax lawyer before there is a problem, so the attorney can help prevent issues before they begin. And if that's not possible, hire a tax lawyer whenever you are concerned that you may have any liability regarding existing tax filings.
Individuals should consult an attorney if they have outstanding tax debt, a major life event that could result in a dramatic change in tax liability (e.g., divorce or inheritance), or if they have any indication that the IRS is investigating them for any tax-related crimes.
In addition, business owners should consider hiring an attorney if they have questions about changes in the business tax law, concerns about whether they are in compliance with payroll tax, and other filing issues.
4. What are the most serious IRS crimes?
While it might be easy to simply list major felonies such as tax evasion, embezzlement, money laundering, and bribery, this is actually a difficult question to answer because what might seem like a minor crime (e.g., mail fraud) can result in huge penalties. Also, IRS investigations can reveal other wider criminal enterprises, such as drug-running, human trafficking, or terrorism-related activities.
At the same time, the issue isn't always the type of crime that determines the severity of the charges. For example, in 2022, a Columbia, Maryland, individual, Toyoshi Alatishe, was convicted of credit/debit card fraud, wire fraud, and aggravated identity theft. Alatishe and a co-conspirator used stolen taxpayer entities to file hundreds of fraudulent tax returns to receive more than $2.2 million in refunds.
5. What are the most common reasons people go to jail for IRS crimes?
There is some variation depending on IRS funding and current priorities. (For example, there is a new focus on cryptocurrency-related crimes.) However, a 2017 analysis of IRS prosecutions is illustrative. In that review, researchers found that half of the convictions were related to tax fraud, while 22% were related to other types of white-collar crime. Another 16% of IRS-referred convictions related to governmental regulatory offenses such as money laundering, while 6% related to narcotics convictions.
6. Will your IRS case lead to criminal charges?
While it will depend on the facts of your case, most tax issues don't result in criminal charges. Instead, if the issue is nonpayment alone, the IRS will usually work with taxpayers to recover the money due.
Criminal charges become more likely if, in addition to the nonpayment, the case includes other serious crimes, such as tax fraud or embezzlement. For example, in July 2022, Rockville, Maryland, resident Gordon Ernst, a former Georgetown University basketball coach, was sentenced to prison and ordered to forfeit more than $3 million for his role in accepting bribes and conspiring with others to falsely admit applicants as Georgetown athletes.
7. What is an IRS Notice of Deficiency?
A Notice of Deficiency (also known as “a statutory notice” or “an IRS 90-day letter”) is the most important letter the IRS can send you; it is your ticket to court, allowing you to dispute an alleged IRS debt. In the Notice, the IRS informs a taxpayer that the IRS is proposing a change to the taxpayer's return that will result in the taxpayer owing additional taxes (and often with related interest and penalties).
The Notice of Deficiency is just that—a notice. It is not a tax bill. If you receive a Notice and agree with the findings, you have the option of paying the new amount. However, you also have the opportunity to dispute the IRS's assessment in Tax Court.
8. Why do people get in trouble with IRS for payroll taxes?
Employers can be sanctioned if they fail to pay employment tax and file related returns, but the IRS will especially pursue criminal charges if a company owner deducts payroll taxes from employees' wages but then keeps the money for themselves.
In August 2022, an individual was charged with 16 counts relating to his failure to collect, pay, and account for payroll tax of employees for two Baltimore County, Maryland, area companies he owns and operates. The Department of Justice alleges that he deducted the money from his employees' wages, but he didn't turn it over to the IRS. Instead, he kept the estimated $900,000. If convicted, the defendant could face up to five years in prison for each of the 16 counts.
9. How does a tax lawyer negotiate with the IRS?
Depending on the case's specifics, a tax lawyer can negotiate with the IRS on behalf of a client, explaining why the IRS should grant complete relief or a reduction in the amount owed by the taxpayer. The attorney may provide legal arguments and factual evidence to explain why their client should not be required to pay the amount that the IRS claims is owed.
Additionally, the attorney can negotiate with the IRS to structure a reasonable payment plan for taxes due.
10. How does a criminal tax investigation work?
An IRS criminal investigation can begin in one of several ways. An IRS revenue agent (also known as an auditor), a collections officer, or an investigative analyst may discover information that begins an investigation. The IRS may begin an investigation if the agency receives relevant information from another law enforcement agency or an office of the United States Attorneys. And the IRS also can investigate whistleblowing tips from the public.
Once an investigation begins, an IRS Special Agent will be assigned to the case. The Special Agent will conduct a preliminary review. If they believe that a crime has been committed, they will get approval from their supervisor and the Special Agent in Charge of their office to proceed with a further investigation.
During this second phase, the Special Agent will gather evidence, interview witnesses, execute search warrants, subpoena records, and surveil the possible defendants. If the Special Agent concludes that they have enough evidence to prosecute the taxpayer, they will bring this information to their supervisor and federal prosecutors to bring possible criminal charges.
11. What does a certified letter from the IRS mean?
The IRS sends taxpayers certified mail when the agency is required to confirm that it has notified the taxpayer of an impending action, and you only have a limited amount of time to respond.
The IRS sends several notices via certified mail, including:
- an IRS Notice of Deficiency (alerting a taxpayer that the IRS has concluded that the taxpayer owes more in tax),
- a Notice of a Filing of a Lien,
- a Notice of Intent to Levy (i.e., seize) the taxpayers' property, and
- a Notice of a Determination of Collection Action.
12. How does a Collection Due Process (CDP) hearing work?
First, you must file a request for a CDP hearing within 30 days of a notice of levy, notice to seize or Lien notice you received from the IRS. In the request, you must identify the reasons you disagree with the levy, or propose collection alternatives, that you will want to discuss during the hearing.
The Appeals Office will then schedule a hearing, known as a “conference.” The conference may be telephonic, written, or in a face-to-face meeting. During the conference, you'll discuss your request, provide them with any new information, and answer any questions about your filing. An independent office will also review and analyze your information. At the end of the hearing, the Appeals Office will notify you of its decision. If you don't accept its conclusion, you can petition the United States Tax Court to review your case.
13. Can the IRS take away my passport?
Yes, you can lose your passport if you have seriously delinquent tax debt. However, this doesn't apply to anyone who owes money to the IRS. Instead, it only applies if:
- You owe at least $55,000 or more (the amount is adjusted annually for inflation), and
- The IRS has already filed a Notice of Tax Lien, and the window for any other administrative remedies has closed, or a levy has been issued.
But losing your passport isn't some surprise you'd just find out about as you try to check in for an international flight at Baltimore-Washington International (BWI) Airport. Instead, the IRS sends a notice certifying the debt to the U.S. State Department, and the IRS will notify you that it has done so. At that point, you have 90 days to resolve the debt or work out a payment plan before the State Department can deny a pending passport application or revoke an existing passport.
14. Can you strike a deal with the IRS?
You can work out a deal with the IRS about an outstanding tax debt.
Negotiating with the IRS is common, and the agency is often willing to work with taxpayers to resolve an outstanding debt. Taxpayers can frequently work out a reasonable payment plan or other payment arrangements, but it's even possible to convince the IRS that it should reduce the amount owed.
15. How can I stop the IRS from taking money from my business?
If your issue is that the IRS has been seizing any assets to pay for unpaid taxes, consider having an attorney help you negotiate with the IRS to come up with a payment plan or other proposals to restructure—or even reduce—your outstanding debt.
Importantly, there are time limits on your ability to challenge debts, so don't wait. The sooner you act, the better.
16. Will my spouse or children have to pay my IRS tax bill?
If you have filed joint tax returns with your spouse, then each of you is “jointly and severally liable” for any taxes due. That means that either of you can be held responsible for any outstanding tax debt. However, in some rare cases, the IRS may grant “Innocent Spouse Relief” to a spouse or former spouse if they owed taxes due to the other spouse's wrongdoing and were unaware of the potential liability.
Children are not typically required to pay a parent's taxes unless there is some other type of relationship (e.g., they're business partners).
Similarly, adult children are not required to pay a parent's tax debts at the time of the parent's death. Instead, the debts must be paid out of the parent's estate.
17. What are the punishments for tax evasion?
Tax evasion is rarely prosecuted, but an individual who receives a criminal conviction for federal tax evasion may face up to five years in federal prison and fines of up to $250,000. Corporations found guilty of tax evasion may be fined as much as $500,000. While those penalties alone are steep, a taxpayer could face other related charges resulting in additional fines and a longer prison sentence.
At the same time, states may also prosecute taxpayers for their legal equivalent of tax evasion or related crimes. In Maryland, punishment for filing false tax information can include fines of $5,000 and a jail sentence of as long as 18 months.
18. Can you go to jail if you forget to file your tax return?
Technically speaking, failing to file a tax return is a crime, so yes, you can go to jail for failing to file a tax return. However, the federal government usually only prosecutes those who willfully avoid paying their taxes.
If you genuinely forgot to file, you probably will have the opportunity to pay taxes before the agency initiates criminal action against you. Instead, the more likely scenario is that the IRS will send you a notice, alerting you to the fact that the IRS hasn't received your filing and you must file. While you might have to pay financial penalties, once you file and pay the amount due, it's unlikely that the IRS would seek criminal prosecution.
It's worth noting that there's no penalty for failing to file if you were owed a refund. However, not filing can mean that you end up forfeiting that refund.
19. What's the difference between an IRS levy and an IRS lien?
An IRS tax lien is a formally recorded notice from the IRS to creditors informing creditors that you owe taxes, and the IRS has the right to seize the identified property to satisfy that debt. But it's always possible that the IRS may never proceed with that seizure (for example, if you were to resolve the debt).
A tax levy is when the IRS actually seizes an asset to pay the debt.
In a nutshell, a lien is a warning that a seizure is possible. A levy is the seizure itself.
20. What if you fail to file a tax return for more than one year in a row?
Keep in mind that failing to file a tax return is both a state and federal crime. If convicted of failing to file a tax return, you may face prison and fines of up to $250,000. And while the IRS is unlikely to pursue criminal charges for those who mistakenly forget to file, if you repeatedly fail to file, the IRS may see that as an intention to evade taxes—which can result in much more serious criminal prosecution.
Even so, it is still more likely that you would have to pay civil penalties without prosecution. If you don't owe taxes, there is no penalty. But if you do owe federal taxes, the failure-to-file penalty is 5% of the unpaid taxes for every month that the taxes remain unpaid—up to 25% of your unpaid taxes. In addition, the Maryland Comptroller charges a 25% penalty if you fail to file state taxes.