Not many children dream of becoming tax lawyers when they grow up. Firefighters, superheroes, and ballerinas lead much more exciting, glamorous lives. Thankfully for the perpetuation of the profession, an interest in law increases as children grow older and are subject to the dynamic parts of the legal profession as portrayed in popular culture. Unfortunately, the heroic lawyers of the courtroom are not usually tax attorneys.
Middle school children read with awe of the courtroom scenes of Atticus Finch, a champion of integrity and justice in the midst of racial prejudice and persecution. Popular television shows of the past and present—Matlock, Perry Mason, and Law and Order—feature attorneys who take it upon themselves to exact justice nobly, handing criminals over to the law neatly and precisely at the end of the show’s allotted hour. In real life, cases are not so easily resolved within an allotted hour and tax lawyers daily lives are nothing like those portrayed in popular television.
Although tax lawyers do not spend much time in the court room, grappling grandly with judges and juries, nor do they take upon themselves the investigative work of their fictitious legal counterparts, they do spend a great deal of time in the midst of something equally as intimidating—the U.S. Tax Code. For many individuals, and even for many lawyers, the U.S. Tax Code is an unnavigable labyrinth of legal complexities. It is within these complexities that both tax lawyers and the Taxman live their lives. Not all attorneys plan to live within the tax labyrinth that frightens the taxpayers with its intimidating language, taking different paths to becoming a tax lawyer, but there are some steps that are required and beneficial that will eventually lead them to a life with the Taxman.
Essential to becoming a tax attorney is, of course, attending law school and passing the bar in the state in which the tax attorney intends to practice. Tax lawyers, though, often possess additional degrees or credentials that enable them to work with the complex tax code. Many tax attorneys become familiar with the tax code early on, studying accounting during their undergraduate education and sometimes even receiving a Masters Degree in Accounting. There are others who choose to go to law school after their undergraduate degree, returning to school to get their Master of Taxation after becoming attorneys. When an individual chooses a tax attorney to represent him in his tax issue, it is important to look for those additional credentials, as they could mean the difference between solving a tax issue and aggravating it.
While spending a lifetime dealing with the dreaded taxman and the Tax Code on a regular basis might seem to some as appealing as watching paint dry, or as tediously uneventful as counting rice, keeping in mind that it was the Internal Revenue Service that was the only government entity able to capture Al Capone might lend a different view to the tax attorney who battles with the IRS daily. If it was the IRS who finally captured the notoriously elusive gangster, then there must be more to working with the IRS than meets the eye. Those who think that life as a tax attorney is dull, uneventful, and just plain boring need only to take a closer look at the life of a practicing tax attorney to think otherwise. The legal issues they encounter come from all avenues, and the players in these cases—the IRS and the ever-mercurial Taxpayer—make each day an interesting one. It is the tax lawyer who must juggle the taxpayers and the IRS, as well as the ethical issues that lie within that relationship.
A snapshot of the taxpayers who have IRS issues would show an eclectic group of people. The cases they bring to tax lawyers, though they may all lie in a certain framework, are just as varied as the clients that bring them in. From actors to artists, from athletes to lawyers themselves, myriad people need the assistance of a tax attorney in resolving their issues with the IRS. As any tax attorney would attest, most cases fall within that framework, but it is the details that lie within it that make each tax case interesting and unique. There are some taxpayers who find themselves at odds with the IRS over back taxes, wage garnishments, tax liens and levies. No one is immune to scrutiny by the IRS, but there is hope with the assistance of a tax attorney.
Celebrities are arguably the most high-profile individuals who have the necessity for a tax attorney. Almost every month there is another public figure in trouble with the Internal Revenue Service. The list of celebrities who are in hot water with the IRS is continuously growing, with some websites even publishing Top Ten rankings of celebrities who owe the IRS exorbitant amounts. It is not surprising that the back taxes owed to the IRS from high-earning celebrities can reach into the millions. With a great deal of income and vast property holdings managed by individuals other than themselves, there are ample opportunities for dealings to go awry, whether intentionally unscrupulous or not. This list of celebrities is long who listen to the advice of shady advisors, only to have to hire a tax attorney to solve their past issues.
When one thinks of celebrity tax issues, Nicholas Cage is the name that comes most readily to mind. Mr. Cage is consistently and publicly battling the IRS. With his familiarity with tax liens and millions of back taxes to be paid over the course of several years and spanning many assets, Mr. Cage must employ a tax attorney familiar with the system. Mr. Cage’s IRS troubles follow the pattern of a lot of celebrities, as he blames faulty advisement for his tax woes. The Hollywood actor, star of numerous blockbusters, found himself owing the IRS $6.3 million dollars in 2010. In a lawsuit filed against his business manager, Samuel J. Levine, Mr. Cage claimed that the manager was lining his own pockets with a blatant disregard for the effects the dishonesty would have on Mr. Cage’s financial affairs. The lawsuit discusses the “path of financial ruin” that Mr. Levine paved for the action star.
Mr. Cage’s tax woes span many years, with several surprising turns for such a high-paid actor. Banks foreclosed on his properties, a castle in his name was sold, and his belongings were auctioned off. The reason for such a grand liquidation of his assets were tax liens placed on his real estate holdings by the IRS, as a result of the unpaid back taxes dating back to 2007, as well as other liens for back taxes owed in the years 2002-2004. Fortunately for Mr. Cage, a tax attorney can assist in resolving issues caused by poor management and dishonest advisement.
Grammy award winning singers Rihanna and Lauryn Hill have also faced the dreaded taxman in disputes over back taxes on their respective incomes. In the case of Rihanna, the singer blames the inaccurate and dishonest advice of a tax advisor, not a tax attorney, for causing her own IRS debacle. She claims that unscrupulous accountants are to blame for tens of millions of dollars in losses, poor business advice, and an ongoing audit with the IRS. The audit will require representation by a tax attorney to resolve the case justly and with rapidity. The case is currently ongoing, as the singer is currently seeking unspecified damages in federal court from New York-based accounting firm, Berdon LLP, and two accountants. She alleges that from her 2009 tour, which suffered net losses despite strong revenue, the accountants took 22 percent of the total revenue, while Rihanna only received 6 percent. The lawsuit also alleges that the accountants repeatedly breached contracts, misguided the singer financially, failed to properly document revenue and expenses, and created entities without her permission. Unfortunately, according to the singer’s lawsuit, Rihanna lost a great deal of money and is now under the microscope of the IRS because of the unethical decisions of her accountants.
Her case, although it deals with millions that the average citizen could only dream about, emphasizes a crucial universal issue when dealing with the IRS—the need to have honest and competent tax advisors. As stated previously, the U.S. Tax Code is complex, lending itself easily honest mistakes, but also allowing dishonesty to enter in easily through many avenues. Lauryn Hill, another Grammy winning artist, was also subjected to the aggressive efforts of the IRS, finding herself suddenly in need of a tax attorney. Although some claimed she was a tax protestor, a designation that will be discussed more extensively in a moment, Ms. Hill denied that was the case, stating that she had simply removed herself from the “military industrial complex” for the safety of her friends and family. Despite her best arguments, she was still assessed a liability for the income she gained during a 4-year period. With the assistance of a tax attorney, it would be in the best interest of Ms. Hill to file her missing returns and resolve her issue with back taxes owed immediately so that she can focus on what she does best—singing.
Celebrities and singers are not the only ones who face tax issues; mayors and lawyers come under the scrutiny with the IRS and emerge with liabilities that are a result of their noncompliance. It was uncovered recently by the press that the Mayor of Trenton, New Jersey was in dire trouble with the IRS. Facing foreclosures on his property, Mayor Mack is also facing back taxes of $50, 000 and an IRS tax lien on his property as a result. An IRS tax lien, which a tax attorney would advise can only be resolved upon compliance, is detrimental to the financial health of the already-troubled public servant. The Trenton mayor is in deep financial trouble, necessitating a tax attorney and advisors in a case that does not seem to be coming to a quick and painless resolution. Unfortunately, Mayor Mack’s tax issues do not seem to be ending in the near future. Lawyers themselves are not exempt from strict scrutiny of their finances by the IRS. They occasionally find themselves in need of a tax attorney, and in some extreme cases, a criminal one as well. This was the case of a partner from a top New York law firm, John J. O’Brien. The ex-partner, now suspended from practicing law in New York, found himself in a dire IRS tax situation.
The issue began several years ago, with Mr. O’Brien failing to pay back taxes of $2.5 million to the IRS during the tax years in question, when he had reportedly earned over $10 million dollars while employed at the law firm. Mr. Brien pleaded guilty to four criminal misdemeanor charges. He was sentenced to 28 months in prison, which he and his lawyers are now appealing. Unfortunately, a corporate attorney sometimes finds himself in need of a tax attorney. With the Olympics in London occurring at the moment, it came to light recently that Olympic athletes also face tax issues that require the guidance of a tax attorney. Jacqueline Joyner-Kersee and Robert Kersee, two track and field legends, are facing a field unlike any the track field—one in which the IRS has the lead. The IRS is claiming that the pair owes $386, 000 in added taxes and penalties on a taxable income of $1.5 million dollars. The couple is disputing the claim of the IRS with representation of a tax attorney in U.S. Tax Court.
Although they are successful athletes and an asset to their community, the couple has often found themselves in financial troubles. Their charity, The Jackie Joyner-Kesee Foundation, has closed and reopened due to financial distress. The Kersees became familiar last year with a tactic the IRS uses against those who are not complaint—the tax lien. Like Nicholas Cage and others, the Kersees found their properties under liens that total up to $1.3 million in IRS debt. In a Tax Court petition filed by their tax attorney, the couple claims that deductions they made for their business expenses were improperly denied by the IRS. Tax attorneys advise that extensive denials for deductions are the result of a taxpayer’s inability to substantiate the deductions. The couple’s tax attorney had placed them on a payment plan for other tax liens, a move that he is sure will solve their current issues. These Olympic legends advise athletes who are not competing and medaling in the Olympics—Allyson Felix and Dawn Harper—but they are now in need of the advice of a different kind of coach, and a tax attorney could find himself in that role.
When they are not dealing with star-studded tax battles or other unethical professionals, tax attorneys may deal with individuals who are equally as colorful—the Tax Protestor. Tax Protesters are a brand of taxpayers that tax attorneys must deal with often. These individuals are citizens who are subject to taxation under the laws of the United States, but for a variety of reasons, refuse to pay taxes. Although the IRS has been forbidden by Congress to refer to these individuals as “tax protestors” the name is still used internally, as well as in the media. Tax protestors, their name giving away their aim, are oftentimes a challenge for tax attorneys to handle. Their refusal to pay taxes to the government stems from fundamental disagreements they have with the government itself. Their firmly held beliefs get them into trouble with the IRS.
The tax protestor can come in a variety of forms—from the Average Joe to the seasoned politician. Recently, it was revealed that a legislator’s wages were being garnished consistently, or directly taken from the taxpayer, for the last decade. For the past seven years, the Idaho State Legislature has been handing over the bi-weekly paychecks addressed to tax-protester Rep. Phil Hart directly over to the IRS. Since 2005, the IRS has been garnishing the $16,000 of wages, which was 100 percent of his annual legislative pay. According to reports, Hart owes more than $600,000 to the IRS and the Idaho State Tax Commission. For this particular taxpayer, his tax attorney advised him to file for bankruptcy, the seemingly last ditch effort to resolve the issue. For tax protestors, the fight is futile. Any arguments against the tax code are arguments the IRS has heard numerous times. Without a doubt, the IRS will go after these protestors.
A tax attorney has a diverse client base in regards to race and ethnicity, allowing tax law to be closely intertwined with immigration law. It is not uncommon for a tax attorney to have bilingual staff, which speaks to the amount of taxpayers of different nationalities who are subject to taxation by the United States as a result of their residence or citizenship. Immigrant taxpayers are particularly vulnerable when it comes to tax issues. There are many instances in which these individuals, susceptible to fraud or unscrupulous individuals find themselves under the IRS microscope with no knowledge of why they are there or how they would solve the problem. That is why consultation with a tax attorney or other tax professional is vital when dealing with payroll taxes, income taxes, or any other issue with the IRS before the issue becomes aggravated by time and noncompliance.
Recently, a particularly relevant case to the issue of immigration and taxation was decided in the nation’s highest court. A tax attorney’s advice was essential in the Supreme Court case Kawashima v. Holder, 565 U.S. ____ (2012). The couple, who had, on the ill-advice of previous tax advisors, made incorrect decisions in regards to handling their tax liabilities. The couple made false statements on their returns as permanent residents of the United States, prompting an investigation and resulting in jail time and a fine for the couple. Although they had sought to rectify these tax decisions by paying the liability owed, the damage was already done. Three years after the issue had been decided and the time had been served, the couple received a deportation order. Once again, the link between and immigration and a tax attorney is emphasized. Because of their criminal record, the couple was to be deported, leaving behind family members, businesses—essentially, their lives. Even at the highest court, the decision to deport these individuals was affirmed.
Unfortunately, this story is not uncommon. Language barriers, little knowledge and ill-advice makes immigrant individuals subject to harsh penalties when the IRS comes after them with a vengeance. For the best possible chance for a beneficial taxpayer outcome, a tax attorney should be contacted early on, enabling strategy and support to develop for the individuals at the center of the tax controversy. This issue, as tragic as it is, goes to show that before complications arise, a tax attorney should be contacted for strategy and advisement. A tax attorney and a bankruptcy attorney also may work in conjunction—as clients often fall from one aspect of the law into the other, and back again. Some taxpayers find themselves in such dire circumstances that in the midst of their tax issues, they must file for bankruptcy. As mentioned earlier, filing for bankruptcy may even the solution for public figures when advised by a tax attorney. Unfortunately for them, bankruptcy does not always erase the individual’s tax liability. If it is anything other than income taxes, the tax issue could remain. Once bankruptcy proceedings are finished, any further tax issues, such as issues with tax lien placed on property or issues with payroll taxes that arose before bankruptcy is filed can be handled by a tax lawyer.
Tax attorneys are also employed by individuals who have estate issues. When dealing with taxable estates, may require the services of a tax attorney to ensure estate issues and other legal issues are dealt with in a manner beneficial to the taxpayer. In situations such as these, there are many factors that could cost the taxpayer a great deal of money when not advised by the appropriate tax professional. A tax case in New York State is the perfect example of tax complications that may arise when an estate is in question. When art critic Illeana Sonnabend passed away in 2007, her estate was worth upwards of $1 billion. While inheriting such a large estate would seem to ensure of a life of ease for its recipients, this was not the case when the IRS became involved. Robert Rauschenberg’s “Canyon” was a part of the collection left behind. This piece of art caught the attention of the IRS, and not for its artistic beauty. The painting was assessed a tax of $29 million by the IRS, despite the fact that it cannot be sold. One element of the artistic conglomeration complicates the issue—a stuffed bald eagle that would become a tax attorney’s headache. Bald eagles, protected under law whether they are dead or alive, cannot be sold for profit. Since it cannot be sold, the tax attorney for the estate claimed that the assessment should be revised to $0. Despite the protests of the estate’s beneficiaries, the IRS refused to budge, and the case will be sent to court—beneficiaries, a tax attorney, and the IRS all in tow. When the millions of an art critic, or even the small some left by a small-town grandmother, are in question, for the best result, the advice of a tax attorney would determine the amount the beneficiaries receive in the end.
As if representing individual tax payers in their various tax issues was not complicated enough, tax law also has an important role in other aspects of the law, making tax lawyers a staple in many global firms. Law firms like Latham & Watkins and Sullivan & Cromwell have globally-esteemed tax practices that specialize in the areas of corporate law that need attorneys on hand to give tax advice. Mergers and acquisitions involving companies worth hundreds of millions, sometimes even billions, of dollars cannot be completed without the understanding of the tax implications present in these transactions. Companies all over the world, from Facebook to Microsoft, JetBlue to AT&T all employ firms that rely on tax attorneys to ensure that all transactions, whether they are within the United States or traverse global borders, are tax compliant.
Corporations though, like people, can also have back tax issues. One particular case last year garnered a great deal of media attention because of the political declarations its owner. Warren Buffet, who publicly proclaimed in an Op-Ed column that the wealthy should be taxed more aggressively, has a company that was engaged in a decades-long battle with the Internal Revenue Service. Buffet, a proponent of the tax system, has a seemingly incongruous relationship with the IRS. His company, according to reports, may have owed over $1 billion dollars to the IRS. Berkshire Hathaway, Mr. Buffet’s company, revealed in its 2010 annual report its struggle with the IRS. It also reported that the company intended to resolve the issues with the assistance of tax attorneys and tax advisors with rapidity. It is surprising that such a supporter of the tax system, and one of the world’s richest men, could own a company that is withholding a billion dollars of taxes owed from the Internal Revenue Service.
Within the framework of tax law, beneath the clients—whether they are individuals or corporations—and the cases they bring to the table, is the daily routine of a tax attorney. On an average day, a tax lawyer spends time speaking to Revenue Officers, the agents of the Internal Revenue Service who deal with the taxpayer cases. Communication with the IRS Officers can sometimes be a challenge, as their caseloads are large, leaving phone calls unanswered or unsupported.
When dealing with the IRS on their client’s behalf, the tax attorney strives to find a resolution for their clients that is beneficial to them and that is satisfactory for the IRS. It is this very complex balance that is the topic of much discussion in legal circles—the ethics of tax law. Tax attorneys will be spotlighted in the coming year, as the anniversary of the modern income tax system is approaching, prompting more scrutiny of the profession. This is the topic of next week’s article, but what can be said about this balance is that it is a constant struggle, as tax lawyers juggle both their duty to their clients and to the justice system in which they exist.
The process that a taxpayer goes through when it comes to an IRS tax issue may span many months. The taxpayer will typically receive notification that back taxes are due. They will be assessed back taxes for a number of reasons: failure to file returns, assessment as the result of an audit, inability to pay when a return is filed. During the time that the back taxes are due, penalties are being accrued, which adds to the amount due to the IRS. These penalties remain, unless a reasonable case can be proven through documentation by the taxpayer or his tax attorney. A reasonable case is when an individual is the victim of a crime, substance abuse, mental disease, or a natural disaster. Back taxes must be resolved, as there are severe consequences that can result.
The consequences of back taxes can vary with the degree of severity of the tax issue. Back taxes do not include fraudulent behavior. Prison time could be a result, though the IRS only prosecutes if the amount is large enough. If an individual refuses to pay back taxes and the penalties associated with them, the IRS may choose to take action in the form of IRS tax liens, which gives the government the right to have the taxpayer’s property as a result of his failure to pay his taxes. This is the lien that the celebrities, legislators, and other individuals had on their respective properties, as discussed previously. This occurs only after the IRS has contacted the non-compliant taxpayer. A tax lien is removed when the amount owed is paid.
For the average taxpayer there are several possible outcomes that can be achieved when working with a tax attorney when a tax issue has already occurred: Installment Agreement, Offer in Compromise, and Penalty Abatements, among others. A tax attorney strives to find the most appropriate arrangement for both the taxpayer and the IRS. The first of three possible resolutions that a tax attorney will strategically propose is the Installment Agreements or Payment Plan. With this form of resolution, the individual is required to pay back the liability assessed . Before this is accepted, there are things that must be taken into account: all required tax returns; other sources are considered to pay the tax debt in full to save money; the largest monthly payment the taxpayer can make ($25 minimum) is determined; and an acceptance that future refunds will be applied to the tax debt until it is paid in full.
The second potential resolution that can come about with the assistance of a tax attorney is an Offer in Compromise. With an Offer in Compromise, the IRS lets the taxpayer settle for less than the amount that he owes. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS considers the unique set of facts and circumstances for taxpayers, such as ability to pay income, expenses, and asset equity. The IRS claims generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. The IRS suggests exploring other options before requesting an Offer in Compromise, which a tax attorney will do when examining your case.
Although the IRS website lists these possible outcomes as though they are attained with ease, dealing with the IRS is sometimes a metaphorical tango, with the moves all lying within a prescribed framework. However, the structured steps often lend themselves to unexpected twists and turns in the struggle for resolution. Offers are rejected, audits are enacted, and Payment Plans are rejected There are not many people who would be willing to tango with the IRS. Luckily for the taxpayers, it is the favorite pastime of tax attorneys.
Tax attorneys serve the essential purpose of an advocate for those they represent, but there are times when difficulty with the IRS necessitates a tax attorney to employ other measures to solve a tax issue for his client. When the IRS is being particularly unresponsive or slow to act, a tax attorney may elect to contact the Taxpayer Advocate Service on behalf of the clients. When a case becomes mired in the muck that is sometimes the IRS bureaucracy, it becomes necessary to deal with the Taxpayer Advocate Service, an entity within the IRS that simultaneously serves as a watchdog and an advocate. The tax attorney will submit a Form 911 to alert the Taxpayer Advocate Service of a need for assistance. To advocate for the best possible outcome for the taxpayer, a tax attorneys and a representative from the TAS work together to find the best resolution for the taxpayer.
At the end of the day, the best ending for a tax attorney is the moment in which the tax issue is resolved and the client is content. Whether they are an average wage earner or an award-winning singer, each taxpayer deserves to have the appropriate and experienced advice of a tax attorney.
There are many tax advisors who advertise their services, promising to resolve tax issues for little money and for a rapid result. While both of those sound good to a taxpayer in trouble with the IRS, the most important things to search for are experience with the IRS system, integrity of advocate character, and a commitment to the client. Those are the qualities that will enable a taxpayer to obtain the very best resolution.
While neither Atticus Finch nor Matlock was popular culture tax lawyer, future action star Tom Cruise was when he played a dynamic young tax lawyer in his nascent film, The Firm. If Tom Cruise can play a tax lawyer for a moment, perhaps there is image-changing hope for tax lawyers yet?