taxation law services

Fee Agreement Arrangements with Tax Lawyers in St. Paul: 5 Most Important Issues

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In this article, I will discuss five most important issues that you need to know before you sign a fee agreement with tax lawyers in St. Paul.

1. How is the lawyer’s fee paid? There are three main models of payment that lawyers use: hourly fee, contingency fee, and flat fee. The hourly fee is the most common form of tax lawyer compensation and it is fairly simple – the tax attorney is paid only based on the time he spends on the case. If you’re paying your tax lawyer by the hour, the agreement should set out the hourly rates of the tax attorney and anyone else in this attorney’s office who might work on the case. The contingency fee arrangement, where the tax attorney takes a percentage of the amount the client wins at the end of the case, is almost never used by tax attorneys in St. Paul. In the unlikely case that this latter type of fee arrangement is used, the most important issue to understand is whether the tax lawyer deducts the costs and expenses from the amount won before or after you pay the lawyer’s percentage. Obviously, you will pay more in attorney fees if your tax lawyer deducts the litigation costs based on the latter scenario (i.e. after you pay the lawyer’s fee). Finally, in a flat fee arrangement, you pay an agreed-upon amount of money for a project. For example, you pay $3,000 to your tax attorney to file delinquent FBARs (Reports on Foreign Bank and Financial Accounts) for the past five years. While a flat fee arrangement is possible in a small project, it is generally disliked by tax lawyers in St. Paul because it often lacks the necessary flexibility to account for the client’s individual legal situation. Usually, some sort of an additional payment arrangement is built into such fee agreements to make sure that the balance between the client’s legal needs and the tax attorney’s fees is maintained.

Remember, usually, you will have to pay out-of-pocket expenses (e.g. long-distance calls, mailing costs, photocopying fees, lodging, etc.) and litigation costs (such as court filing fees) in addition to your tax lawyer’s fees.

2. Does the agreement include the amount of the retainer? Most tax lawyers in St. Paul require their client to pay a retainer. Retainer can mean two different fee arrangements. First, retainer may be the amount of money a client pays to guarantee a tax attorney’s commitment to the case. Under this arrangement, the retainer is not a form of an advance payment for future work, but a non-refundable deposit to secure the lawyer’s availability. Second, a retainer is simply the amount of money a tax attorney asks his client to pay in advance. In this scenario, the lawyer usually deposits the retainer in a client trust account and withdraws money from it for the work completed according to the fee agreement. The fee agreement should specify the amount of the retainer and when the lawyer can withdraw money form the client trust account (usually, on a monthly basis).

3. How often will you be billed? Most tax attorneys in St. Paul bill their clients on a monthly basis. Sometimes, however, when the project is not large, the fee agreement will specify that you will be billed upon completion of the case. In a flat-fee scenario, it is likely that the client will be obligated to pay either a half or even the whole amount immediately as a retainer. It is wise for a client to insist in paying some part of the fee upon completion of the case to retain a degree of control over the case completion.

4. What is the scope of the tax attorney’s representation? Most tax lawyers in St. Paul will insist on defining their obligations in the fee agreement. The most important issue here is to state what the tax attorney is hired for without defining it either too narrowly or too broadly. Usually, a fee agreement should specify that a new contract should be signed if you decide to hire this tax lawyer to handle other legal matters.

If you are hiring a large or a mid-size law firm, beware that the partners in a law firm often delegate some or all of their obligations to their associates or even their staff. While the partners retain full responsibility for the case, there is a danger that important parts of it may be delegated to far less experienced associates. Besides the potential quality issues, there is also a concern that you would be paying a large hourly fee for a first-year associate’s work. It is important to insist that the fee agreement specifies what, if any, type of work is being delegated to the associates, the corresponding billing rate of each associate involved, and who carries the responsibility for the whole case.

5. Who controls what decisions? Whether this information should be included in the fee agreement really depends on a case and on an attorney. Generally, tax attorneys in St. Paul let their clients make the important decisions that affect the outcome of the case (such as: acceptance or rejection of the IRS settlement offer, commencement of a lawsuit, business decisions, et cetera). All of the decisions with respect to the legal issues (such as: where to file a lawsuit, what motions should be filed, what negotiation tactics should be employed, how to structure a business transaction from a tax perspective, etc.) are usually taken by the tax lawyers. If there are any changes to this arrangement (for example, you want your lawyer to make certain decisions with the respect to the outcome of the case), you should insist that these modifications be reflected in the fee agreement.

Generally, before you sign the fee agreement, tax lawyers in St. Paul will discuss with you many more topics than what is covered in this article. The five issues explained here, however, are crucial to your understanding of how the tax relationship with your tax attorney will work. Before you sign the fee agreement with your tax lawyer, you should ask at least these five questions and make sure that the answers are complete and to your satisfaction.

IRS Statute of Limitations: Tax Collections

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The statute of limitations limits the time for the IRS tax collection activities. Generally, there is a ten-year statute of limitations for the IRS collection of owed taxes. Thus, for assessments of tax or levy made after November 5, 1990, the IRS cannot collect or levy any tax ten years after the date of assessment of tax or levy. See 26 U.S.C. §6502(a)(1). Court proceedings must also be started by the IRS within the 10 year statute of limitations. Treas. Reg. Section 301.6502-1(a)(1).

For assessments of tax or levy made on or before November 5, 1990, the IRS cannot either collect or levy any tax six years after the date of assessment of tax or levy. See 26 U.S.C. §6501(e). However, if the six-year period ends after November 5, 1990, the statute of limitations is extended to ten years. Hence, in order to come under the six-year statute of limitations, the six-year period must end prior to November 5, 1990.

The ten-year statute of limitations can be extended by agreement between the taxpayer and the IRS, provided that the agreement is made prior to the expiration of the ten-year period. See 26 U.S.C. §6501(c)(4).

Thus, in figuring out the applicable statute of limitations, you must understand: the starting date for the running of the statute of limitations, any exceptions to the tolling of the statute of limitations, the last day that the IRS can audit a tax return, and the last day that the IRS can collect overdue tax on a tax return.

Sherayzen Law Office can help you understand all of these issues and represent your interests in your negotiations with the IRS.

Call NOW to discuss your case with a tax lawyer!

Amending Tax Returns

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Whether you need to amend your previously-filed tax return depends on your particular situation. In some situations, such as simple math errors, the IRS will correct the return for you. In other situations, however, you should file an amended tax return. The most common situations occur when you need to change your: filing status, dependents, income, deductions and credits.

If you are eligible to claim the first-time homebuyer credit for a qualified 2010 home purchase, you may wish to elect to amend your 2009 return in order to claim the credit this year without waiting for the next year to file the 2010 tax return.

You should use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. Be sure to check the box for the year of the return you are amending on the Form 1040X, Line B, or write in the year if you are amending a return filed in year prior to those listed on the form. If you are amending more than one tax return, you will need to prepare a 1040X for each return If the changes involve other schedules or forms, attach them to the Form 1040X.

If you are filing to claim an additional refund, you should wait until you have received your original refund before filing Form 1040X. However, if you owe additional tax for 2009, the opposite is true – you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

Whether you are able to claim a refund will depend on the applicable statute of limitations, but generally, you have three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.

Sherayzen Law Office can help you determine whether you need to amend your tax return and help you prepare Form 1040X with all attachments.

Call Sherayzen Law Office to discuss your tax situation with a tax attorney!

IRS Statute of Limitations: Taxpayer Audit

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The tax statute of limitations limits the time during which an action can be brought by the IRS for an audit. The general rule is that IRS has three years from the filing date to audit a tax return. 26 U.S.C. §6501(a) and Treas. Reg. §301.6501(a)-1(a). Similarly, under Treas. Reg. 301.6501(a)-1(b) no proceeding in court by the IRS without assessment for the collection of any tax can begin after the expiration of three years.

However, if the taxpayer fails to report on his tax return an amount in excess of 25% of the gross income (as stated on the filed tax return), then the statute of limitations is increased to six years. 26 U.S.C. §6501(e).

If the tax return was prepared by the IRS under the authority of section 26 U.S.C. §6020(b) the statute of limitations simply does not apply. See 26 U.S.C. §6501(b)(3). Likewise, the statute of limitations does not apply in the case of a false tax return or fraudulent tax return filed with the IRS with intent to evade any tax. See 26 U.S.C. §6501(c)(1).

This essay states only the general rules. The statute spells out numerous exceptions to these general rules. Therefore, even though most of the situations are resolved by the general rule, it is best to consult your tax attorney to see if your situation fits into one of the exceptions.

Call Sherayzen Law Office to discuss your tax situation with a tax attorney!

Business Tax Returns: The Advantages of a Tax Attorney Review

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A lot of businesses simply look at the tax returns as “adding numbers.” Yet, tax returns are so much more than that. A tax return is a result of a long series of decisions made by the business, such as elections, classifications, investment strategies, structuring of business transactions, and numerous other actions and inactions. Dealing with this interior constitution of a business tax return from a legal perspective (rather than from a more rudimentary accounting view) is the superior advantage of a business tax attorney.

The advantages of the legal approach to tax returns can be grouped in three classifications. First, an attorney will review a business tax return from a structural perspective, taking into account the temporal element of a business transactions (i.e. comparing the effect of a business strategy throughout different time periods – prior years and future projections) and non-tax business and legal goals. This structural overview is especially effective in advantageous positioning of a tax strategy into the overall legal structure of a business.

This first approach necessarily leads to the second advantage – a business tax attorney will explore an alternative treatment of a given business and/or tax issue and will strive to find a legal solution to a taxation matter. Armed with a deeper understanding of other legal and non-legal goals of a business client, a tax attorney may engage in re-classification of certain business transactions to take better advantage of the contemporary provision of the Internal Revenue Code. In certain situations, an attorney review may even result in filing amended tax returns for prior tax years in an attempt to recapture tax benefits (i.e. receive tax refunds), which were unavailable or overlooked in the past.

Finally, an overview of a business tax return by a business tax lawyer is likely to lead to comprehensive tax planning for the future. In some situations, an overview of a business tax return by a business tax lawyer will result in a recommendation of a complete re-structuring of business transactions in a more tax-advantageous matter while seeking to achieve the same business goals. In others, a business tax lawyer may implement tax deferment and tax reduction strategies centered around purely legal and tax concepts.

Whether your business is small or large, growing or maturing, local or international, retaining the services of a business tax lawyer to overview your business tax return should become your annual practice. The benefits of such overview are usually substantial. In addition to the direct advantages of a better current tax strategy and future tax planning, an overview of a business tax return by an attorney may lead to completely unexpected and important discoveries about the legal and tax situation of your business – the legal issues that were overlooked in the past, but could have grown into severe problems in the future had it not been for their timely discovery.

Sherayzen Law Office can help you review your business tax returns and create responsible and tax effective strategies for the current and future tax years. Call NOW to discuss your business tax return(s) with an international business tax lawyer!