Tax Help – What do you really need? (Part 3 of at least 3) Tax Attorneys

• IRON100
• October 23rd, 2009

In thinking about this post, I decided that I would invest most of my effort in defining what the tax attorney does and then in the next post defining what an enrolled agent does. In the final post I will attempt to contrast the two and then summarize the series. I think it is best to make it simple first and then see if questions from readers arise.

Basically, a tax attorney is an expert who is versed in local, state (in particular HIS state of residence and business), and Federal Tax laws. You use a tax attorney basically to help you structure businesses and other legal entities to minimize taxation and to minimize any difficulties and individual or family might have in operating that entity within the legal frame works of that same group of tax laws.

Specifically there are basically three reasons to use a tax attorney:

1) When forming a business, a tax attorney can help you evaluate and select the best business structure with regard to total tax liability and tax treatment. One might select a limited liability company, a sub-chapter C or subchapter S corporation, or partnership assuming one does not want to be a sole proprietor. These entities all enjoy different and special tax treatment and tax liabilities. Advice at the beginning phases of business can and will save one money (as it has me) when starting a business. Depending on the state, the type of legal business entity will affect the tax treatment in the event of death of a partner or spouse. That one fact, along with others, might determine the issue of WHERE to domicile the business entity. Remember I mentioned the land limited liability company (LLC) my brother and I created. A tax attorney and we decided to domicile the LLC in South Carolina, where a one person LLC can still exist in the case of a member's death. That turned out to be a very smart and cost-saving thing for us to do.

2) One might want to set up a legal entity through a will or other appropriate legal device which will prevent or at least limit the tax liability of a family estate or family business. State and Federal laws can be quite complicated with regard to these rules, and when the estate becomes large, it is a smart thing to consult with an attorney for the best tax treatment with regard to the particular state in which you and the attorney are domiciled. The entities, like trusts and living wills, all require a study of state and Federal laws to make certain that tax liability is limited as much as is legally possible. Tax attorneys are normally well-versed in latest changes in those local, state, and Federal tax statutes.

3) The third major reason that you should see an attorney is managing the common life cycle issues of business that are:

 a) The purchase or sale of a business within your business entity

  b) The purchase or sale of the ENTIRE business entity (at time of business initiation or exit), and

  c) The one thing owners want nothing to do with, hopefully, and that is personal or business bankruptcy.

It is ALWAYS important to understand the full tax effects of any business acquisition, in whole or in part, because state regulations regarding business operations can not only affect income tax but also employee benefits, workman's compensation, insurance and other sticky problems. Bankruptcy entails the sale and distribution of assets by a bankruptcy court and a tax court. One thing one should always know is that one MUST be represented in a tax court of ANY kind ONLY by a tax attorney.

At least half of the readers out there probably are pulling their hair out because I did not mention what should be the fourth reason for using a tax attorney, that being representation during a tax audit. This is where the gray area between using an enrolled agent and using a tax attorney can begin. I am going to save that fun topic for the last post in this series, because a lot depends upon the complexity of the audit or the problems within the tax or business entity that triggered the audit.

Next time, I will discuss what an enrolled agent does and when to use one. After that I will try to define the reasons and situations in which one, or the other, or BOTH should be used.

More personal finance information you can use is coming down the pike. We are still looking for a few good writers, so if you want to send us a 250-500 word example of a post (related to personal finance), send it to buffalotrader100@gmail.com.  Thanks to all who read and who comment on what we do. Let me also know if there are specific topics of interest you have. This blog is both by and FOR the StockTwits community. We want to make it as interesting, informative, and useful as possible.

Tickers: bankruptcy, business entity, business life cycle, business purchase, business sale, tax attorney, tax help, tax liability

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