Tax Litigation 101: What Is Tax Litigation?

Did you know that the history of taxes goes back to kings collecting taxes from their subjects? It includes fees, tariffs, and taxes.

Are you curious about tax litigation? What is it and what does it do?

In this article, explore all about tax litigation 101 to have a better idea about it. Read on to explore just how it can help you resolve any tax disputes you’re facing whether it’s foreign, local, state, or at a federal level.

What Is Tax Litigation and Controversy?

Tax litigation and controversy are where you resolve disputes that occur from taxation. This can be from gift taxes, income tax, state sales, etc.

They’re separated into criminal and civil matters. Criminal tax controversy is when you attempt to avoid paying taxes on purpose.

A civil tax controversy is where information of revenue agents, audit strategies, or tax laws are provided. There are 4 parts to tax controversy: examinations, appeals, collections, and judicial proceedings.

Appeals

If an audit goes without a resolution, then it goes into an appeal. After an audit is unresolved, you’ll receive a report known as a 30-day letter.

You as the taxpayer have the option to file a protest to the IRS Appeals Office. They’ll take a look at the appeal, and decide what happens next.

This is the last step to avoiding the courts. The appeals office is separate from the IRS. Your representative should speak with the appeals officer to handle the issue.

If you decide to hire an attorney, it’ll increase your chance of obtaining good results. This will save you money in the long run since you won’t have to worry about the court system.

Judicial Proceeding

If the appeals court can’t resolve it, then it goes to the court. You can either have a prepayment review in the court or pay the tax, and sue for a refund.

This is a long process since they’ll need to speak to witnesses, investigate further, and review any objections. It’s difficult to do this alone, and you’ll normally need a representative with you such as a tax litigation attorney.

Collections

This is when the government will attempt to collect the necessary tax. They can place liens on your property, and sell them to pay for the debt. If you’re a business owner, this can hurt your business.

Counting on Your Accountant

Keep in mind that the tax litigation information you share with your accountant isn’t confidential. The IRS can go to your accountant, and ask for documentation proving what you say and do.

You’ll find many accountants won’t provide tax advice. Instead, accountants like to take the information you give them and input it into the correct form. There are alternatives too for taxpayer protections.

You might be able to receive relief from IRS tax liens with certain situations. This can help you especially if you’re trying to sell your property.

Another option is to look into tax payment plans or other offers. If you decide to compromise, you’ll need to show your assets, liabilities, and income. The IRS will then determine how much you’ll need to pay during collections.

Why Hire an Attorney?

An attorney can determine what facts about tax litigation they tell a tax agent. You’ll want to ensure that the information you provide to tax authorities is only what’s necessary. To ensure that you receive the proper guidance, choose a tax litigation representative.

Some Tax Scams From Previous Years

You’ll always want to have integrity when it comes to running your business, and how you run your personal dealings with money and taxes. One tax scam is what’s known as a fake charity.

There are many fake charities out there that’ll act like a real organization, and then steal your money. You’ll always want to make sure your money is going to a trustworthy company.

Phone scams are another common issue. They’ll call you up, and pretend to be the IRS claiming you have to pay money, or else something bad will happen. There has been an increase in these, so be on the alert.

Avoiding Income Tax Fraud

This is where you try to get out of tax laws from the IRS. This can include filing a false return, not paying your fair taxes, or not reporting all of the income you receive. It also includes when you make false claims.

Negligence vs Tax Fraud

In some cases, it might be considered negligence since the IRS understands that the regulations and rules for tax codes can be confusing. If an error occurs without fraudulent behavior, the IRS might waive it as human error. The IRS might still make you pay a fine if you’re found to be negligent instead of intentionally committing tax fraud.

The IRS will look for fraud such as:

  • Using false social security numbers
  • Not reporting your income properly
  • Concealing the transfer of your money
  • Putting personal expenses as business expenses
  • Falsifying documents

Penalties

If you try to avoid paying your tax, you might face civil and criminal penalties. This can include hefty fines up to $200,000, and imprisonment depending on the penalty.

Exploring All About Tax Litigation

Now that you’ve explored all about tax litigation, you should have a better idea of what your options and next steps are. It’s a good idea to speak with a tax litigation attorney to see your options as well.

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