When to Hire a Tax Attorney

Recent tax law changes make it easier to fight the IRS in court. And businesses that can more easily go to
court will find themselves in a stronger bargaining position against the IRS auditor.

Key reason: A big new tax-fighting opportunity for business exists in the new ability to bring much larger tax
disputes to the "small case" division of Tax Court.

New law enables the court to hear cases involving as much as $50,000 of tax per tax year, excluding interest
and penalties. (The old limit was $10,000.) These are considered small cases -- S cases.

And -- the actual dollar amount of these disputes may be much larger. The IRS often assesses up to three
years of tax at once -- $150,000. Add on interest and penalties, and tax disputes involving $200,000 or more
now can be brought to Tax Court.

Advantage: These S cases are simple and inexpensive to initiate. The only cost is a $60 filing fee. No
attorneys are needed. The Tax Court judge travels to a location near you to hear the case. Procedures are
simplified. Formal rules of pleading and evidence do not apply. The judge simply listens to both sides. An
entire hearing may take as little as 30 minutes.

POWERFUL NEW DEFENSE STRATEGIES

The new larger limit may revolutionize strategies used to fight business tax assessments -- from the arrival of
the first IRS audit notice on.

Until now, taxpayers and their tax advisers most often have responded to audits with the goal of settling for
the best deal they could get -- simply because of the prohibitive cost of bringing a formal case to Tax Court.
But bringing an S case to Tax Court is almost free.

Result: Now, if the company thinks the IRS is wrong about a tax bill involving up to $50,000 of tax per year, it
makes almost no sense to settle early. The shrewd response may be to say, "Write us up. We'll see you in
Tax Court."

If the company loses an audit and files in Tax Court, it will get two more chances to reduce the tax that the IRS
says it owes...

The company can negotiate a settlement. About 90% of filed cases are settled or disposed of before trial. The
IRS has limited resources and wishes to save them for major cases. It is under the same pressure to settle
cases as any other litigant.

To avoid the cost and risk of a trial, IRS lawyers may be willing to offer a little or a lot. But if the company is
truly unhappy with the result of an audit, a $60 filing fee is a small price to pay to find out. It buys a new
chance to settle with IRS personnel who may have a very different view of the case than the auditor had.

The company can proceed to trial. If the company believes it has a good case, it can take the case through to
trial with the chance of winning outright. And if it wins, its tax savings won't be offset by heavy legal fees.

HOW TO BRING AN S CASE

From the day that an IRS audit notice first arrives in the mail, the company should keep in mind that it has the
option to file for only $60. This can change the company's entire attitude toward an audit. The audit is only the
first round of a tax dispute, not the last.

Effective: If the audit does not go well, inform the auditor of the company's willingness to go to court.

Auditors and their supervisors receive job performance evaluations based in part on their record of closing
cases. They don't like to have cases that are assigned to them remain open and headed for trial. So --
knowledge that a taxpayer might go to court sometimes produces movement on their part.

At the close of an audit that results in a finding of tax due, the company will receive a "30-day letter," giving the
company that long to take its case to the IRS Appeals Division.

If the Appeals Division also finds tax is due or if the company declines to go to Appeals, it will receive a
tax-deficiency notice, giving it 90 days to file a case in Tax Court.

At that point, obtain the forms needed to file an S case from The Clerk of the Court, US Tax Court, 400 Second
St. NW, Washington, DC 20217.

Critical: Filing must be made before the 90-day deadline expires, or the chance to go to Tax Court is forfeited.

Option: If the disputed tax is somewhat more than $50,000 per year, the company can voluntarily concede the
excess to qualify to make an S filing. What it saves in attorney fees compared with filing a regular Tax Court
case may more than make up for the tax conceded.

A few months after the company files its case, an IRS attorney or appeals officer will call to set up a meeting.
He/she will say the purpose of the meeting is to agree to stipulated facts and cover other administrative
details -- but it also is the company's opportunity to raise the question of a settlement.

Key: Although the IRS is eager to settle S cases, its rules prevent it from making the first offer. The company
should be prepared to raise the subject and make the initial offer.

Although no attorney is needed to initiate an S case, it is a very good idea to discuss your case with an
attorney before meeting with the IRS.

An attorney who is experienced at litigating and negotiating with the IRS can advise the company about the
strength of its case... how to present it most effectively... the kind of settlement it can reasonably expect... and
how to negotiate most effectively.

The knowledge gained probably will be well worth the cost of a few hours of the attorney's time.

With this knowledge, the company can decide whether it is satisfied with the outcome of its talks with the IRS
representative or whether it should press on to obtain a decision by a Tax Court judge.

Caution: The judge's decision in an S case is final -- the company cannot appeal.MORE AMMUNITION

In addition to easing the way to court for small-dollar cases, the new law also provides legal ammunition to
companies in large-dollar court disputes. The new law makes it easier for a company that wins its case in
court to collect its legal expenses from the IRS. New rules...

The company must be the "prevailing party" in a dispute with the IRS.

It must show that the IRS's position was "not substantially justified" -- an easier test than showing it was
"unreasonable" as required under prior law.

It can't have more than 500 employees or a net worth of more than $7 million.

Legal fees can be awarded at the increased rate of $130 per hour (up from $75 under prior law).

Fees can be awarded for a longer period than previously -- from the date of the 30-day letter issued at the end
of an audit, instead of from the later date of a deficiency notice or a determination by IRS Appeals, as under
old law.

These rules increase the attractiveness of filing a court petition in a big-dollar case when the company feels
its position is strong.

Just as with an S-case filing, the company will get another chance to negotiate a settlement as a result of the
filing. And even a possibility of winning a large award of attorney fees improves the company's negotiating
position versus the IRS.