When Does Tax Litigation Require the Assistance of a Business Firm?

Much like doctors, lawyers often specialize in different fields. As one would not go see a heart surgeon for a broken leg, one should not see a divorce lawyer to handle their criminal charges. However, sometimes the areas of law do cross over. Much like one may need to see various doctors in treating a condition, certain legal matters may require multiple lawyers who practice in different areas. When dealing with tax litigation, a qualified tax litigation attorney should be retained, but there are certain instances where the assistance of a business attorney is also necessary. Some of the main reasons the assistance of a business attorney may be needed are:

  • (1) when the litigation includes non-tax related issues; and
  • (2) when the litigation is outside the IRS system.
  • Business Firm

    When the Litigation Includes Non-Tax Related Issues

    When in court over taxation issues it is best to retain an experienced tax litigation attorney; however, when the taxation issue involved non-tax matters, a business (“commercial”) litigator may be brought on to assist with the non-tax related issues. Resolving tax controversies with the Internal Revenue Service and U.S. Department of Justice requires specialized knowledge and expertise. While not to diminish from tax litigation specialists, these skills may not cross over to complex non-tax issues. A business attorney would have the knowledge necessary to handle the non-tax issues while the tax litigation firm could handle the tax related controversy. Additionally, non-tax attorneys may be utilized by tax attorneys as expert witnesses if specialized knowledge is needed. Expert witnesses’, “testimony…is admissible if and because it will assist the trier of fact to understand evidence that will determine a fact in issue.” According to the Federal Rules of Evidence a witness is qualified as an expert if, “the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue…” In matters pertaining to taxation of businesses, a business attorney or a tax attorney may possess the requisite knowledge to qualify as an expert witness.

    Of course, nobody wants to go to court if they don’t have to; avoiding tax litigation through solid business and tax planning is the best scenario. Sound and robust business documents and proper tax planning may alleviate the headache of litigation. An example of a situation where proper business planning could have avoided serious problems can be found in Nwabasili v. Commissioner, two brothers formed a partnership in order to promote events and sell used cars. When the petitioner was found to have not paid his full income tax the burden was on Nwabasili to prove there in fact was a partnership created. While the court ultimately found there was a partnership created, the fact that “many of the business documents referred to his brother and not him…” was not of assistance. In this instance, having properly completed business documents could have prevented litigation with the IRS determining if there was a validly formed partnership. Consulting with a competent tax attorney and a competent business attorney could have prevented the litigation altogether.

    Furthermore, there are specific businesses that have various tax implications based on the way the business is structured and licensed. For instance, marijuana is a schedule 1 drug under the Controlled Substances Act, and as such, it is basically illegal at the federal level to sale, possess, distribute, grow, or produce marijuana or marijuana products. However, several states have passed medical and/or adult use marijuana programs within the state system. Due to the federal status, there are several tax implications with operating a marijuana business. Therefore, advise of a tax attorney should be sought. However, often these tax attorneys do not have the knowledge required to help with obtaining the privileged licenses to operate the business and to assist with regulatory compliance work. Therefore, in addition to a tax attorney, a business attorney with marijuana knowledge should be retained to assist with the operation of the business.

    When the Litigation is Outside the IRS System

    Tax litigation is typically handled within the IRS system and there are options for fast-track settlement or mediation that can be utilized before proceedings have begun in court. Some of the rules applied in the U.S. Tax Court are drastically different than those applied in other types of cases. For example, within the Rules of Practice and Procedure of the United States Tax Court, the burden of proof is on the petitioner. As opposed to criminal cases where the government has the burden of proof and in civil cases where the plaintiff has the burden of proof, in tax court the government is presumed to be correct. Furthermore, in Frank Lyon Co. v. United States, the court stated that “In the field of taxation, administrators of the laws, and the courts, are concerned with substance and realities, and formal written documents are not rigidly binding.” A shifted burden of proof and different interpretations of evidence allow the United States Tax Court to function on a different plane from the usual court system.

    In certain circumstances there may be issues that need to be handled outside the IRS system and this may call for a commercial litigation firm who would have more experience in those courts. An example of such a situation would be where a one partner in a business is forced to sue another for failing to pay his share of the taxes due under the partnership. Once such a case is resolved through settlement, arbitration or a verdict, the claimant and their commercial litigation attorney may need to consult with a tax lawyer to ensure that the settlement documents are structured in their favor.

    Connor & Connor PLLC is a boutique law firm located in Henderson, Nevada. Connor & Connor PLLC specializes in providing the very best in legal services while aggressively protecting the rights of our clients. Our attorneys are licensed to practice law in all Nevada state and federal courts. Our attorneys focus their practice on business law, business formation, transactions, civil litigation, zoning, land use, and restricted use licensing. If you are in need of legal services, our attorneys are ready to put their years of experience to work for you. Read more about the legal services we provide, and contact us for a consultation.

    Connor & Connor PLLC
    710 Coronado Center Drive, Suite 121
    Henderson, Nevada 89052
    Office: 702-750-9139


    Silver Law PLC operates in Arizona and Nevada and all of its lawyers are former trial attorneys for the IRS. A tax lawyer from our team can help you understand how the complex Tax Code applies to your marijuana business operations. We’ll help you ensure that you are meeting your obligations. If you have been audited or are facing collections, we are also in a position to help you navigate that process. We can either find ways to bring down your tax debt or can negotiate a settlement for you. Call us today to talk with a tax lawyer near Las Vegas or consult with a tax law firm in Phoenix to learn more.

    Silver Law PLC
    7033 E Greenway Pkwy #200
    Scottsdale, AZ 85254
    Office: 480-429-3360

    Silver Law PLC (Las Vegas)
    410 S Rampart Blvd Suite 390
    Las Vegas, NV 89145
    Office: 702-318-7130


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