Should you hire a lawyer, an accountant, or a professional Tax Representative?
There are some serious questions that need answering before making a decision of what to do about your tax problem.
Should you handle this yourself, hire a Licensed Accountant, hire a Tax lawyer, or should you hire a Professional Tax Representative?
There is a time and place for hiring professionals. Your job is to match your needs with the right professional.
There are no doubts in my mind as to the abilities of various professionals to do a good job. The hard part is picking the right help for the situation.
Lawyers often get a bad rap. When a lawyer is needed, they are mercenaries. That is a good thing. That is just what you need, “a hired gun” to defend your legal rights.
Licensed Accountants often get unjustly blamed for tax problems. Accountants have a license to worry about, they often refer to CRA as a monkey on their back preventing them from being aggressive with CRA in dealing with your best interests.
If all you need is to file your tax returns, as in a demand to file, you should simply hire a good tax accountant. This issue does not require a lawyer. The lawyer just has to hire an accountant to do the work and this will cost you needless extra dollars.
Lawyers and accountants specialize in many different areas. You need to make sure they have EXPERIENCE in dealing with cases such as yours.
If you are going to hire a tax lawyer, I would suggest that you hire a tax litigator. Hiring a tax lawyer who is not a litigator to talk to CRA is a questionable expense at best.
If you are considering client privilege, make sure the lawyer understands the finite difference between solicitor-client privilege and litigation privilege.
Solicitor-client privilege can protect a client from having disclosed confidential communications with counsel in the course of obtaining legal advice. Solicitor-client privilege protects verbal communications with lawyers because citizens must have “full and ready access to legal advice” if they are to know and exercise their legal rights and obligations. If a client knows that communications with counsel will be strictly confidential, he or she is more likely to be candid in discussing legal matters, and the advice is more likely to be accurate and helpful. It is for this reason that the privilege is jealously guarded by the courts, and will only be overcome in exceptional circumstances.
As for litigation privilege, it encompasses materials or communications created for the dominant purpose of litigation. Unlike solicitor-client privilege, it need not involve confidential communications and only exists in the context of litigation. Its rationale is also different: the underlying policy is to ensure that a party to litigation can investigate and prepare without having the fruits of these labours revealed to the other side. As Ontario Court of Appeal Justice, Robert Sharpe, aptly stated in an article written before his appointment to the bench, “litigation privilege aims to facilitate a process (namely, the adversary process), while solicitor-client privilege aims to protect a relationship (namely, the confidential relationship between a lawyer and client).”
So what does the above mean? It means that if you go to a lawyer for advice and you get that lawyer to represent you, then the verbal communication relationship is protected under client-solicitor privilege.
If you don’t hire the lawyer to litigate, I see no advantage to having the privilege.
If you are not hiring the lawyer to litigate for you, the information documentation itself may by vulnerable unless it is to be used in litigation, if some other party needs the information to defend themselves.
In other words, a taxpayer in trouble, needs to know what they need and not blindly think that just any tax professional is the right choice.
Tax Representatives specialize in helping people with CRA tax problems. I believe that a Tax Representative is always where you start. Just make sure that the representative has a lot of experience.
A skilled Tax Representative can even serve as a Material or Expert witness to support you in tax court.
If a lawyer is going to be needed, then your Tax Representative will be the first one to suggest you hire one.
Client confidentiality is not an issue until you are ready to go to CRA or to tax court, and then only if it is clear that you are going to need a lawyer or that CRA will see this as an issue that they wish to pursue. Should CRA pursue you, then you may need a lawyer.
Can a Tax Representative be forced to testify against you? The answer is yes. However, any good representative who sees that you are at a serious risk, will simply recommend a lawyer prior to CRA being contacted. The purpose will be for legal advice in preparation for litigation. The lawyer can then retain the representative to work under them to prepare all the accounting records, which will be protected under litigation privilege.
Your job is to decide what is the best and most appropriate help for your particular situation. Let’s look at the types of problems you may have; Unreported income; This is not necessarily a serious issue if the amounts are small. In many cases the best risk management is to simply file a T1 A adjustment. If the amounts in question are large, then you do need professional help. Have your Tax Representative who is a risk manager, assess the risk and advise you which direction to take.
Requests to file and demands to file (unfiled tax returns) are routine issues and just need to be handled by a highly competent tax accountant. Filing of these types of returns do not usually require a lawyer or even a Tax Representative unless you have some serious issues going on.
Collections definitely require a skilled and experienced Tax Representative, it is not a matter of law, it is a matter of procedures.
Audits are a mission critical situation, where only fools tread fearlessly into dangerous waters. Audits are not legal proceedings, they are simply a legal process of determining the amount tax owing. However an audit is where CRA gets a ton of money from Canadians who think that they have nothing to hide, hence nothing to fear. When the audit is over, then they know what they did not know that they should have feared. An audit is most often a very expensive activity for the taxpayer and a very financially rewarding activity for the TaxMan.
Unpayable tax bills simply require a skilled negotiation, by someone who is a risk manager and is very knowledgeable about what and how to go about the negotiations.
Sometimes an unmanageable tax bill is a matter of bankruptcy, but make sure you get high end tax and risk management advice to see if the problem can be fixed by going to a trustee. By the way a trustee is a Charted Accountant who specializes in bankruptcies. They are usually experts in their fields. Having said that, as in any field, it is a good idea to ask for a referral from someone who knows the business.
Let’s face some facts to consider.
CRA usually just wants your money. You usually don’t need a lawyer to handle your case unless you are charged with tax evasion.
Again… I am not knocking lawyers and accountants, I am just saying hire what is the best risk and value proposition for your particular case.
Even if you are charged with tax evasion, you still need your records put in the proper order. Lawyers are trained to deal with the law. So it is a good idea to have your ducks in order before going to see your lawyer, who will be able to analyze the situation in much less time by having the pertinent facts properly presented to them.
Hiring a licensed accountant to ensure your taxes are done right in the first place is a good idea. However, it may not be such a good idea if you are already in trouble. If you are in danger of an audit, then you need someone like a Tax Representative who knows audit ready bookkeeping. QuickBooks and the like is NOT audit ready bookkeeping. It is anything but audit ready.
Not many licensed accountants have been trained in forensic or audit ready record keeping. So just picking an accountant may be a disaster in your case. You need to find out for sure what exactly is their experience in dealing with CRA battles.
CRA wants to see your records so that they can eliminate any deductions they can for whatever reason they can come up with. Most accountants are not trained to do audit ready bookkeeping, and the accounting software out there is not set up to do audit ready bookkeeping.
Do you need to settle your problems from a legal safety zone? The answer to that question is clearly; “Not likely.” If you are not charged with a crime, then you are strictly in the zone of needing to prevent problems. Going and doing a confession to CRA is likely very risky for people with tax problems. You need to consider other right answers before blundering down that path.
And for heaven’s sake: ASK the lawyer “Are they a Tax Litigator.”
Remember that you should be a good risk manager, you just need to take the appropriate amount of risk management services. If your case is simply one of avoiding trapping yourself, get the right help. Overkill can be too expensive and under kill can be even more expensive. Pick your right help for you; Lawyer, Accountant or Tax Representative.