Four Legal Issues to Consider Before Filing Taxes

AUSTIN, Texas—Tax season is here, and while millions of Texans have begun filing their taxes, many may be unaware of the rules that apply to them. According to the IRS, more than 50 million Americans prepared their own taxes in 2015 without the help of a tax professional. Texas Legal, the statewide nonprofit legal insurance plan founded by the State Bar of Texas and the Texas Legislature, advises Texans who have questions about their taxes to seek the advice of a tax law attorney or CPA.

Taxpayers who incorrectly file their taxes and are contacted by the IRS may find it difficult to navigate the legal process alone.

“The IRS has very strict deadlines that apply to tax controversies. If a deadline is missed, there may be no way around it,” Nicholas Souza, a Texas Legal participating attorney, said. “This is one of many reasons why it’s important for a taxpayer to get representation as soon as they hear from the IRS. The attorney or CPA will know the deadlines relevant to the taxpayer’s case and will know what needs to be done.”

Souza recommends Texans consider the following issues before filing their taxes:

• Joint and Several Liability & Innocent Spouse Relief: When married couples file a joint return, they share liability for taxes from either spouse for that tax year. In situations where one spouse controls the finances, or hides significant income or other activity, this can result in the other spouse being liable for a tax debt they did not control. Some taxpayers in this situation may qualify for innocent spouse relief which will reduce their tax liability.
• Charitable Deductions: A charitable deduction is defined as a gift made to a charitable entity. Substantiation rules require receipts or other records from the charity in order to claim the deduction. Without documentation, the taxpayer may lose their deduction and possibly pay a penalty.
• Frivolous Issues Penalty: If a taxpayer makes an argument to the IRS that is not based in the law or regulations, they can be penalized. For example, claiming certain exemptions or deductions that do not exist or may not apply to the individual will result in a penalty.
• Failure to File, Failure to Pay and Accuracy-Related Penalties: When a taxpayer fails to file a return or pay the full amount shown on the return, penalties begin to accrue. These two penalties combined can be as high as 25 percent of the unpaid taxes. The accuracy-related penalty applies when a taxpayer underpays their tax liability. This penalty is 20 percent of the underpayment due to certain inaccuracies. Taxpayers should avoid these types of inaccuracies if at all possible.

Typically the cost for legal representation paid privately—without legal insurance helping to defray the cost—can cost thousands and often tens of thousands of dollars depending on what is involved. Having legal insurance coverage provides access to legal assistance at no cost beyond reasonable monthly premiums (subject to plan limitations) and will help protect plan members.

Texas Legal membership covers legal expenses much like health insurance covers medical expenses. A low monthly fee gives members access to a network of over 500 qualified attorneys throughout the state. To learn more about Texas Legal or to become a member, please visit www.texaslegal.org.

About Texas Legal

Formerly known as Texas Legal Protection Plan, Texas Legal is a statewide, nonprofit legal insurance plan that was founded by the State Bar of Texas and the Texas Legislature in 1972 as an effort to better serve the legal needs of Texans. Texas Legal is the preferred provider of the State Bar of Texas. The nonprofit offers plans for companies, group and individuals.

For more information, please visit www.texaslegal.org.

Contact: Kat Harris or Katherine Arnold, 512-472-9599  karnold@echristianpr.com or kharris@echristianpr.com