New guidelines for audits of attorneys have just been released by the IRS. It focuses on several potential problem areas unique to attorneys and specifies how audits should be conducted in the context of those.
Many of the particulars of attorney audits revolve around how attorneys are paid (noncash payments like stock or legal services exchanged for reduction of debt) and what attorneys do with their payment, such as deferring payment in trusts. There can also be issues with determining unreported income because of the use of trusts and multiple accounts. There are a number of other specific areas of confusion of difficulty that can arise regarding how attorneys structure and use fees and payments.
As with many fields of business, the W-2 versus 1099 issue can come to a head with attorneys, specifically whether an attorney has misclassified an employee as an independent contractor, and whether attorneys misfield or failed to filed 1099s.
Form 8300, the form filed to report cash transactions of greater than $10,000, is also mentioned as a potentially important aspect when auditing attorneys.
We have represented attorneys in audit situations with the IRS and other organizations. For more information on attorney audits, or other legal situations and tax law concerns, contact the Chicago Tax Lawyers at Howoritz & Weinstein.