Tax Law

Last reviewed on April 27, 2026.

Understanding tax law

Tax law is the set of rules that determines who owes money to the government, how much, and what happens when someone doesn't pay. The federal layer — the Internal Revenue Code (Title 26 of the US Code) — is where most large disputes happen, but every state and many cities run their own tax systems on top. For practical purposes, "tax law" as a legal practice usually means three things: planning (structuring transactions to minimise tax legitimately), compliance (filing returns and meeting deadlines), and controversy (dealing with the IRS or a state tax agency when something has gone wrong).

Most readers will only encounter tax law in the controversy mode — an audit notice, a balance due, a wage levy, a state tax bill from a year they barely remember. Knowing how the system is structured lets you respond quickly enough to keep options open. Tax problems get worse on a deterministic schedule: penalties compound, interest runs daily, and statutes of limitations expire. Acting early almost always costs less than acting late.

How a federal tax controversy unfolds

The IRS contacts taxpayers in writing first. A correspondence audit comes as a letter asking for documentation of specific items. An office or field audit involves a meeting with a revenue agent and broader review. After examination, the IRS issues a 30-day letter proposing changes; the taxpayer can accept, request a meeting with the IRS Office of Appeals, or wait for a Statutory Notice of Deficiency (the "90-day letter"), which preserves the right to file a petition in US Tax Court without first paying the disputed amount. Tax Court is unusual among federal courts because it allows pre-payment review — most other tax disputes have to be paid in full before they can be litigated in district court or the Court of Federal Claims.

State tax law in brief

State tax systems vary enormously. Most states impose an income tax (a few — Florida, Texas, Tennessee, Washington, and others — do not), and almost all impose sales-and-use tax with widely different rates and exemptions. State tax agencies have their own audit, appeals, and collection procedures, broadly similar to the federal model but on a separate timeline. Multi-state issues are particularly common for remote workers and small online businesses, where "nexus" rules (especially after the Supreme Court's Wayfair decision) determine whether a state can require you to collect or pay tax there.

Common Tax Problems

Tax Relief Options

Offer in Compromise

Settle tax debt for less than owed based on:

• Doubt as to collectibility
• Doubt as to liability
• Effective tax administration

Installment Agreements

• Guaranteed: Under $10,000, paid within 3 years
• Streamlined: Under $50,000, paid within 72 months
• Non-streamlined: Requires financial disclosure

Currently Not Collectible

Temporary halt to collection when payment would cause hardship. Statute of limitations continues running.

Innocent Spouse Relief

Relief from joint liability when spouse/ex-spouse improperly reported items without your knowledge.

Tax Planning Strategies

• Entity selection for businesses
• Estate and gift tax planning
• Retirement planning
• Charitable giving strategies
• Tax-deferred investments
• International tax planning

IRS Audit Process

1. Notification letter
2. Information gathering
3. Examination
4. Proposed adjustments
5. Agreement or appeal
6. Tax Court if needed

When to Hire a Tax Attorney

• IRS audit notification
• Tax debt over $10,000
• Criminal investigation
• Liens or levies
• Business tax issues
• International tax matters
• Estate tax planning
• Tax Court litigation

Tax attorney vs CPA vs enrolled agent

• Tax attorney — A licensed attorney who specialises in tax. Communications with a tax attorney are protected by attorney–client privilege, which matters in any case that has criminal exposure or is likely to involve litigation. Tax attorneys can represent you at any level, including federal and state court.
• CPA — A licensed accountant who can prepare returns, advise on planning, and represent you before the IRS. Useful for most planning and compliance work; communications generally do not have privilege in criminal matters.
• Enrolled agent — A federally licensed tax practitioner authorised to represent taxpayers before the IRS. Often a cost-effective choice for routine controversy work (audits, instalment agreements, offers in compromise).

For dollar-stakes and complexity that fit a routine examination — a $4,000 disputed deduction, a missing-receipt audit — a CPA or enrolled agent is usually adequate. For criminal exposure, large dollar amounts, complex business or international issues, or anything you expect to litigate, work with a tax attorney from the start.

Common, avoidable mistakes

• Ignoring an IRS letter. Each notice has a deadline. Missing it almost always closes the cheapest option.
• Filing a return you cannot pay. Filing a return — even if you can't pay — usually beats not filing. The failure-to-file penalty is far larger than the failure-to-pay penalty.
• Paying personally for a business's payroll taxes. Trust-fund recovery penalty rules can attach personal liability to anyone who is responsible for collecting and paying over employee withholdings.
• Treating a notice of deficiency as a bill. It is not. It is a court document. The 90-day window to file a Tax Court petition is jurisdictional and cannot be extended.

Related resources

• Business law overview
• Estate planning (estate and gift taxation overlap heavily)
• Find a tax attorney
• Tax terms in the legal glossary