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Avoiding Criminal Tax Charges ..and Prison

Facing criminal tax charges would surely be a horrific nightmare for anyone so unfortunate to be so accused. Just the mere allegation and subsequent investigation can have very damaging emotional, financial, and reputation effects even where the wrongly accused is later found innocent.

If you or your CPA, EA, tax preparer, or bookkeeper merely even suspect that you might be subject to a criminal or civil tax fraud investigation you would be very wise to immediately consult with an experienced criminal tax attorney. Proper criminal tax defense representation is indispensable in helping you mitigate the potentially devastating consequences surrounding a criminal tax investigation or alleged charges of tax fraud, tax evasion, embezzlement, or failing to file tax returns.

Decisions that you take during the course of a tax audit can rapidly transform a simple examination into a full blown CID criminal tax investigation. Lying or being evasive, intentionally delaying, being rude and non-respectful, nervous body language, and sweating profusely, can all be interpreted as indicia of tax fraud during a civil examination.

These indicia, or more commonly referred to in the profession as “Badges of Tax Fraud”, are covertly and mentally tallied by civil tax examiners in determining whether to make a referral to the Criminal Investigation Division of the IRS or in a decision to access a civil fraud penalty.

Frequently Asked Questions

Our tax law library “frequently asked questions” provide in-depth explanations from a legal, financial, and practical aspect on a wide variety of tax topics, all written or edited by David W. Klasing, a dual California licensed tax attorney and CPA with over 20 years of focused experience in taxation.

Examples of Badges of Tax Fraud:

Maintaining inadequate records or destroying records
Failing to file tax returns
Providing implausible or inconsistent explanations during civil examination
Concealing assets during collection of tax liabilities or examination
Failing to cooperate with tax authorities
Displaying belligerent, rude, or disrespectful behavior to an IRS agent
Excessive dealing in cash
Filing false returns
Intentionally underreporting or omitting income
Overstating deductions or claiming false deductions
Hiding or transferring income with relatives or related entities
Keeping false records of your income or “second set of books”
Falsifying books or records “forgery”
Claiming fake dependents
Falsely claiming credits
Arranging affairs for the sole purpose of tax avoidance in a manner that lacks economic substance
Prematurely destroying records
Taking positions on a return that are “more likely than not” to be disallowed if discovered without sufficient disclosure

In my honest opinion the most dangerous part of a civil tax audit is the very real possibility that the IRS civil tax auditor upon suspecting that fraud may have occurred, because of his assessment of the Badges of Fraud that he or she suspects are present, might request a consultation with a fraud referral specialist whose sole job it is to covertly assist the examining agent in working up your case for referral to CID.

A substantial majority of reported convictions in criminal tax cases involve taxpayers who cooperated fully early in the civil examination, without properly trained tax counsel, and either lied or made damaging admissions to civil examiners, or worse yet, to CID special agents.

Moreover, CID agents have the advantage during the first interview with a taxpayer in that they have reviewed tax returns, they have spoken with the civil examining agent and possibly with a fraud referral specialist and they know the direction and scope of the investigation, consequently unrepresented taxpayers are at a distinct disadvantage.

What is at Stake where Tax Fraud May Have Occurred?

The stakes where Badges of Fraud exists in a taxpayer’s fact pattern going into a civil tax audit or CID criminal investigation range from at best, a civil tax fraud penalty, equal to 75% of the additional tax owed as adjusted in the civil tax audit, plus interest on the penalty back to the original filing date of the return being audited. To at worst, up to 5 years in jail, coupled with fines as high as $500,000, plus the costs to the government of prosecuting you for each separate crime.

The IRS historically obtains convictions in over 80% of their criminal tax cases. The average sentence imposed by the federal government for Tax Crimes is forty-eight months. I am not talking “Club Fed” here, complete with a golf course, but rather I’m talking about a real high security prison, surrounded by barbed wire, complete with overcrowded barred cells. Because the stakes or so high, it is imperative that you consult an experienced criminal tax defense attorney in order to exponentially increase your odds of avoiding such a potentially life altering array of punishments.

I am most effective at minimizing the odds of a client facing criminal tax exposure when clients engages me early in a civil investigation before a criminal investigation is even started. It is a well known fact that the vast majority of criminal prosecutions originally arise as referrals from civil examinations. The IRS Criminal Investigation Division trains each examining agent to be their eyes and ears and be on the lookout for Badges of Fraud that come to light during routine civil examinations.

Therefore, the best defense to avoiding criminal charges, is to minimize the risk of a criminal referral out of a civil examination. My training as an Attorney, a CPA and my Master’s Degree in Taxation coupled with over 20 years of real world tax controversy representation, including sitting on the California State Bar Tax Procedure and Litigation Committee, lends itself extremely well to limiting your criminal tax exposure and to minimizing the potential damage if this exposure materializes into a CID Criminal tax investigation.
criminal tax attorney - Ready to provide Criminal tax defense

Obtaining an experienced criminal tax attorney is imperative when faced with strategic decisions such as whether to speak freely and candidly with a civil tax examiner or Criminal Investigation Division (CID) Special Agent or whether to remain silent. Only a criminal tax attorney is specifically trained to advise you on when to avail yourself of the powerful constitutional protections afforded by the fifth amendment protection against self incrimination and forth amendment protection against unreasonable searches and seizures in the tax arena. The hardest element for the government to prove, and thus the weakest part of their case, is that your actions were intentional. Consequently, I will use these constitutional protections in an effort to prove that you were not intentionally fraudulent.

At some point during a civil examination or criminal investigation you will ordinarily find yourself explaining your previous actions regarding your return to an IRS agent. If you know for a fact that you, or perhaps an overzealous tax preparer, substantially understated income, overstated deductions and or falsely claimed credits for example, (See Examples of Badges of Fraud above) then it is imperative that you consult a criminal tax attorney before your initial communication with the examining IRS agent. An experienced criminal tax attorney will coach you on what you should and should not say, they will make you conscious of the fact that IRS auditors are trained to observe your body language and demeanor, they will help you visualize the situation such that you do become so nervous that you wind up inadvertently incriminating yourself. Because it is a crime in and of itself, to lie or mislead a federal agent. You really only have two choices when faced with an interview by and IRS agent. 1. Say nothing 2. Tell the truth.

Taxpayers who find themselves faced with a alleged charges of tax fraud, tax evasion, or other tax controversy, whether they know it or not, are in urgent need of a highly trained and experienced criminal tax defense attorney. My experience and education dictates that garnering a head start on the Internal Revenue Service (IRS) or other taxing authority when faced with criminal tax charges is imperative to securing any advantage possible under the circumstances. Having sufficient time to conduct an independent investigation into the positions taken on the returns in question, time to research legal and defense options specific to the client’s fact pattern, time to interview potential witness, time to review the effected accounting and financial records for badges of fraud, all help minimize the client’s exposure to being convicted of a tax crime. A sufficient head start can be the difference between facing misdemeanor rather than felony charges, or better yet facing no charges at all.

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How Does a Government Entity Decide to Pursue a Criminal Tax Charge?

The final decision to prosecute a criminal tax case is the culmination of a lengthy and complex administrative process which affords experienced and qualified criminal tax counsel ample opportunities to attempt to present an effective defense. Tax Crimes are first investigated by the Criminal Investigation Division (CID) of the Internal Revenue Service. CID uses a variety of criteria in selecting cases for investigation, the heaviest weight is placed, however, on how likely a prosecution is to result in a conviction.

Any recommendations by CID to prosecute an alleged tax crime are then reviewed by the District Counsel of the IRS. If the IRS District Counsel approves the recommendation, the case is then referred to the Tax Division of the Department of Justice. If after reviewing the case the Tax Division makes a recommendation to prosecute, the case is referred to the U.S. Attorney for possible prosecution if accepted by the U.S. Attorney’s office. Effective criminal tax counsel can effectively argue that factors such as poor health, family problems, emotional problems est. that tend to create sympathy for the taxpayer and thus make it unlikely that the taxpayer would be convicted are present, and thus prosecution may be declined at any point in this lengthy process by effective tax counsel.

Examples of Available Defenses and Mitigation Techniques:

Defense counsel may attempt to convince CID or Grand Jury investigators that his or her client is much more valuable to them as a witness against other potential or actual targets than as a criminal tax defendant.

Statute of Limitations: Arguing the statute of limitations for the specific tax crime has tolled.
Establishing Deceit on the Part of a Civil Examiner: Defense counsel can endeavor to establish that an examining agent affirmatively misled the taxpayer about whether there was an ongoing covert criminal tax investigation and that this deceit was a material factor in the taxpayer’s decision to give information to the examining agent when the taxpayer had a valid Fourth Amendment right not to. Courts have held that his type of deception will invalidate a taxpayer’s consent to the examination of his records and make the examination an unreasonable search and seizure in violation of the Fourth Amendment.
Techniques Available During the Criminal Investigation: Monitoring and anticipating the course of an investigation in the hopes of limiting, or where possible, eliminating potential criminal tax exposure. To this end, potential witnesses can be interviewed by tax defense counsel, or an investigator hired by counsel, before a CID special agent has made contact. Defense counsel will warn taxpayers under CID investigation that statements made to business associates, friends, his accountant, or an investigator may be passed on to the CID special agent because they are not privileged communications.
Entrapment: If tax defense counsel can prove that a government agent induced a taxpayer to commit a tax crime that the taxpayer otherwise would not have committed, the defense of entrapment may be available. However, merely allowing a taxpayer to continue criminal conduct that was already started is not entrapment. The key to this defense is that the disposition to commit the crime must come from the government agent and not the taxpayer.
Block IRS Summonses: Defense Counsel can object to an agent’s summonses based on protections of confidentiality that may apply to tax advice given by a federally authorized tax practitioner to the taxpayer. However, this privilege may be properly asserted only in noncriminal tax matters before the IRS or in any noncriminal tax proceedings in federal court brought by or against the United States.
Techniques Available During the Administrative Review of Criminal Investigation: During administrative review level of potential criminal prosecution cases, effective tax defense counsel has the ability to raise several defenses that if successful may cause case to be declined. These include lack of criminal intent, no tax due, defects in method of proof, dual prosecution, health, and the improbability of a conviction. A taxpayer may avoid prosecution by showing that he was previously prosecuted for substantially the same acts. The poor health of a taxpayer will not by itself prevent prosecution. However, if poor health and other factors creating sympathy for the taxpayer appear to make it unlikely that the taxpayer will be convicted are present, Defense Counsel can attempt to persuade the government that prosecution should be declined.
Attempt to Prevent the Government From Proving Fraudulent Act(s) were Intentional: Proving that a taxpayer acted intentionally in violation of a known legal duty is a critical element of most of the government’s criminal tax cases and is therefore ordinarily the most difficult element for the prosecution to prove. In the absence of a confession or the testimony of an accomplice, intent usually must be established by circumstantial evidence concerning the taxpayer’s actions. The admissibility of circumstantial evidence is frequently a close question that criminal tax counsel can endeavor to suppress.
Safeguard the Government’s use of Circumstantial Evidence: When the IRS relies on indirect or circumstantial methods of proof, guidelines established by the courts establish safeguards that must be complied with in the use of that circumstantial evidence. Effective tax counsel can ensure that these safeguards are complied with.
Compromise: Under the law, statutory authority exists for the Secretary of the Treasury and the Attorney General to compromise criminal tax cases without prosecution. However, this authority to compromise criminal cases is rarely used because allowing a defendant to buy his way out of criminal prosecutions would in effect create separate systems of justice for the rich and the poor.
Pleas: Historically, by far the vast majority of the criminal tax indictments brought result in pleas. Each U.S. Attorney is authorized to accept a plea of guilty to the major count of an indictment without prior approval of the IRS. Federal prosecutors are required to initially charge the most serious, readily provable offenses that are consistent with the defendant’s alleged conduct. Typically, once charges are brought, they will not be dismissed or dropped under a plea agreement unless the prosecutor has a good faith doubt about the government’s ability to prove a charge based on either a perceived legal or evidentiary weakness in the case. By contrast, the IRS does not typically settle civil tax matters as part of a plea agreement although it has the statutory authority to do so. This rational for this is to avoid the appearance that the IRS uses the criminal process to coerce the collection of civil tax liabilities. This policy does not prevent the defendant from agreeing to civil admissions, such as receiving unreported income or claiming fraudulent deductions, as part of the criminal plea agreement. Information that the taxpayer provides in a civil case may also be used in a criminal case against the taxpayer. Thus, cooperating with a criminal investigation with or without proper legal counsel may have unexpected drawbacks for the taxpayer.

If You Have Been Charged with a Tax-Related Crime

Contact me online or call 800.681.1295 to speak to me to discuss your case.

My Orange County tax law office is conveniently located in Irvine, next to John Wayne Airport. I also have offices in the Westwood area of West Los Angeles a short distance from the 405 freeway on Wilshire Blvd. Office hours are 9 a.m. to 6 p.m. Monday through Friday, and later evening appointments are available by pre-arrangements. The office is open Monday through Saturday during tax season (February through April). Major credit cards are accepted.

Questions and Answers for Criminal Tax Representation

If you are facing criminal tax charges or have concerns that an eggshell audit or criminal tax investigation is looming or already underway against you or your small business, you likely already know how serious your situation is. The time is now to contact a dual licensed Criminal Tax Defense Lawyer & CPA to help you prepare your defense and assess options to protect your bottom line and your very liberty.

This starts with an understanding of the stages of an audit, criminal tax investigation, tax crime indictment, and prosecution, as well as the red flags that may pique the interest of the IRS or the California Franchise Tax Board (FTB), California Department of Tax and Fee Administration (CDTFA) and the Employment Development Department (EDD) and trigger the entire sequence. You should also know what is at stake when it comes to the various types of criminal tax charges, and how to evaluate plea deal offers as they come.

Most criminal tax violations involve failing to file a return or providing false return information. A taxpayer risks incurring serious penalties, including jail time, for failing to file a return, supplying false or fraudulent returns or information, encouraging or counseling tax evasion, and failure to pay estimated taxes.

Federal authorities file most criminal tax charges. However, California also has laws prohibiting both individual and corporate tax evasion and fraud and its own robust criminal tax investigation resources. Tax law is a specialized area of practice. It is important for the practitioner to be familiar both with the applicable tax laws and the criminal statutes & procedure where a taxpayer is targeted for failure to follow those laws. Rather than trying to take this all on yourself, we urge you to reach out to one of the Dual Licensed Criminal Tax Defense Lawyers and CPAs at the Tax Law Offices of David W. Klasing. Learn more about the benefits of our range of services, numerous locations, client prioritization, and experience by calling (800) 681-1295 today.

Representing a taxpayer or entity that is the subject of a criminal tax investigation requires specialized education, training and experience and a keen understanding of the internal investigative procedure of the IRS and California taxing authorities. At the Tax Law Offices of David W. Klasing, we pride ourselves on having a long track record of success in this area. Oftentimes, a general criminal defense lawyer or an accountant may think there is not much that can be accomplished prior to the indictment of the client. In fact, the opposite is true, for there is much that can be done to defend a subject of a criminal tax investigation, eggshell, or reverse eggshell audit before indictment and in our opinion the highest odds of avoiding criminal tax prosecution are achieved when we are hired early in the investigation stage of an actual or merely potential criminal tax issue. Ideally, the criminal tax defense attorney will be hired early on for their knowledge of tax law and theory and familiarity with the internal workings of the Service. The goal would be to close the criminal tax investigation or high-risk audit without prosecution and without the corresponding extremely negative publicity surrounding an indictment.

The Start of the Criminal Tax Investigation

The IRS uses many sources of information to lead them to begin the investigation into a potential tax fraud case. Criminal investigations can be initiated from within the IRS when a revenue officer or civil tax auditor detects possible fraud. In addition, special agents also receive tips from disgruntled friends or family members, newspaper articles, and large cash transactions. The government has made it very lucrative to become a tax fraud whistleblower and turn in individuals and companies that are involved in financial crimes. Those tipsters are now entitled to a reward in the form of a percentage of the taxes collected as a result of the tip. In some cases, these rewards total in the millions of dollars—quite an incentive!

When the source is an IRS auditor or collection agent involved in the investigation of a civil violation, it is difficult to determine when the special agent of the IRS’s criminal investigation division (CID) should get the referral for the criminal investigation. The Internal Revenue Manual requires employees to stop civil investigations on discovering firm indicators of fraud. Firm indicators of fraud are affirmative acts of fraud by an individual or business. Once a revenue agent establishes firm indicators of fraud, that agent must cease all work on the civil audit, prepare a Form 2797, Referral Report for Potential Fraud Cases, provide the form to their supervisor, and receive approval to refer the case to CID.

Once they receive the initial information, special agents must analyze the information and make a determination as to whether a financial crime has been committed. This is the “primary investigation.” A primary investigation is an investigation of individuals where there is believed to be a violation of tax laws, and there is a potential for prosecution. If, after the primary investigation, the agent determines that the information supports a criminal act, the information must be presented to the special agent’s front-line supervisor to review. If the front-line supervisor agrees that the information supports a possible financial crime, the supervisor must seek the approval of the special agent in charge (SAC) to initiate a subject criminal investigation (SCI). An SCI is initiated on an individual or entity alleged to be in noncompliance with the laws enforced by the IRS and having criminal prosecution potential. The object of an SCI is to gather pertinent evidence to prove or disprove the existence of a violation of the laws enforced by the IRS.

Criminal investigations are not always initiated based on a referral from an auditor or collection agent. In some cases, the investigation begins with CID. These investigations are referred to as “general investigations.” A general investigation is a study, survey, canvassing, or coordination activity related to a group, an activity, or a CID program/sub-program to identify possible noncompliance with the laws enforced by the IRS.

Avoiding Criminal Tax Charges ..and Prison

Willfully making and subscribing a return, statement, or another document, verified to have been made under penalty of perjury, which is not believed to be true and correct.
Willfully aiding or assisting in, or procuring, counseling, etc., the preparation or presentation of false or fraudulent returns or other documents, regardless of whether the falsity or fraud is with the knowledge or consent of the person required to file the document.
Simulating or falsely or fraudulently executing or signing a required document, procuring such a document, or advising, aiding, or conniving in its execution.
Removing, depositing, or concealing goods or commodities with intent to evade or defeat a personal income tax.
Willfully concealing property, destroying, withholding, or falsifying records, or making false statements in connection with a closing agreement, settlement, or compromise relating to a tax liability, or an offer to enter into an agreement, settlement, or compromise.

In order for a defendant to be guilty of a felony tax offense, the defendant must act “willfully.” The term “willfully” means that “the defendant in voluntary, intentional violation of a known legal duty.”

Examples of Badges of Tax Fraud:

Maintaining inadequate records or destroying records
Failing to file tax returns
Providing implausible or inconsistent explanations during civil examination
Concealing assets during collection of tax liabilities or examination
Failing to cooperate with tax authorities
Displaying belligerent, rude, or disrespectful behavior to an IRS agent
Excessive dealing in cash
Filing false returns
Intentionally underreporting or omitting income
Overstating deductions or claiming false deductions
Hiding or transferring income with relatives or related entities
Keeping false records of your income or “second set of books”
Falsifying books or records “forgery”
Claiming fake dependents
Falsely claiming credits
Arranging affairs for the sole purpose of tax avoidance in a manner that lacks economic substance
Prematurely destroying records
Taking positions on a return that are “more likely than not” to be disallowed if discovered without sufficient disclosure

Special Agents have many powers, such as:

The ability to examine books and records.
Taking testimony under oath.
The use of summonses.
Serving and executing search warrants.
The right to make arrests if a tax felony is committed in their presence or they have reasonable grounds to believe a tax crime was committed.

It is their duty to gather information to determine if a crime was committed and to gather evidence for a successful prosecution.

CID has four main programs of investigation: (1) Legal Source Tax Crimes; (2) Illegal Source Financial Crimes; (3) Narcotics-Related Financial Crimes; and (4) Counterterrorism Financing. Legal Source Tax investigations involve taxpayers in legal industries and legal occupations who earned income legally but choose to evade taxes by violating tax laws. The Illegal Source Financial Crimes Program encompasses all tax and tax-related violations, as well as money laundering and currency violations. All income is taxable, including income from illegal sources, such as drug trafficking. CID’s contribution to the war on narcotics is vital, including long hours of tracking down and documenting financial leads that allow an investigation to go right to the door of the leader of the narcotics organization. CID also supports various federal agencies in providing financial investigative assistance in terrorism matters.

Managing Eggshell Audits

An eggshell audit refers to the possibility that the subject of a civil audit could, under pressure, crack open and provide information leading to a referral for criminal tax investigation. As an attorney advising a client facing an eggshell audit, our goal is clear: the resolution of the audit without a referral by the civil examiner to CID. Without the help of attorneys specializing in the area, reaching that goal can be difficult, complex, and perilous for you.

Once we determine that our client is facing an eggshell audit, our primary goal always is to prevent the initiation of a criminal investigation. When potential criminal issues are present, financial issues are, temporarily at least, relegated to the back burner. Consequently, if the auditor proposes to close an eggshell audit by making adjustments that you deem excessive or subject to challenge, the better part of discretion usually is to agree to the proposed assessment and move on. The value in ending the audit and preventing any further digging by the revenue agent is that great.

If the revenue agent keeps prying, we file a power of attorney with the IRS’s Centralized Authorization File (CAF) unit so that any notices sent to you will also be sent to us. Further, having a Power of Attorney (IRS Form 2848) on file will allow us to regularly request account transcripts, thereby keeping tabs on IRS-initiated developments in the case. Familiarity with the codes utilized by the IRS on your account transcripts may provide clues as to whether a criminal investigation has begun. Third, we will request the identification of third-party contacts the IRS has made. Extensive IRS efforts to contact third parties may be indicative of a brewing criminal referral. Fourth, we may choose to file a Freedom of Information Act (FOIA) request seeking the auditor’s case activity reports, case notes, and other material that could provide insight into the auditor’s thoughts on the case. A FOIA request may be made for any records in possession of the IRS, subject to the IRS’s confidentiality obligations (meaning that a POA will be necessary), but may not be used to compel the IRS to create documents or research or analyze an issue.

Our Role as Criminal Defense Attorneys

If a revenue agent suspects fraud, the IRM directs the agent to notify his manager and a Fraud Enforcement Advisor (FEA). The role of an FEA is to serve as a resource and liaison to compliance employees (e.g., revenue agents) and assist in fraud investigations and offer advice on matters concerning tax fraud. Thereafter, the goal of the revenue agent and the FEA working on the case will be to establish sufficient affirmative acts to confirm a finding of fraud. In all likelihood, the revenue agent will seek to gather as much information as possible before making a referral to a criminal investigation because once such a referral is made, IRS policy generally mandates that the civil audit cease. The revenue agent will not volunteer the fact that he is working with an FEA to build a case for criminal referral.

Our role will include becoming involved in the investigation at the earliest possible time. Initially, we will strive to protect you by not furnishing information to the special agents or at least limiting the amount of information that may be voluntarily given to the Service. This is because we would need time to discern the nature of every representation and to review relevant records.

In our experience, clients often are not candid, especially at early meetings, cannot recall specific events, confuse the time frame of occurrences, or merely do not advise of all of the relevant facts for various reasons. This consideration can be especially important in criminal tax investigations, which likely involve events occurring two to five years prior to the time of the investigation. Taxpayers, witnesses, and even professionals become confused about the facts and timing of events that had taken place and when they occurred. It is of obvious importance to gather accurate information so we are secure in the facts and can discern what information to disclose to the special agents in your best interest. It is very difficult to be placed in a position of trying to explain the inaccuracies of previously proffered information. If the source of the inaccurate information happens to be the client, the Service often will treat such misstatements as attempts to mislead the special agents in their investigation and use it as evidence of willfulness or as the basis of an additional charge for obstruction.

The special agent’s intent will be to interview you in as much detail as possible, so we will act as a buffer between you and the special agent. Experience has taught us that there are few facts if any, that a taxpayer can relate to a special agent that can help the taxpayer. Special agents, as criminal investigators, have a very strong tendency not to believe any evidence helpful to the taxpayer without a third party or documentary verification. However, special agents are trained to believe the accuracy of every incriminating statement made by the taxpayer and appreciate any leads to source or incriminating evidence provided by the taxpayer.

Thus, as criminal tax defense attorneys, we step into this protective position and advise the special agent not to contact you and to make any inquiries or comments directly to us. We always can then filter the questions asked and provide answers to those questions that we believe are necessary to your defense.

What is at Stake where Tax Fraud May Have Occurred?

Preparation for an audit is crucial, especially where the seemingly civil audit could likely morph into an eggshell or reverse eggshell audit. As an attorney representing a client undergoing an IRS audit, we strive not to be surprised by anything raised by the IRS agent conducting the audit or disclosed by you to the IRS during the course of the audit. Preparation for an audit involves interviewing the taxpayer and conducting independent research based on our understanding of the issues likely to be raised. For instance, unreported income may be an issue in the audit, so we would review your bank statements, 1099s, and other evidence of income to get an idea of whether a material discrepancy between taxable income received and reported for the year(s) under audit exists. If you have claimed deductions relating to a home office, a visit to your home to verify the legitimacy of the deduction may be worthwhile. If your business is under examination, a visit to the business to review its record keeping and accounting processes could be helpful. If a sale of your investment property appears to be an issue in the examination, we would obtain copies of the settlement sheet and the sales agreement and review publicly available information regarding the sale. These are just examples of situations that may arise–the key point is that thorough preparation is vital, and, to the extent possible, the audit should not yield anything that you weren’t prepared for.

criminal tax defense lawyer

The client interview should cover not only the issues known to be the current focus of the examination but should also attempt to glean insight into other issues that the client may not have considered and of which the IRS might not yet be aware but is likely to ask about. For instance, in recent years, the IRS has maintained a focus on tax evasion accomplished through offshore bank accounts and entities, so a line of questioning regarding foreign accounts and assets is essential, regardless of how unlikely the client’s ownership of such assets appears to be. Similarly, cryptocurrency has become a topic of focus for the IRS and should be raised in the interview.

Good defense work includes determining what the special agent likely knows. Sometimes, it is not important what the client knows or even what the attorney knows. The important person in the investigation at this time is the special agent. Because special agents most likely will not share much information with the defense attorney, such information must be gleamed from the client, third parties, the preparer, records of the taxpayer, records of third parties, etc. The tax defense lawyer must parallel the investigation by keeping track of any third-party contacts made by the special agents and interview such parties as soon as practical. If the special agents have served process on third parties, it is strongly suggested that copies of the third party’s documents being produced to the special agents be obtained from the third party. This is an area in which the subject taxpayer can assist because oftentimes, the subject becomes aware that third parties have been contacted. The subject of the investigation should not have any substantive discussions with third parties but should refer them immediately to the defense attorney who can pursue this avenue of information.

Our job as a criminal tax defense counsel also includes weaving a defense from the sources of available information. Special agents are much more likely to accept a defense premised on the third party’s written and oral information. This will require us to interview third parties during the investigation. There is no need to wait for the special agents to interview a particular witness first. Any key witness, such as the preparer or accountant, should be interviewed as soon as possible and copies of any documents held by these persons obtained. Oftentimes, witnesses give their original documents to the special agents, thus foreclosing their later availability to the taxpayer’s tax defense attorney. Correspondingly, this would foreclose an attorney from determining what knowledge or belief is in the mind of the special agent based on the evidence they obtained.

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How Does a Government Entity Decide to Pursue a Criminal Tax Charge?

A case works its way from a civil audit to a criminal investigation through the IRS’s longstanding fraud referral program. When a revenue agent (Audit) or revenue officer (Collections) investigates a case and determines that there are “firm indications of fraud,” the agent or officer is required to transfer or refer the case to the IRS Criminal Investigation Division (CID).

Within the IRS’s Small Business/Self-Employed Division, fraud referral specialists (FRS), both on the civil audit side and the collection side, have been selected to identify civil fraud cases that have civil fraud penalty and criminal referral potential. Those agents designated as FRS are generally experienced and have special training in detecting and developing fraud cases. It is the job of the FRS to help the examining agent identify badges of fraud and develop fraud cases through the gathering of documentation and the interviewing of witnesses, including the taxpayer.

Determining whether a taxpayer/client should submit to an interview request by a civil agent has become an increasingly sensitive question since an FRS might well be consulting on the audit if it has criminal potential. The taxpayer may be forced to submit to an interview, but if asked a question that could incriminate the taxpayer, the taxpayer may assert constitutional protections. Thus, having tax counsel handle all interactions with the agent in the hope of persuading the agent to gather information through means other than a taxpayer interview is often the most prudent strategy.

Once a referral is made, CID will evaluate all aspects of the referral, including:

The affirmative acts of fraud identified by the revenue agent;
The taxpayer’s explanations, if any;
The estimated liability resulting from the fraud;
The method used by the agent to verify the taxpayer’s income;
Past discussions to settle the liability civilly or other efforts that could be viewed as the IRS condoning the taxpayer’s behavior; and
The taxpayer’s age, health, and level of education.

Having an idea of what the CID and DOJ will be looking for informs our representation during the audit stage.

Examples of Available Defenses and Mitigation Techniques:

Defense counsel may attempt to convince CID or Grand Jury investigators that his or her client is much more valuable to them as a witness against other potential or actual targets than as a criminal tax defendant.

Statute of Limitations: Arguing the statute of limitations for the specific tax crime has tolled.
Establishing Deceit on the Part of a Civil Examiner: Defense counsel can endeavor to establish that an examining agent affirmatively misled the taxpayer about whether there was an ongoing covert criminal tax investigation and that this deceit was a material factor in the taxpayer’s decision to give information to the examining agent when the taxpayer had a valid Fourth Amendment right not to. Courts have held that his type of deception will invalidate a taxpayer’s consent to the examination of his records and make the examination an unreasonable search and seizure in violation of the Fourth Amendment.The tax defense lawyer must maintain a dialogue with the special agent. This is important because it may allow the attorney to identify potential issues that may lead to more open discussions with the special agent. It also will assist the attorney in defining those areas the special agent deems most important and, depending on the facts and circumstances of each case, those areas where the defense lawyer may be able to develop plausible defenses using third-party information. Consistent with this goal, the defense attorney must be cautioned not to rush to judgment, such as presenting defenses too early, because this can lead to admissions or even foreclosure of other available defenses.
Techniques Available During the Criminal Investigation: Monitoring and anticipating the course of an investigation in the hopes of limiting, or where possible, eliminating potential criminal tax exposure. To this end, potential witnesses can be interviewed by tax defense counsel, or an investigator hired by counsel, before a CID special agent has made contact. Defense counsel will warn taxpayers under CID investigation that statements made to business associates, friends, his accountant, or an investigator may be passed on to the CID special agent because they are not privileged communications.If the attorney is representing a witness in the investigation, such as the accountant, it is strongly recommended that the attorney discuss the witness’ status with the special agents before submitting the witness to an interview. The attorney should attend the client-witness interview and take detailed contemporaneous notes. Obviously, no interview should take place unless the attorney is assured that his witness client is not and will not become the subject of the investigation.
Entrapment: If tax defense counsel can prove that a government agent induced a taxpayer to commit a tax crime that the taxpayer otherwise would not have committed, the defense of entrapment may be available. However, merely allowing a taxpayer to continue criminal conduct that was already started is not entrapment. The key to this defense is that the disposition to commit the crime must come from the government agent and not the taxpayer.
Block IRS Summonses: Defense Counsel can object to an agent’s summonses based on protections of confidentiality that may apply to tax advice given by a federally authorized tax practitioner to the taxpayer. However, this privilege may be properly asserted only in noncriminal tax matters before the IRS or in any noncriminal tax proceedings in federal court brought by or against the United States.
Techniques Available During the Administrative Review of Criminal Investigation: During administrative review level of potential criminal prosecution cases, effective tax defense counsel has the ability to raise several defenses that if successful may cause case to be declined. These include lack of criminal intent, no tax due, defects in method of proof, dual prosecution, health, and the improbability of a conviction.
A taxpayer may avoid prosecution by showing that he was previously prosecuted for substantially the same acts. The poor health of a taxpayer will not by itself prevent prosecution. However, if poor health and other factors creating sympathy for the taxpayer appear to make it unlikely that the taxpayer will be convicted are present, Defense Counsel can attempt to persuade the government that prosecution should be declined.
Attempt to Prevent the Government From Proving Fraudulent Act(s) were Intentional: Proving that a taxpayer acted intentionally in violation of a known legal duty is a critical element of most of the government’s criminal tax cases and is therefore ordinarily the most difficult element for the prosecution to prove. In the absence of a confession or the testimony of an accomplice, intent usually must be established by circumstantial evidence concerning the taxpayer’s actions. The admissibility of circumstantial evidence is frequently a close question that criminal tax counsel can endeavor to suppress.Remember that the burden of proving guilt beyond a reasonable doubt is on the Government. Most closed cases result because the Government concludes that it cannot meet its burden of proof. While it may be tempting to spar with a special agent, sometimes this may lead to a disclosure of facts or leads that assists the special agent in gathering evidence. On the other hand, not having any communications with the special agent will allow the special agent to reach factual conclusions, possibly premised on a one-sided determination, to meet a goal of prosecution. Keeping the doors of communication open generally is worthwhile to both sides. If the special agents gather what they deem sufficient evidence to prove guilt beyond a reasonable doubt and do not hear any defenses, their case is reassured. If the criminal defense attorney is able to question the sufficiency or accuracy of the Government’s evidence, the investigation may be closed without prosecution, saving substantial time, cost, and effort.
Safeguard the Government’s use of Circumstantial Evidence: When the IRS relies on indirect or circumstantial methods of proof, guidelines established by the courts establish safeguards that must be complied with in the use of that circumstantial evidence. Effective tax counsel can ensure that these safeguards are complied with.
Compromise: Under the law, statutory authority exists for the Secretary of the Treasury and the Attorney General to compromise criminal tax cases without prosecution. However, this authority to compromise criminal cases is rarely used because allowing a defendant to buy his way out of criminal prosecutions would in effect create separate systems of justice for the rich and the poor.
Pleas: Historically, by far the vast majority of the criminal tax indictments brought result in pleas. Each U.S. Attorney is authorized to accept a plea of guilty to the major count of an indictment without prior approval of the IRS. Federal prosecutors are required to initially charge the most serious, readily provable offenses that are consistent with the defendant’s alleged conduct. Typically, once charges are brought, they will not be dismissed or dropped under a plea agreement unless the prosecutor has a good faith doubt about the government’s ability to prove a charge based on either a perceived legal or evidentiary weakness in the case.By contrast, the IRS does not typically settle civil tax matters as part of a plea agreement although it has the statutory authority to do so. This rational for this is to avoid the appearance that the IRS uses the criminal process to coerce the collection of civil tax liabilities. This policy does not prevent the defendant from agreeing to civil admissions, such as receiving unreported income or claiming fraudulent deductions, as part of the criminal plea agreement. Information that the taxpayer provides in a civil case may also be used in a criminal case against the taxpayer. Thus, cooperating with a criminal investigation with or without proper legal counsel may have unexpected drawbacks for the taxpayer.

When Should I Accept a Plea Agreement for Criminal Tax Charges?

In many cases, the prosecution may approach a criminal tax defendant with an offer of a plea agreement. The virtue of a plea agreement is that both sides avoid the costs and difficulties associated with going to court. Meanwhile, the prosecution secures a conviction, while the defendant often gets off with lighter fines and may even avoid jail time.

However, you should never enter into a plea agreement lightly. By pleading guilty, you are essentially giving up your right to go to trial and be presented with the evidence against you. You are also signing yourself up for a conviction, which will likely remain on your record. Some of the “promises” that a prosecutor might offer up in the arrangement cannot be guaranteed. For instance, if the prosecutor agrees to recommend a lesser sentence, the judge is free to disregard the recommendation and institute what they feel is warranted, leaving the defendant open to harsh sentences that could blindside them.

If you are approached by the prosecution with a plea agreement related to a tax crime, you should immediately bring it to the attention of your Criminal Tax Defense Attorney.

How Do I Evaluate and Hire a Criminal Tax Lawyer Near Me?

Choosing a Criminal Tax Attorney is a critical and impactful step in the course of any taxpayer’s interaction with state or federal agents. Ideally, the taxpayer will make their selection sooner rather than later, as early representation can help stave off some of the harsher consequences of tax audits, eggshell audits, criminal tax investigations, and criminal tax charges. However, it is just as important that you make the right selection. Therefore, you should consider some of the critical factors of effective representation provided below when determining where to go for your criminal tax defense needs.

Experience

Before beginning a relationship with a criminal tax attorney, you will want to ensure that they have the requisite history dealing with similar cases to what you are facing. Not every lawyer has the same experience advocating for clients in at both the tax preparation stage and the court room. It is important that the counsel on whom you rely has experience dealing with government agents such as IRS investigators to draw on to better your situation.

Priorities

The practice of tax law is about more than just dollars and cents. An effective criminal tax attorney will have an eye on how their client’s situation is affecting them personally and professionally. At the Tax Law Offices of David W. Klasing, we value our clients’ liberty, financial growth, and emotional well-being above all else and will strive to make sure that all of your priorities are addressed throughout the course of the representation that we provide.

Range of Services

When you are building a relationship with your tax law representative, you will want them to be able to address both your immediate concerns as well as your long-term goals and any future issues that may pop up along the way. However, many criminal tax defense firms specialize in one or two areas and do not provide other services. This can leave clients having to go out and start the process all over again. Even after you find someone else who can help you with a new issue, you will have to go through your entire history again. This can be both time-consuming and ultimately more costly.

This is not the case when you come to the Tax Law Offices of David W. Klasing for your criminal tax defense needs. Our Dual Licensed Tax Attorneys and CPAs bring a circumspect approach to the tax law representation that we provide so that our clients know that they can get whatever they need from one trusted source.

Location

There are a few different reasons why you may find it beneficial to have your Criminal Tax Attorney close to you geographically. Criminal tax issues may require a defendant’s representation to arrive by their side with little to no notice to defend them against overly aggressive federal or state agents. This may be particularly important in the case of an office or field audit, or if you are facing arrest for criminal tax charges. If you are dealing with state tax issues, you will want representation that is already well familiar with the intricacies of the local tax code so that you don’t have to spend money on the time they need to get caught up to speed.

Our Dual Licensed Tax Attorneys and CPAs practice at several offices located conveniently throughout the west coast, including Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, Carlsbad, San Diego, Bakersfield, San Jose, San Francisco, Oakland, and Sacramento. This allows us to provide our clients with the in-person representation that their case may require from time to time without delay, inconvenience, or additional expense.

Let the Tax Law Offices of David W. Klasing Defend You Against Criminal Tax Charges

We know that facing a criminal tax investigation can be harrowing for a client. At a fundamental level, the focus of our efforts always is to prevent a referral of the case for criminal investigation. To do that, we always obtain as much knowledge as possible about our client and his financial activities; we stay attuned to the revenue agent’s actions and the focus of the investigation, and we are always on the lookout to see when or if cooperation with the revenue agent fits our client’s best interests. Our experience has taught us that a good outcome will not ultimately be measured just in dollars and cents; it will be measured by whether our client retains his liberty.

The subject of a completed CID investigation has a 90% probability of being criminally charged and, if charged, a similar probability of being convicted. The fallout of tax investigation and conviction extends beyond the punishment metered out in the criminal case. Adverse collateral consequences typically result merely from being the subject of a CID criminal investigation, and significant legal disabilities always result from criminal conviction—whether by plea or after trial. The stigma of being under IRS criminal tax investigation is difficult to discount. When you contact the Dual Licensed Criminal Tax Defense Attorneys and CPAs at the Tax Law Offices of David W. Klasing, you get a dedicated, resourceful partner in your pursuit of vindication for the tax crimes you’ve been accused of committing. To learn more about our services, call us today at (800) 681-1295 or schedule a reduced rate initial consultation online here.

Contact me online or call 800.681.1295 to speak to me to discuss your case.

My Orange County tax law office is conveniently located in Irvine, next to John Wayne Airport. I also have offices in the Westwood area of West Los Angeles a short distance from the 405 freeway on Wilshire Blvd. Office hours are 9 a.m. to 6 p.m. Monday through Friday, and later evening appointments are available by pre-arrangements. The office is open Monday through Saturday during tax season (February through April). Major credit cards are accepted.

Criminal Tax Defense

Avoiding Criminal Tax Charges ..and Prison

Examples of Badges of Tax Fraud:

What is at Stake where Tax Fraud May Have Occurred?

Want to learn more about criminal tax defense related items?

How Does a Government Entity Decide to Pursue a Criminal Tax Charge?

Examples of Available Defenses and Mitigation Techniques:

Defense counsel may attempt to convince CID or Grand Jury investigators that his or her client is much more valuable to them as a witness against other potential or actual targets than as a criminal tax defendant.

Questions and Answers for Criminal Tax Representation

The Start of the Criminal Tax Investigation

Avoiding Criminal Tax Charges ..and Prison

Examples of Badges of Tax Fraud:

Managing Eggshell Audits

Our Role as Criminal Defense Attorneys

What is at Stake where Tax Fraud May Have Occurred?

Want to learn more about criminal tax defense related items?

How Does a Government Entity Decide to Pursue a Criminal Tax Charge?

Examples of Available Defenses and Mitigation Techniques:

Defense counsel may attempt to convince CID or Grand Jury investigators that his or her client is much more valuable to them as a witness against other potential or actual targets than as a criminal tax defendant.

When Should I Accept a Plea Agreement for Criminal Tax Charges?

How Do I Evaluate and Hire a Criminal Tax Lawyer Near Me?

Experience

Priorities

Range of Services

Location

Let the Tax Law Offices of David W. Klasing Defend You Against Criminal Tax Charges

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Questions and Answers for Criminal Tax Representation

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