According to a Department of Justice press release, a tax preparer from the Chicago area is accused of assisting more than 100 clients to file false income tax returns, claiming deductions for expenses that could not be substantiated. This story serves as a reminder to taxpayers who have either failed to file a tax return for one or more years, or have taken a position on a tax return that cannot be supported upon examination, that the IRS is continuing to open audits, even during the COVID-19 pandemic. But there is some good news and an opportunity for taxpayers who are out of compliance to get right with the government with the assistance of an experienced tax defense attorney.
Tax Preparer Claimed Deductions Unbeknownst to Her Clients
Court documents reveal that Andrena Smith was a tax preparer who served customers in the Chicago-area. Investigators uncovered evidence that indicates that Smith claimed deductions on prepared tax returns for expenses that were not incurred by her clients. Although it is not uncommon to run across stories of taxpayers who themselves trump up expenses in order to result in an additional deduction, the Department of Justice believes that Smith unilaterally inflated her clients’ deductions. After interviews with many of her customers, the IRS and Department of Justice concluded that the taxpayers for whom Smith was filing tax returns did not provide any indication that the expenses at issue were actually incurred and that Smith acted unilaterally.
Although the complaint filed with the U.S. District Court for the Northern District of Illinois does not contain criminal charges, it does seek to enjoin/prevent Smith from preparing tax returns for any more clients effectively putting her out of business.
Coming into Compliance During the COVID-19 Pandemic
During the COVID-19 pandemic, the IRS has taken certain steps to limit interaction with individuals. But that does not mean that their investigators are not working. The IRS indicated recently that it would continue work on open examinations to the extent possible without person-to-person contact. Additionally, they stated that audits of business tax returns should go largely uninterrupted.
The Department of Justice has cut back on their criminal tax operations. As we have previously reported, tax prosecutions are down significantly as Department of Justice resources are being redeployed to work on cases involving national security, terrorism, the exploitation of children, and violent crimes. Nonetheless, we expect to see a huge spike in the number of tax-related criminal cases once the U.S. begins to normalize as is happening around the country at present.
Taxpayers who are out of tax compliance have a golden opportunity to consult with an experienced tax attorney and determine how to come back into compliance with the tax laws before the number of examinations and tax prosecutions picks back up. Working with your tax attorney, you will agree upon a proper path forward and implement the action items needed to get you back into compliance. The good news is that most of the common mechanisms to bring a taxpayer out of tax noncompliance can be effectuated now, without having to wait for the IRS to fully resume normal operations.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed returns coupled with affirmative evasion of payment) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
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