What Factors Can Trigger a High Risk Egg Shell Audit or Criminal Tax Investigation?

Home » Law Blog » What Factors Can Trigger a High Risk Egg Shell Audit or Criminal Tax Investigation?

Table of Contents

Many people who file incorrect tax returns or miss a filing or payment deadline can be brought back into compliance with the IRS with minimal drama, especially if the error was unintentional. However, if serious fraud becomes suspected by a federal or state taxing authority an eggshell audit or even a criminal tax investigation could result in criminal tax charges eventually being sought.

While audits can sometimes be random, more often than not, they come about as a result of an agent running statistical diagnostic software applied to all filed returns, whom notices something suspicious on the returns you filed or failed to file in some cases. As such, certain warning signs could make it far more likely that you are going to face severe scrutiny that could lead to potentially life-altering headaches for you. At the Tax Law Offices of David W. Klasing, our skilled Tax Lawyers and CPAs know what factors can trigger increased scrutiny of your taxes, and lead to an eggshell audit or a criminal tax investigation and can help you avoid this by filing true accurate and complete returns in the first place or by entering you into a voluntary disclosure if you are willing to knock on the government’s door before they come to knock on yours.

How Do IRS Egg Shell Audits and Criminal Tax Investigations Work?

Civil audits are conducted in several different ways depending on the type of audit. They all involve your providing records and documents to substantiate the positions taken on your tax returns. Sometimes this will be done entirely through correspondence, while other times agents might ask you to come to a field office or even come to your home or business to look through your books and records in person. No matter which type of audit you are facing, you should reach out as soon as you find out you are being audited to a skilled Tax Lawyer like those at the Tax Law Offices of David W. Klasing, especially where you know you fudged the numbers under audit. We have tons of experience and success with working out an audit settlement where you pay the taxes you rightfully should have reported in the first place, a potential 20% civil negligence penalty, and interest on any underpayment from the current date back to the original filing date but without a criminal tax investigation ever being opened or a civil fraud penalty being assessed.

During any civil audit, the auditor may discover badges of fraud in your fact pattern and request to be assisted by someone known as a fraud technical advisor (FTA). The FTA’s sole role is to discover, develop and analyze any “badges of fraud,” in your fact pattern that indicate tax fraud might have occurred, and possibly refer your audit over to the criminal investigation (CI) function of the IRS for a closer look. If CI chooses to take on your case and completes an investigation, they will hand your matter off to the Tax Section of the U.S. Department of Justice for criminal tax prosecution. CI has a 90% + conviction rate if they choose to investigate. The sooner you get in touch with an Experienced Tax Defense Attorney like those at the Tax Law Offices of David W. Klasing, the better chance our office has of negotiating a civil resolution to your issue, or a preindictment disposition, a declination or to do damage control if the federal or state government is determined to prosecute you for tax crimes.

Getting you back into full tax compliance can often make you less likely to be criminally prosecuted but can also flag issues of prior noncompliance from a simple comparison of the original returns to the amended returns. The pros and cons of any action you take in the face of a criminal tax prosecution are ultra-critical and should only be entrusted to properly trained and experienced tax professionals with a long track record of success like those at the Tax Law Offices of David W. Klasing, P.C..

What Factors Make an IRS Egg Shell Audit or Criminal Tax Investigation More Likely?

Several factors indicative of potential tax fraud are likely to catch the attention of the IRS or State Tax Agent who could refer the matter to a technical fraud advisor (creating an eggshell audit) or directly to CI to pursue a Criminal Tax Investigation. If, for example, your reported income sees a sudden and unexplained drop in a single year, this could trigger scrutiny and a potential audit. If an agent comes across information that you have undisclosed foreign bank accounts that are required to be reported on an FBAR, the matter is likely to more likely to lead to an audit and at higher risk for potential criminal tax charges to follow. High-risk audits are also more common in cash-intensive industries like restaurants, bars, laundry mats, and hospitality businesses. Of course, failing to file your tax returns at all is also highly likely to attract negative attention toward you and can be very risky if Spies factors are identified. In terms of criminal tax investigations specifically, being involved in any of the IRS’s dirty dozen tax fraud schemes or using something like a microcaptive insurance company to illegally evade paying what you rightfully owe is highly likely to get an FTA’s attention and potentially move things from a civil audit to an eggshell audit or a criminal tax investigation.

There are certain situations where information is shared with the IRS by other federal of state regulatory or law enforcement agencies or another investigation within a federal or state tax agency can prompt an IRS of FTB agent to open a civil or eggshell audit or criminal tax investigation into your suspected behavior. For example, if the IRS raids a check-cashing business and finds large amounts of checks written to you personally or to your business that were cashed at that facility, they will likely audit you to look for unreported income. All it takes is $10,000 of unreported income in an audit, for the IRS auditor to consult with an FTA, who will analyze the badges of fraud in your audit for potential development by the criminal investigation unit. Another example would be undisclosed cryptocurrency information that the IRS obtains because of a John Doe Summons submitted to Coinbase or other cryptocurrency trading hubs.

While these might be some of the more common factors that could lead to an eggshell audit or criminal tax investigation being opened, any time you have committed willful tax fraud, especially several consecutive years of it, you could potentially be liable for criminal tax charges. Reaching out to a skilled Tax Defense Attorney and CPA like those at the Tax Law Offices of David W. Klasing before a tax audit or criminal tax investigation is initiated gives us an almost guaranteed chance of getting the issues resolved civilly with little to no risk of criminal tax prosecution, such as through a domestic or offshore voluntary disclosure program.

If You Believe You May Have Exposed Yourself to the Risk of an IRS Egg Shell Audit or Criminal Tax Investigation, Call Our Skilled Tax Defense Attorneys Today

The factors noted above are just some of the many things that are part of an IRS agent’s consideration of whether to refer your matter to a TFA or to CI for a criminal tax investigation. At the Tax Law Offices of David W. Klasing, our Skilled Tax Attorneys and CPAs can work with you before you file to ensure you are paying as little tax as possible without opening yourself up to civil or criminal tax liability down the line. If you have already filed an incomplete or inaccurate return, we can work to get you back into compliance before an audit or criminal tax investigation begins. If a civil audit, eggshell audit or criminal tax investigation has already been initiated, we can help you survive it. For a reduced rate initial consultation, call us today at (661) 432-1480 or schedule online here.

Questions and Answers for Criminal Tax Representation

Questions and Answers on Unfiled Back Taxes

Main Office

Orange County

2601 Main St. Penthouse Suite
Irvine, CA 92614

(949) 681-3502

Our headquarters is located in Irvine, CA. Our beautiful 19,700 office space is staffed full-time and always available for our clients to meet with our highly qualified and experienced staff of Attorneys, Certified Public Accountants and Enrolled Agents. We also offer virtual consultations and can travel to meet with clients in one of our satellite offices.

Outside of our 4 hour initial consultation option, we do not charge travel time or travel expenses when traveling to one of our Satellite offices, or surrounding business districts, where it is necessary to meet personally with taxing authority personnel, make court appearances, or any in person meeting deemed necessary for the effective representation of a client. To make this as flexible, efficient, and convenient as possible, David W. Klasing is an Instrument Rated Private Pilot and Utilizes the Firms Cirrus SR22 to service client’s in California and in the Southwest by air. Offices outside these areas are serviced via commercial jet airlines. None of these costs are charged to our clients.

Satellite Offices

California

(310) 492-5583

(760) 338-7035

(916) 290-6625

(415) 287-6568

(909) 991-7557