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Federal Tax Evasion Investigations: Innocent Until Proven Otherwise

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Federal Tax Evasion Investigations: Innocent Until Proven Otherwise

Tax Lawyers regularly advise clients about issues ranging from business-related taxation to Internal Revenue Service audits. Perhaps no issue is more important to a concerned client than a pending or ongoing investigation of tax evasion allegations by the criminal investigative division (CID) of the IRS.

A recent high profile tax evasion investigation involving Southern California’s Kabbalah Centre implicates many issues common to all taxpayer investigations. The Los Angeles Times has reported that the Kabbalah Centre, a spiritual organization that has received support from such Hollywood notables as Madonna, Ashton Kutcher and Gwyneth Paltrow, is facing inquiries about profits from tax-exempt donations.

The center responded that a related group, Spirituality for Kids, has also been subpoenaed in the investigation, and stated its commitment to providing responsive information to the IRS and federal government. But recent IRS statistics provide a strong reminder that our criminal justice system still entitles suspects to a presumption of innocence, regardless of widespread media reports.


The IRS has stepped up investigations of tax crimes and other financial crimes over the past decade. Initiation of tax investigations has increased over 50 percent since 2001. While this increase has focused unwanted attention on many taxpayers, it has not resulted in a similar level of enforcement success.

Over the same period, tax crimes indictments have risen only slightly more than 20 percent, and sentencing proceedings has gone up by a mere ten percent. In other words, a significantly larger proportion of defendants have been drawn into criminal investigations without a final finding of criminal liability.

Individuals, business owners and corporate actors who learn that they are under suspicion of violations of the U.S. tax code deserve diligent legal defense and dedicated advocacy. Allegations can cause tremendous harm to an organization’s good will or the reputation of a trusted professional. Swift and aggressive legal action based on the advice of an experienced tax attorney can quickly dispel inaccurate suspicions or slow down overzealous prosecutorial interest.


Tax fraud allegations come in many forms, including failure to file proper tax returns, concealing assets, failing to cooperate with IRS investigators, and using tax filings to conceal illegal activity. For individuals, common accusations include claiming fake dependents or false deductions.

In many cases, suspicion of tax evasion first arises in the course of an IRS audit. A tax lawyer who also has an accountancy background can serve as a vital ally during this stage to head off suspicion of criminal violations with clear answers and accurate explanations. In an era when taxpayers are increasingly likely to depend on software-based financial recordkeeping, an audit is no time for automated solutions and pat answers.

The recent federal tax evasion investigation of the Kabbalah Centre in Los Angeles involves extensive assets and diverse federal statutes. But federal tax evasion investigations involve complex legal issues no matter the amount in dispute. The federal tax code is a maze of interrelated obligations and benefits that is subject to regular changes and interpretations.

A California tax attorney who is also a certified public accountant (CPA) can respond to a client’s tax concerns at any time of need, from tax preparation and foreign bank account reporting (FBAR) under the IRS’s new voluntary disclosure program, to resolution of disputes that lead to tax litigation. Income tax issues have important implications for many other related areas of law, including estate planning and business entity selection, and command of the financial complexities is crucial.