Choosing the CPA or EA who prepared your return to handle an audit can be extremely dangerous and downright stupid. In high-risk IRS or California FTB audits – especially eggshell or reverse-eggshell audits – the preparer often has a conflict of interest and limited legal tools. If fact, your original preparer can be your worst enemy when tax fraud is suspected. The preparer’s first priority is protecting their license and reputation, not yours. They may have intimate knowledge of incomplete records or over-reaching deductions, but they also have a powerful incentive to keep themselves out of trouble. Remember, you have no attorney–client privilege with a CPA or EA. Anything you told that preparer can be subpoenaed and used against you. In fact, preparers often become the government’s star witness if a criminal tax case is built. Even if the preparer simply made an error, they are unlikely to throw themselves under the bus to shield you as this can create malpractice exposure. In short, hiring your original preparer means you carry the risk of their conflicting self-interest, loss of privilege, and potential betrayal of evidence, where anything you said (or failed to say) to them can be used to establish willful tax evasion.
Pro Tip:
CPAs, EAs and CTEC certified preparers commonly promote the self-serving advice, never hire a tax attorney or you will signal to the IRS or state of California that you have something to hide and are lawyering up. Don’t buy that for a second. Why take a sling shot into battle when you can bring a bazooka! We honestly believe we are the best in the industry at what we do. We always keep a mix of straight civil and a smaller percentage of eggshell audits to always keep the government guessing. We have never had a federal or California audit client get prosecuted that we represented at any phase of an audit.
Eggshell and Reverse-Eggshell Audits: Civil Exams That Bite Back
An eggshell audit is triggered when your return has material misstatements – unreported income or inflated deductions – so that your tax liability is much lower than it should be. These errors might be innocent (negligence, a 20% penalty) or intentional (willful fraud, inviting a 75% fraud penalty and jail time). A reverse-eggshell audit is especially dangerous: it’s a civil audit that secretly runs in parallel with a criminal tax investigation. In either case, the IRS/FTB is actively hunting “badges of fraud,” that can turn a routine audit into a criminal tax case:
- Large unreported income. The IRS matches your returns against W-2s, 1099s, etc. If you missed reporting more than $10,000 in a year, it automatically triggers review by a fraud specialist. Click here to learn more.
- Phony deductions. Claiming personal expenses as business costs or wildly inflating expenses are classic “badges of fraud”.
- Pattern of omissions. Suspicious returns year after year lead auditors to widen the scope and refer the case for criminal tax investigation.
- High tax loss. Very large underpayments (e.g. $30,000+) escalate both civil tax penalties and the chance of criminal tax referral.
Each of these is a red flag. Often, when a return fails to report over $10,000, an IRS Criminal Investigation (CID) review is automatically initiated. The IRS and California state tax authorities routinely share information, so a problem on your federal return (and any required amendments) will draw immediate attention from the California FTB as well. In an eggshell audit scenario, a civil agent may even pause the audit and hand the case off to CID without telling you. Bottom line: once tax fraud indicators appear, you want the strongest legal shield. You do not want the preparer who wrote the return handling this chaos.
Attorney-Client Privilege and Kovel Safeguards
In a high-risk tax audit that might turn criminal, privilege is critical. Communications with a non-attorney (CPA/EA) aren’t protected by attorney-client privilege. Unlike the weak and inconsistently recognized accountant-client privilege, the attorney-client privilege is strong and upheld in all California state and federal courts. If you speak with a Tax Lawyer, almost everything you say can be kept secret from the IRS/FTB. This allows full and frank disclosure of any past mistakes so we can mount an effective defense. With a CPA preparer, by contrast, examiners can probe every written note and recall testimony.
At the tax law offices of David W. Klasing, our internal team of CPAs and CPA candidates is employed by a law firm solely to help analyze and compute complex tax issues, so their communications are treated as part of the confidential attorney-client dialogue. This means our staff accountants can analyze your books and draft reports while remaining under privilege. Most preparer’s analyses and emails can be subpoenaed; with our firm, those same communications are protected where our internal team of CPAs and CPA candidates are assisting our team of lawyers in rendering a legal service.
Furthermore, only an attorney can properly invoke constitutional safeguards. For example, if an audit crosses into criminal territory, a lawyer can advise you on asserting your 4th and 5th Amendment rights. A CPA or EA is not qualified to tell you when to stay silent or to challenge an IRS summons. In short, only a dual-Licensed Lawyer-CPA gives you both privileged advice and constructs and implements an effective legal defense against criminal tax charges. More Reasons Why a Dual-Licensed Tax Attorney-CPA Is Superior
Retaining a dual-licensed Criminal Tax Attorney and CPA gives you a strategic edge that no tax preparer can match. At the tax law offices of David W. Klasing, our dual-licensed civil and criminal Tax Attorneys and CPAs combine deep accounting knowledge with seasoned litigation experience. We know how IRS, FTB. CDTFA and EDD agents think about what audit techniques they use, how to counter them, knowing what evidence is needed to ultimately prevail. In short, we bring superior tax-law & accounting education & expertise and advocacy skills to every case.
Our dual-licensed Tax Attorney-CPAs integrate decades of experience in high-risk civil audits, eggshell audit scenarios, and looming or actual state or federal criminal tax investigations. We have handled thousands of audits and appeals, and we know which issues can save (or sink) your case. A typical CPA can advise you on deductions, but they cannot file briefs or motions if the audit turns legal. Nor can an enrolled agent negotiate a criminal tax settlement or advise on plea options. With us, you get one-stop service: we manage the audit, protect privilege, and if necessary, handle any criminal tax defense.
Note: To date we have never had a federal or California audit client criminally prosecuted for tax crimes.
Broad Expertise
Our attorney-CPAs have both CPA-level tax training and courtroom experience. We know which tax positions will be questioned and how to challenge the IRS’s case.
Kovel and Privilege
We use privileged work-product documents (memoranda, analyses) that a non-attorney couldn’t generate confidentially.
Legal Authority
Our firm litigates & negotiate appeals before Appeals Conferences, Tax Court, or California state tax tribunals. We also adept at handling voluntary disclosures correctly – something only a lawyer may do without committing a crime. We find that most Litigation and Appeals work can be eliminated if we are involved at the audit level. But in the rare instances where we have had to litigate audit results that we obtained; we have never lost. The cold fact of the matter is that the IRS and California taxing authorities are backed up by case law that basically holds they are not responsible for their own negligence and consequently auditors regularly get either the law or the facts wrong no matter how good your audit representation is. But, if we are involved in the audit, litigation is ordinarily not an expensive proposition because we are already intimately familiar with the evidence in your case.
Criminal Tax Defense Readiness
If an audit does trigger a criminal tax investigation, we are already set up to fight any potential criminal tax charges. We immediately apply the strongest defenses (e.g. lack of willfulness) and tailor audit responses to minimize any criminal tax exposure. Again, we have never had an audit client criminally prosecuted for tax crimes in the history of the firm.
Protect Yourself: Choose the Tax Law Offices of David W. Klasing
The stakes in an eggshell-style audit are enormous – up to 75% tax fraud penalties, plus potential jail time. Don’t roll the dice by using a preparer who lacks legal training and privilege. At the Tax Law Offices of David W. Klasing, our dual-licensed Tax Attorney-CPAs provide the highest level of representation. We’ll conduct your audit defense all the way through litigation where necessary – analyzing facts, control communications, and shield you with privilege. We work to reduce civil and criminal tax exposure, doing our utmost to keep any issue civil if possible. Hiring our firm can make all the difference between paying the proper amount of tax and a 20% negligence penalty, as opposed to doing jail time [and a] $250,000 penalty.
Act now to secure the best defense. Contact the tax law offices of David W. Klasing for a confidential, privileged initial consultation. Call us at (800) 681-1295 or visit us online HERE for more information. With our experience, Kovel protection, and aggressive strategy on your side, you’ll stand the best chance of resolving your audit with minimum tax penalties – and staying out of criminal jeopardy.
