The Internal Revenue Service (IRS) routinely uses multiple civil and criminal tax enforcement avenues to identify perpetually delinquent / fraudulent taxpayers and collect taxes it deems are owed & simultaneously create a deterrent to others though highly publicized criminal tax prosecutions. Typically, auditors and collection officers will notify the subjects of their audits / collection actions. On the other hand, IRS criminal tax investigators will complete their investigation as secretly as possible and then perform unannounced visits to preserve the element of surprise and will ask lots of questions they already know the answers too to hopefully document the taxpayer trying to lie their way out of trouble. Unfortunately, lying to a federal officer is an additional felony in and of itself.
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If you are the subject of an IRS audit that could be a clandestine criminal tax investigation, it is imperative that you hire legal representation as quickly as you can. The team at our law firm can help review your case and determine the appropriate course of action. Furthermore, we will fight to protect your rights and interests, net worth, and your very liberty. See my content on how to survive an audit where I cheated on the federal or state returns being audited HERE.
Seek help from our experienced Dual-Licensed Civil and Criminal Tax Defense Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 or clicking HERE to schedule a reduced rate initial consultation.
Understanding the Enforcement Arms of the IRS
To alleviate anxieties related to unexpected IRS visits, it’s essential to understand the different civil and criminal enforcement arms of the IRS. These include the Audit, Collection, and Criminal Investigation divisions of the IRS. Our Dual-Licensed Civil and Criminal Tax Defense Lawyers & CPAs can help deal with each of these enforcement arms and navigate the complexities of your specific case.
Audit
An IRS audit is a review conducted by the Internal Revenue Service (IRS) to examine and verify an individual’s or business’s tax return for accuracy and compliance with tax laws. During the audit, the IRS assesses the taxpayer’s financial records, transactions, and deductions to ensure proper reporting and payment of taxes.
The IRS typically initiates contact with taxpayers under audit through advanced written notices delivered by mail. Contact is never initiated via email or phone, as these are likely scams.
The two most risky audits you could be faced with are an Eggshell or Reverse Eggshell audit. In and Eggshell audit the client committed criminal acts in evading their tax obligations that are at risk of being discovered by the IRS during the seemingly civil tax audit. A Reverse Eggshell Audit is a disguised IRS criminal tax investigation posing as a civil audit. An IRS technical fraud advisor or agent with the IRS criminal tax division can be pulling an auditor’s strings attempting to develop evidence for a subsequent criminal tax prosecution without putting the taxpayer or their representative on notice.
Collection
Collection refers to the process the IRS employs to pursue unpaid taxes from taxpayers who have not fulfilled their tax obligations. It involves various enforcement actions, such as issuing notices, levying assets, and arranging payment plans, with the aim of recovering the owed taxes.
The IRS Collection arm also communicates via written notices when initiating collection actions unless exigent circumstances dictate otherwise.
Collections can become criminal in nature where a taxpayer has earned taxable income but has a history of failing to report that taxable income as earned. This can be prosecuted as misdemeanor or Felonies depending upon the facts and circumstances of each case. Actions taken by the taxpayer that illegally hinder the collection efforts of the IRS can also lead to criminal tax prosecution for evasion of payment.
Criminal Tax Investigation
Meanwhile, IRS Criminal Investigation agents often visit taxpayers unannounced to maintain an element of surprise, ensuring genuine responses and reducing the possibility of rehearsed answers. These agents are specially trained to investigate criminal violations of the tax code, including tax evasion, tax fraud, money laundering, public corruption, organized crime, identity theft, healthcare fraud, and corporate fraud.
Statistically, if the IRS Criminal Investigations targets you, you have a 90% chance of being criminally prosecuted and serving jail time. If the profession you are in has moral character requirements a conviction can end your career. Doctors, Lawyers, Engineers, Security Brokers, Insurance Agents, Real Estate Agents, to name a few have moral character requirements.
What to Do When You Are Contacted by the IRS
Being investigated for tax evasion or financial crimes can have severe consequences, including prosecution and incarceration. If faced with a visit from an IRS criminal investigator, it is crucial to verify their identity by checking their credentials, including inspecting a law enforcement badge and photo identification with an IRS.gov domain email address. You can also contact the IRS through a central phone number to confirm the agent’s employment.
IRS Criminal Investigation Agents will inform you whether the investigation is administrative or a grand jury investigation. In the latter case, the stakes are higher, indicating the case has progressed further.
Identifying your role in the investigation—whether as the target, subject, or witness—is vital. If labeled as the target or subject, seeking legal representation is crucial to protect yourself from self-incrimination. Even if they claim that you are merely a witness, obtaining representation before speaking with them is crucial if you potentially have dirty hands in regard to the illegal activity that is being investigated.
Avoid contacting your accountant during the investigation, as communications are not privileged and may expose you to risk. If identified as a witness, cooperation may be necessary if served with a summons or subpoena. Your accountant has a conflict of interest with you if they were involved in the activity that is underlying the criminal tax investigation and may throw you under the bus to protect themselves. They are very likely to become government witness number one against you and therefore should be avoided at all costs.
Finally, you should not attempt to navigate an IRS criminal tax investigation without hiring legal representation. Understanding your rights and seeking legal advice, when necessary, can help you navigate potential challenges during a criminal tax investigation.
Examples of Tax Evasion that You Can Be Investigated for
Tax evasion refers to either the intentional fraudulent underreporting of tax due and owning (Evading Assessment) or taking illegal actions to avoid payment of legally assessed tax obligations (Evasion of Payment). The IRS is continuously improving its technology and data analytics and is beginning to employ Artificial Intelligence (AI) to detect and combat illegal tax behavior. If you engaged in any of the following forms of tax evasion, then you may be subject to a criminal tax investigation, audit, eggshell audit, or reverse eggshell audit:
Underreporting Income
Underreporting income is one of the most prevalent forms of tax evasion. Taxpayers intentionally fail to report some or all of their income to the IRS. They may do this by not reporting cash transactions, omitting income from side jobs or freelance work, or using undisclosed offshore financial accounts & income generating businesses or investments to hide U.S. taxable income. Unreported Cryptocurrency Income is also a huge exposure issue at present.
Overstating Deductions
Taxpayers may exaggerate deductions or claim patently false expenses to reduce their taxable income illegally. This can involve inflating expenses for business-related deductions, charitable contributions, or personal expenses not legitimately qualified for tax deductions and claiming false schedule C losses.
Offshore Tax Evasion
Using offshore accounts to hide income or assets is a sophisticated form of tax evasion. Taxpayers may create shell companies or accounts in tax havens to move money and evade income reporting requirements. Offshore entities make it challenging for tax authorities to trace funds, making it an attractive method for the wealthy to conceal wealth and taxable income.
Fictitious or Ghost Employees
In employment tax evasion schemes, business owners may invent fictitious employees or “ghost employees” and report their salaries on tax forms. These fake employees don’t exist, but the business owner embezzles the reported salaries for personal use while avoiding payroll taxes on those funds. See other forms of employment tax crimes here.
Unreported Cash Transactions
Some individuals and businesses may deal primarily in cash to avoid leaving a paper trail. By keeping transactions unreported and off the books, they aim to evade taxes on unaccounted income. See audits of cash intensive businesses here.
Tax Shelter Abuses
Tax shelters are investment strategies that provide illegitimate / illegal tax benefits. However, in tax evasion cases, taxpayers misuse these shelters to shelter more income than allowed or to create artificial losses to offset legitimate taxable income. See content on the difference between tax avoidance and tax evasion here.
False or Altered Documents
Taxpayers may forge or alter documents, such as receipts, invoices, or financial statements, and utilize fictitious payees to support false deductions or claims on their tax returns.
Failure to File Tax Returns
Intentionally not filing tax returns is another form of tax evasion. Some individuals may ignore their tax obligations to evade paying taxes altogether.
What to Do If you Know for a Fact you have Criminal Tax Exposure and Wish to Come into Compliance Without Facing Criminal Tax Prosecution.
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) 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, KovelCPAs 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!
Call Our Dual-Licensed Civil and Criminal Tax Defense Lawyers & CPAs with Help with Your Tax Exposure Issues
Get assistance from our experienced Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by dialing (800) 681-1295 or clicking HERE to book a reduced rate initial consultation.
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More Commonly Asked Tax Audit Questions
- How should Tax Audits be Handled by Criminal Tax Counsel?
- How to survive audit when I cheated on return being audited
- What is an eggshell audit?
- What is a reverse egg shell audit?
- Why is a reverse egg shell audit dangerous for a taxpayer?
- Warning signs of a criminal referral from an IRS audit
- Effective tax defense counsels goals in an egg shell audit?
- How are the 4 goals and outcomes 1 and 2 best obtained?
- What are the possible outcomes of an egg shell audit?
- Is it my right to know why I was selected for examination?
- What can I do to prepare for an audit?
- What is an IRS civil examination?
- How IRS decides which tax returns are audited
- What are my appeal options if I disagree with IRS?
- What are my basic taxpayer rights if the IRS audits me?
- Options if I am unable to pay at the conclusion of audit
- What a 30 or 90-Day Letter from the IRS means
- What is involved with appealing disagreements?
- Rights to disagree with IRS tax auditor’s findings
- Can I stop the IRS from repeatedly auditing me?
- Can I have the examination transferred to another area?
- Can I record my IRS interview and is it a good idea?
- How many years of returns are at risk during an audit?
- Common reasons for the IRS to conduct a tax audit
- How to avoid negative consequences from an IRS interview
- Have to agree to interview by taxing authority directly?
- Are all audits the same?
- What should I do if the IRS is investigating me?
- What if I don’t respond to a taxing authority audit notice
- Your rights during an IRS tax audit
- Risks of attending an IRS audit without a tax lawyer
- Most common audit technique used by taxing authorities
- Don’t go into an IRS audit without representation
- Why hire an attorney to represent me in an audit?
- Why hire David W. Klasing to represent me in an audit
California Sales Tax Questions and Answers
- Common issues encountered during sales tax audit
- What is a sales tax audit?
- Disagreeing with business audit conclusions
- Timeline to file Petition for Redetermination?
- What should Petition for Redetermination contain?
- Is the appeals conference formal or informal?
- Appeals Division’s Decision and Recommendation
- Are a mark-up percentage and a profit margin the same?
- Problems with the mark up audit
- Can State Board of Equalization ignore my business records
- What is a sales tax deficiency determination?
- Business being audited for sales tax. Should I be worried?
- Audit determined fraud to avoid sales and use tax
- Definition of “sale” for California Sales Tax
- What do California sellers need to know about sales tax?
- How do I apply for a sellers permit?
- What are my obligations as a permit holder?
- What is sales tax?
- What is tangible personal property?
- What is a sale?
- What are total gross receipts?
- What is use tax?
- Who is responsible for paying the use tax?
- Who is a retailer engaged in business in California?
- Who is a qualified purchaser?
- Do I need a Certificate of Registration Use tax?
- Do I need a Use Tax Direct Payment Permit?
- What types of sales are exempt from sales tax?
- How are Internet Transactions Taxed?
- How is California sales or use tax determined?
- What is the statewide sales and use tax rate?
- Are there other local and district sales and use taxes?
- Total sales and use tax rate calculation
- How to protect against successor liability in California
- Recourse when issued California sales tax liability notice
- CA Sales Tax liability extend to purchasers/successors?
- Waiting Until Audited to Take Action on Tax Matters
- Sales tax records needed in California
- What are California’s sales and use taxes?
- Why does the State of California audit businesses to ensure compliance with sales and use taxes? How does the state determine whether to audit my business?
Questions and Answers for Criminal Tax Representation
- When tax defense counsel parallels tax crime investigation
- Guilty of tax obstruction by backdating documents?
- To be found guilty of tax obstruction must a person actually be successful in impeding the IRS’s functions?
- Help! The Document I Gave the IRS Had False Information
- Tax crime aiding or assisting false return IRC §7206(2)
- What is the crime known as tax obstruction § 7212?
- What is the difference between tax perjury and tax evasion?
- What is the tax crime commonly known as tax perjury?
- What is a Klein Conspiracy?
- Increased possibility of civil action in IRS investigation
- Am I Guilty of Tax Evasion if the Law is Vague?
- What happens if the IRS thinks I committed tax crimes?
- What are ways to defend against a tax evasion charge?
- Difference between criminal tax evasion and civil tax fraud
- What accounting method does the IRS use for tax fraud
- Can I Change Accounting Method to the Accrual Method
- What is the wilfulness requirement for tax evasion?
- I didn’t know I committed tax fraud. Can I get off?
- Concealed assets from IRS. Can I avoid tax evasion charges
- How government proves I wilfully engaged in tax evasion
- What is the venue or court where a tax crime case is heard?
- Must the IRS prove tax crimes beyond a reasonable doubt?
- Is it a crime to make false statements to the IRS?
- Will the IRS overlook my tax evasion if it’s minor?
- Failed to tell IRS about my nominee account
- Audit risk with cash based business transactions
- How to defend a client charged with tax evasion
- Is it tax evasion if I didn’t file income tax return?
- Government says I attempted to evade my taxes. Now what?
- I forgot to pay my taxes or estimated tax. Is this a crime?
- Government proof I “wilfully” failed to pay taxes
- 5 Ways to Respond to Tax Evasion Charges
- Being audited after using a tax professional
- Rules for what an IRS agent can do while investigating me
- How tax preparers, attorneys and accountants are punished
- How the IRS selects tax crime lead for investigation
- How does the IRS prosecute suspected tax crimes?
- Does IRS reward informant leads for suspected tax crimes?
- How the government proves deficiency in a tax evasion case
- Do prior tax crimes factor into new IRS tax convictions?
- Requesting conference before investigative report is done
- Requesting conference after IRS Special Agent Report
- What are my rights during an IRS criminal investigation?
- Avoid prosecution for tax crime with voluntary disclosure?
- Defense tactics that make it hard for to prove wilfulness
- How a tax attorney can stop your criminal tax case?
- What can you generally tell me about tax crimes?
- Continuing filing requirement with investigation pending
- Federal criminal code crimes that apply to tax issues
- Penalty for making, subscribing, and filing a false return
- CID special agent’s report for criminal prosecution
- What is the discovery process in a criminal tax case?
- What the IRS includes in indictment for tax case
- What is the hardest element of a tax crime to prove?
- IRS methods of gathering evidence to prove tax crime
- What does a grand jury do in IRS tax crime prosecution?
- Failure to keep records or supply information
- Failure to make a return, supply information, or pay tax
- What is attempting to evade payment of taxes?
- What is income tax evasion and how is it punished?
- What is attempted income tax evasion?
- What is the crime of failure to pay tax? What is punishment
- Crime of making or subscribing false return or document
- Criminal Investigation Division investigation tactics
- Tax crimes related to employment tax forms and trust funds
- Tactics to defend or mitigate IRS criminal tax charges
- How the IRS generates leads about suspected tax crimes
- What is the crime” evasion of assessment” of tax?
- Specific examples of “attempting” to evade tax assessment
- What is the so-called Spies evasion doctrine?
- Does overstating deductions constitute tax evasion?
- Is it tax evasion if my W-4 contains false statements?
- IRC §7201 attempt to evade vs. common-law crime of attempt
- What are the penalties for Spies tax evasion?
- How government proves a taxpayer attempted tax fraud
- What is a tax that was “due and owing.”
- What is evasion of assessment for tax liability?
- Is evasion of assessment different from evasion of payment
- Does the IRS have a dollar threshold for tax fraud?
- What is the IRS burden of proof for tax fraud convictions?
- Are Tax Laws Constitutional?
- What is the source of law that defines tax evasion?
- Does section 7201 create two distinct criminal offenses?
- Does tax evasion definition include partnership LLC
- What if I helped someone else evade taxes?
- Is it illegal to overstate deductions on my tax return?
- Is it illegal to conceal bank accounts from the IRS?
- Do later losses justify prior deductions?
- Common reasons the IRS and DOJ start investigations
- What is the Mens Rea component of tax crimes?
- What is a proffer agreement and what are the risks?
- Why to have an attorney to review a proffer agreement
- Why enter into a proffer agreement?
- Limited use immunity from proffer agreements
- Difference between civil and criminal fraud allegation
Questions About Delinquent Payroll Taxes and Trust Fund Recovery Penalty
- What happens if an employer continues to incur new payroll tax liabilities?
- California Employment Taxes Basics
- How Does the IRS Develop an Employment Tax Fraud Case from the First Indication of Fraud to a Criminal Indictment?
- Can more than one person be considered responsible by IRS
- How unpaid employment tax payments are allocated
- When a corporate officer is considered a responsible party
- Examples of trust fund recovery penalty determinations
- Failing to pay employment taxes after notice is given
- How to determine responsible person for trust fund recovery
- Assessing trust fund recovery penalty and option to appeal
- What is the trust fund recovery penalty?
- What are the penalties for failure to pay employment taxes
- When am I considered liable for company’s employment taxes
