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Los Angeles, a bustling metropolis known for its diverse economy and cultural vibrancy, is not immune to the complexities of federal and California state tax regulations. Many individuals and small businesses in the city often navigate these intricate tax rules with uncertainty and may not always adopt a risk-averse approach. As a result, if you are facing a criminal tax investigation or are concerned that a high-risk audit might escalate into an eggshell or reverse eggshell audit, it is crucial to understand the potential gravity of your situation. When dealing with an IRS criminal investigation or a high-risk tax audit, there are specific actions you should take—and others you should avoid—to build a strong defense and minimize the risk of severe civil and criminal tax penalties.
At the Tax Law Offices of David W. Klasing, our dual-licensed Los Angeles Criminal Tax Defense Attorneys & CPAs excel at representing clients under high-risk federal and California state tax audits, especially where they blatantly cheated on the tax returns under audit and thus fear criminal tax prosecution. When facing tax audits from agencies like the IRS, CDTFA, EDD, or FTB, certain red flags, such as destroyed records, underreported income, or unfiled returns, can intensify the examination, leading to high-risk eggshell and reverse eggshell tax audits. As such, residents and businesses must be aware of potential criminal tax violations and the signs indicating that they might be under a more rigorous investigation by the IRS’s Criminal Investigation Division (CID).
Moreover, our skilled dual-licensed Los Angeles Tax Litigation Attorneys and CPAs have extensive knowledge and experience dealing with various federal and California state tax issues. This incorporates representing clients in cases involving IRS audits, disputes with the CDTFA, EDD, and FTB, claims for refund, tax collection defense, innocent spouse relief, criminal tax defense, and more. Whether it’s handling cases of criminal tax exposure, guiding you through a civil tax audit, eggshell audit, reverse eggshell audit, or defending against a criminal tax investigation, the expertise of our seasoned dual-licensed Los Angeles Tax Litigation Attorney and CPA is invaluable. As an experienced tax litigator, David W. Klasing can represent you in the Tax Court or before the CDTFA (BOE). Call 310-492-5583 or schedule a reduced-rate initial consultation here at our Los Angeles tax law office or one of our other convenient locations across Southern California.
Warning Signs of a Criminal Tax Referral to IRS-Criminal Investigation (CI)
For various reasons, you may face an IRS criminal tax investigation (IRS-CI) or a civil tax audit that could potentially escalate into a criminal tax investigation. It is surprisingly easy to become entangled in these IRS criminal tax issues. Perhaps you’ve been accused of tax evasion or tax fraud. Many of our clients were unaware that anything was amiss until the IRS came looking for them. Entrapped in this investigative vortex face a staggering 90% likelihood of being indicted on criminal tax charges where CI completes an investigation. Upon indictment, the trajectory toward criminal tax conviction is alarmingly consistent. The ramifications of such in-depth tax inquiries and subsequent criminal tax prosecutions transcend mere judicial outcomes.
In Los Angeles, a criminal referral to IRS-CI may follow a civil tax audit if the IRS auditor uncovers firm indications of fraud. These signs, often called “badges of fraud,” can include various suspicious activities, as explained below.
Key Indicators of a Possible Criminal Referral
- Automatic Referral for High Omission of Income: An omission of income greater than $10,000 in a single year will automatically result in a referral to a technical fraud advisor. This may lead to the case being handed off to the IRS Criminal Investigation (CI) division.
- Suspension of Civil Audit: A civil tax audit may be abruptly suspended and referred to CI for criminal tax investigation without the taxpayer’s knowledge. This can happen if the auditor suspects fraudulent activity.
- Unreachable Revenue Agent: The Revenue Agent handling your case may suddenly become unresponsive or unreachable, indicating that your case is under criminal investigation.
- Focus on Intent: The Revenue Agent may begin to focus heavily on the “intent” behind your tax positions or mention a pattern of noncompliance across multiple tax returns.
- Net Worth Analysis or Subpoena of Records: The agent may conduct a net worth analysis or issue subpoenas for bank records, which could indicate a deeper investigation into your financial activities.
- Excessive Documentation Requests: If the Revenue Agent starts gathering excessive documentation or making excessive copy requests, it could be a sign that they are building a case for criminal referral.
- Undisclosed Third-Party Contact: The Revenue Agent might contact third parties without disclosing this to you, another potential sign of a criminal referral.
- Summons for Records or Appearance: Receiving a summons for additional records or a personal appearance can indicate that your case is escalating.
- Multiple IRS Personnel at Client Interviews: If more than one Revenue Agent, the agent’s manager, or an attorney from the IRS Chief Counsel’s office attends a client interview, this may suggest that the audit is moving toward criminal tax investigation.
Signs of a Reverse Eggshell Audit
Reverse eggshell audits are like a Trojan horse in that a criminal tax investigation is disguised as a civil audit. Auditors may request information aimed at proving that the taxpayer was willfully evasive or untruthful with the return under audit. Reverse eggshell audits can consist of simultaneous civil and criminal tax investigations or can start as only a civil audit that is later referred to a Fraud Referral Specialist or an IRS Special Agent for evaluation as to criminal tax liability.
- Suspension and Silence: In a typical reverse eggshell audit, the civil auditor might temporarily suspend the audit, cancel subsequent appointments, and fail to contact or return calls for several weeks. This period of silence often indicates that the case is being referred to CI.
- Approach by an IRS CI Special Agent: If an IRS officer approaches you wearing a gun and badge and reads you something akin to a Miranda warning, it indicates that you are now dealing with the IRS Criminal Investigation division. In such a situation, it is crucial to demand the presence of criminal tax defense counsel before answering any questions and to remain silent until your attorney is present.
Involve Our Los Angeles tax Lawyers Immediately if a Criminal Tax Investigation is Suspected
If the statements or behavior of an IRS agent suggests a criminal tax investigation is ongoing, it would be wise to involve a criminal tax defense attorney as early as possible. This will likely prevent your audit’s inherent criminal tax exposure from evolving into a full-blown criminal tax prosecution. When an IRS representative collects evidence for a clandestine criminal tax investigation, your attorney’s intervention might prevent such an investigation from resulting in criminal tax charges. Certain lines of questioning, a focus on the intent behind various tax reporting decisions, the sudden halting of an ongoing audit, and other suspicious behavior are obvious red flags to the trained eye. Identifying a reverse eggshell audit will allow you and your attorney to take protective action immediately. As of the date of this writing, the Tax Law Offices of David W. Klasing have never had a client go to jail because of an audit, eggshell audit, or reverse eggshell audit.
At a fundamental level, our efforts always focus on preventing a referral of the case for criminal tax investigation. To do that, we always obtain as much knowledge as possible about our client and his financial activities; we stay attuned to the revenue agent’s actions and the focus of the investigation, and we are always on the lookout to see when or if cooperation with the revenue agent fits our client’s best interests. Our experience has taught us that a good outcome will not ultimately be measured just in dollars and cents; it will be calculated by whether our client retains his or her very liberty. When you contact the Dual Licensed Criminal Tax Defense Attorneys and CPAs at the Tax Law Offices of David W. Klasing, you get a dedicated, resourceful partner in your pursuit of protection for the tax crimes you’ve been accused of committing. To learn more about our services, call us today at 310-492-5583 or (888) 904-4096 or schedule a reduced rate initial consultation online here.
Get Back into Tax Compliance without Facing Criminal Tax Prosecution in Los Angeles with our dual-licensed Voluntary Disclosure Attorneys and CPAs
Proactively revealing missteps or intentional evasion before an audit or criminal tax investigation is underway offers a significant opportunity to return to compliance and avoid criminal prosecution for tax crimes. It’s important to understand that even if your disclosure doesn’t tick every box, your proactive and prompt action can yield positive results. Throughout this process, adhering to the advice of trusted legal professionals is paramount in effectively navigating this complex and head of a needle specific experience and training terrain. It offers a systematic and secure avenue to rectify their tax status while avoiding criminal tax prosecution. Like the IRS, the State of California’s Franchise Tax Board (FTB) and the California Department of Tax and Fee Administration (CDTFA) provide a method for non-compliant taxpayers to regain compliant status by coming forward with the details of their failure to comply with the California state tax code. The path to voluntary disclosure to the FTB depends on whether you are an in-state or out-of-state filer.
Our dual-licensed Los Angeles Voluntary Disclosure Attorneys and CPAs navigate the complexities of various federal and California state voluntary disclosures, including domestic, offshore, CDTFA, and FTB voluntary disclosures, streamlined procedures, and delinquent FBAR and international information return submission procedures. As long as a taxpayer who has willfully committed tax evasion (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the federal tax non-compliance 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. Contact the Tax Law Office of David W. Klasing online immediately to arrange a reduced-rate initial consultation, or call our Los Angeles tax office at (310) 492-5583 for help today.
Our Los Angeles County Tax Crimes Attorneys Can Help
If you think you may be charged with a criminal tax offense, such as willful failure to file or tax evasion, it is vital to talk to a Criminal Defense Tax Attorney as soon as possible. Where possible, our Lawyers, CPAs and EAs may be able to help you file the proper paperwork to amend prior returns, pay back taxes, and correct prior misrepresentations through a domestic voluntary disclosure in order to effectively mitigate the potential of facing criminal prosecution for previous tax filings.
For many people, the mere mention of the Internal Revenue Service is stressful. There are many reasons for this type of perspective. Some may have personal issues with the U.S. Tax Code, fear the consequences of past tax mistakes, or simply don’t like to spend their hard-earned money on taxes. However, regardless of one’s reasons for disliking the IRS or paying taxes, one must satisfy their tax obligation. Los Angeles taxpayers that fail to engage and handle their income tax and other obligations can face significant fines and penalties. Taxpayers are never well-served by ignoring a tax debt or a tax problem. Failure to handle one’s taxes and tax problems in a timely manner typically results in ever-increasing penalties and fines.
Our Los Angeles office is conveniently located at:
10940 Wilshire Blvd #1600,
Los Angeles, CA 90024
(310) 492-5583
