Awards & Recognition
In any civil tax audit, one of the greatest concerns is the potential for an IRS criminal investigation to arise. This can occur if the auditor discovers “badges of fraud,” or indicators that the taxpayer has engaged in willful violations of federal tax laws. The IRS often collaborates with state and federal law enforcement agencies, in addition to partners in countries around the globe, creating a vast network of investigators, special agents, and prosecutors. If you suspect that you are, or have been, audited or investigated for a tax crime in connection to your personal or business income, it is urgent that you contact an experienced criminal tax defense attorney in Oakland for help right away. Time is of the essence as the very tax professional that you initially turned to for help could be forced to become a witness against you especially where they prepared the return at issue.
At the Tax Law Office of David W. Klasing, our criminal tax audit and investigation lawyers have more than 20 years of combined legal experience representing defendants who have exposure for felony and misdemeanor tax offenses, including tax evasion, payroll tax fraud, filing false returns, failure to pay taxes, and return preparer fraud. With support from our team of CPAs, we represent business entities, tax preparers, and everyday taxpayers who require aggressive, sophisticated criminal tax audit and tax investigation defense services in Oakland.
Signs Your Tax Audit Has Become an IRS Criminal Investigation
The IRS will not necessarily announce that a civil audit is transitioning to a criminal tax investigation. Taxpayers must be on alert, and must exercise their rights against self-incrimination by retaining a skilled and competent attorney as soon as possible during any high risk audit proceedings, whether it is a worker classification audit, a sales tax audit<?a>, or any other type of California or IRS tax audit. Skillful representation reduces the likelihood that a criminal tax investigation will be initiated, while increasing the chance of reduced civil and criminal tax fraud penalties or prosecution if charges are contemplated or filed.
There are certain “red flags” that a civil audit (which is conducted by an auditor, or “revenue agent”) is becoming a criminal tax matter. These warning signs include:
- Sudden termination of the audit, usually followed by an inability to reach the auditor
- Special interest in a specific record or transaction during the audit
- Questions focused around your intent when making various tax decisions
- Subpoenas or summonses demanding financial records
- Excessive copy of client or third documents.
Criminal tax issues are handled by the IRS Criminal Investigation Division (IRS-CI), whose agents are called “special agents.” Auditors may refer cases to IRS-CI if indicators (“badges”) of tax fraud, or willful tax law violations, are uncovered at any point during the examination. Badges of fraud<?a> include:
- Failure to file or pay taxes
- Underreporting income
- Omitting sources of income
- Transactions or assets exceeding reported income
- Improper claiming of credits or deductions
- Lost, destroyed, or altered records
What Are Eggshell and Reverse Eggshell Audits?
The IRS conducts three basic types of tax audits (“examinations”): correspondence audits, office audits, and field audits. A correspondence audit is conducted through the mail, while an office audit occurs in person at an IRS office. In a field audit, which is generally the most comprehensive among these procedures, the auditor comes to the taxpayer’s home and/or place of business in order to collect relevant records (such as bank statements, invoices, or receipts).
Any type of tax audit, including a correspondence, office, or field audit, can also be what is called an “eggshell audit” – an extremely dangerous situation for the taxpayer. Stated simply, an eggshell audit is an audit of a return on which the IRS has detected a “material” (substantial) misstatement, such as a scenario where the taxpayer appears to have reported significantly less income than he or she actually earned. The objective is to determine whether such misstatement was negligent, in which case a 20% negligence penalty is warranted or willful which can result in a 75% civil fraud penalty and the potential for a full-on criminal tax prosecution followed by a period of incarceration and restitution.
A similar concept is the “reverse” eggshell audit. In a reverse eggshell audit, a criminal tax investigation is disguised as a straight civil audit. In most cases, reverse eggshell audits begin when a civil auditor refers the case to a Fraud Referral Specialist, who then prepares the case for hand off to the IRS criminal investigation department.
Federal Tax Fraud Penalties
Tax crimes, as federal offenses, are prosecuted at the federal level based on laws contained in the Internal Revenue Code (IRC). These statutes set forth the maximum criminal penalties for each offense, from which judges typically have some discretion to deviate where circumstances merit lesser penalties. Investigation and prosecution under state tax laws is also a common occurrence.
Below, our Oakland tax attorneys present a list of several common federal criminal tax charges, including the maximum criminal fines and prison sentences for each. Keep in mind that, while the following penalties are maximums and may therefore be reduced, they can also be compounded by IRS restitution and/or supervised release, in addition to substantial civil fraud penalties:
- 26 U.S. Code § 7201 – Attempt to evade or defeat tax
- Fine – $100,000
- Sentence – 5 years
- 26 U.S. Code § 7206 – Fraud and false statements
- Fine – $100,000
- Sentence – 3 years
- 26 U.S. Code § 7207 – Fraudulent returns, statements, or other documents
- Fine – $10,000
- Sentence – 1 year
- 26 U.S. Code § 7205 – Fraudulent withholding exemption certificate or failure to supply information
- Fine – $1,000
- Sentence – 1 year
- 26 U.S. Code § 7202 – Willful failure to collect or pay over tax
- Fine – $10,000
- Sentence – 5 years
- 26 U.S. Code § 7203 – Willful failure to file return, supply information, or pay tax
- Fine – $25,000
- Sentence –1 year (misdemeanors), 5 years (felonies)
Oakland Criminal Tax Audit Defense Lawyers and CPAs in California
Do not face federal prosecutors, special agents, or revenue agents without hard-hitting legal representation asserting and upholding your constitutional rights. Hire a proven, tested trial attorney with more than 20 years of combined experience providing audit representation and defending taxpayers with exposure for prosecution for tax evasion, payroll tax fraud, filing false returns, and other federal felony offenses. We will work tirelessly to mitigate the penalties you are facing, advocating on your behalf while guiding you through the tax audit / investigation process. We can also appeal your audit on your behalf after the examination concludes, or potentially, engage in tax litigation to dispute an assessment of tax, interest, or penalties.
Contact us online right away to arrange a confidential, reduced-rate consultation, or call our Oakland tax attorneys at (510) 764-1020. Alternately, you can reach our main office by calling (800) 681-1295. Please note that meetings at our Oakland location are by appointment only.
If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here:
