A criminal referral is likely to follow a civil audit if firm indications of fraud exist in the mind of the civil auditor. Common indications of fraud, often called “badges of fraud” include: omissions of income, inability to explain large items, substantial overstatements, two sets of books, fictitious items, etc.
Note: An omission of income greater than $10,000 in a single year will result in an automatic referral to a technical fraud advisor for possible development of the case for a hand off to the criminal investigation division.
Commonly recognized warning signs that precede a criminal referral include:
A civil audit may be suspended before completion and referred to CI for criminal investigation without the knowledge of the taxpayer.
The Revenue Agent becomes unexplainably unreachable
The Revenue Agent focuses heavily on the “intent” of the client in taking positions on a return or worse yet mentions a pattern of noncompliance on several tax returns.
The Revenue Agent focuses prepares a net worth analysis or subpoena’s bank records
The Revenue Agent gathers an excessive amount of documentation or makes excessive copy requests
The Revenue Agent makes undisclosed contact with third parties
You receive a summons for records or for an appearance
More than one revenue agent, the agent and their manager or worse yet two revenue agents, an attorney from chief counsel’s office and a court reporter attend a client interview
The typical eggshell audit is said to reverse where a temporary suspension of a civil audit occurs which is often indicated where a civil auditor cancels a subsequent appointment and then fails to contact or return the taxpayer’s calls for several weeks while the referral process to CI progresses.
An officer of the IRS wearing a gun and a badge approaches you and reads you something similar to a Miranda warning (this is an IRS special agent from the criminal investigation division of the IRS). If you are ever faced with one, demand that counsel be present for your questioning and remain silent.