Many criminal tax cases begin with an IRS audit, making swift and strategic intervention crucial. If you or your business has been selected for a federal tax audit in California, turn to our San Bernardino tax evasion defense lawyers for help. At the Tax Law Office of David W. Klasing, we have more than extensive civil and criminal tax law experience, including over a decade of auditing experience, cementing our reputation as an award-winning California tax firm with a record of positive results.
Signs a Civil Tax Audit is Becoming an IRS Criminal Investigation
The IRS is required to notify taxpayers when a civil tax audit is being initiated. However, a taxpayer should not rely on the IRS to announce that an in-progress civil audit is transitioning into a criminal tax fraud investigation.
That being said, certain terminology can provide clues. If for any reason you are contacted by an IRS agent who identifies himself or herself as a “special agent” – that is to say, as an agent of the IRS’ Criminal Investigation Division (IRS-CI) – it is urgent that you contact a tax fraud defense attorney immediately. Politely tell them you’re happy to speak with them but only when your attorney is present and remain SILENT! You will not be able to talk your way out of the problem! A special agent should not be confused with a “revenue agent,” or auditor. Revenue agents strictly perform audits and, where appropriate, refer potential fraud cases for further investigation by IRS-CI. Look out for eggshell and reverse egg shell audits as they are incredibly dangerous for taxpayers.
Even if the audit is presently focused on another taxpayer, you risk being drawn into the net if you inadvertently incriminate yourself by volunteering information. An IRS tax attorney can counsel you on your rights and communicate with the Internal Revenue Service on your behalf, offering you the protection of the attorney-client privilege.
Other than the terminology being used, warning signs of an IRS criminal referral include sudden disappearance of the auditor and/or termination of the audit, excessive requests for copies of records, and emphasis on the taxpayer’s intent when taking (or failing to take) certain actions.
What Are Eggshell and Reverse Eggshell Tax Audits?
Any tax audit has the potential to result in unwanted consequences for the taxpayer, including assessments of additional taxes, months of accumulated interest, and the imposition of IRS penalties, such as failure-to-file or failure-to-pay penalties. But while innocent tax mistakes can be costly enough, intentional acts of tax fraud can lead to even harsher consequences. Willful noncompliance with the Internal Revenue Code can lead to prosecution for tax crimes, such as tax evasion, tax preparer fraud, or willful failure to file a tax return. For the defendant, the outcome can be prison time, criminal fines, and supervised release – on top of additional civil tax penalties.
“Badges of fraud,” or indicators of tax fraud, warn IRS auditors that willful noncompliance might have occurred. For instance, revenue agents are trained to detect omitted income sources, falsified amounts of income (whether through under- or overreporting), inconsistent sets of books, and expenses disproportionate to reported income, among other examples. Certain audits involving suspected tax fraud are what are known as “eggshell audits” (or, in other cases, reverse eggshell audits). In an eggshell tax audit, there has been a “material” or significant misstatement on the taxpayer’s return – potentially creating criminal liability. The IRS will focus on whether the error was a product of negligence or “willfulness,” meaning intent to deliberately avoid the assessment and payment of tax liabilities. In a reverse eggshell tax audit, civil and criminal investigations are occurring separately but simultaneously, effectively causing the criminal investigation to appear as a “normal” civil audit to the taxpayer.
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Criminal Penalties for Tax Fraud: Fines and Jail Time
Tax defendants who are convicted or plead guilty often receive harsh penalties, even without any history of prior criminal offenses. Several examples of statutory maximum fines and prison sentences for common tax crimes, including felony tax evasion, are listed below.
- Payroll Tax Fraud (26 U.S. Code § 7202)
- Fine – $10,000
- Prison – 5 years
- Tax Evasion (26 U.S. Code § 7201)
- Fine – $100,000
- Prison – 5 years
- Willful Failure to File a Tax Return or Pay Taxes (26 U.S. Code § 7203)
- Fine – $25,000
- Prison – 1 year
- Willfully Aiding or Assisting with the Preparation of False Returns (26 U.S. Code § 7206(2))
- Fine – $100,000
- Prison – 3 years
- Willfully Making or Subscribing a False Return (26 U.S. Code § 7206(1))
- Fine – $100,000
- Prison – 3 years
Keep in mind that these penalties may be supplemented by civil tax fraud penalties, in addition to, depending on the defendant’s occupation, various professional sanctions.
San Bernardino IRS Audit Lawyers and CPAs Fighting Tax Evasion Charges
What begins as a civil examination can quickly spiral into a sprawling fraud investigation if the taxpayer does not exercise utmost caution. If you have been chosen for a California or IRS tax audit in San Bernardino, make sure you are represented by a skilled San Bernardino tax lawyer who will work tirelessly to protect your rights and preserve your best interests. To schedule a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our San Bernardino tax office at (909) 991-7557. You can also reach our main office by calling (800) 681-1295. Please note that meetings at our San Bernardino office are by appointment only.
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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: