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If you were chosen for a tax audit in San Diego, and are concerned about the possibility of being charged with tax evasion or related offenses, you need an aggressive and dedicated dually licenses criminal tax defense lawyer and CPA on your side. At the Tax Law Office of David W. Klasing, our award-winning legal team features specially trained CPAs, former auditors, and San Diego tax attorneys with decades of experience representing defendants in IRS tax audits, IRS criminal tax investigations, and misdemeanor and felony pre-indictment proceedings. If a federal tax audit is placing you at risk of prosecution for tax crimes in California, we are here to provide the robust legal representation you will require.
Civil Tax Audit Red Flags for an IRS Criminal Tax Investigation
Being selected for an IRS audit, though never a welcome experience, does not necessarily mean that you are being targeted for a criminal tax investigation. Many audits conclude uneventfully, resulting in either an extremely rare confirmation of the taxpayer’s original return information, or, much more likely, a additional tax assessment that is most often accompanied by interest and/or penalties, which the taxpayer can potentially dispute by requesting an IRS appeal.
While most tax audits are strictly civil matters that do not result in a criminal investigation, there are certain “badges” or indicators of tax fraud that auditors are alert to during an examination. Some examples of these tax fraud indicators, which are listed extensively in Internal Revenue Manual 25.1.2 under Section 25.1.2.3, include the following:
- Claiming tax credits or deductions you do not qualify for
- Excluding income sources from your tax return
- Failing to report foreign bank accounts and offshore sources of taxable income
- Overstating expenses that are often disproportionate to your reported earnings
- Making false statements to the IRS during your audit or in your tax filings
- Maintaining multiple sets of books
- Underreporting income
Why are these and other “badges of fraud” significant? Because their existence, once uncovered, may prompt the auditor to refer the case to a fraud referral specialist to work up your audit for referral to a special agent within the IRS Criminal Investigation Division (IRS-CI). Warning signs of a criminal referral from an IRS audit include the following:
- Abrupt suspension of the audit
- Undisclosed contact between the auditor and third parties, like your tax preparer or your bank
- Increased requests for records or copies
- Sudden inability to contact the auditor
For an in-depth look at how this process unfolds, you may be interested in our discussion of the warning signs an IRS audit has gone criminal.
Eggshell and Reverse Eggshell Audit Representation in San Diego, CA
There are three types of audits, or “examinations,” the IRS conducts:
- Correspondence Audits – Conducted entirely via mail
- Desk Audits – The taxpayer and/or taxpayer’s representative meet with the auditor at a local IRS field office (such as the San Diego IRS office, which is located in downtown San Diego)
- Field Audits – In-depth, invasive procedures that involve the auditor gathering records from the taxpayer’s home and/or place of business
Any of these audits can also be what is known as an “eggshell audit” or “reverse eggshell audit.” An eggshell audit is an audit in which there appears to have been a significant misstatement on the taxpayer’s return, such as a major understatement of income – for instance, reporting that you earned $50,000, when you actually earned $100,000. If related to negligence, this can result in a 20% penalty – but if related to willfulness, or deliberate misconduct, the result can be, at best, a 75% civil fraud penalty, to at worst, criminal tax prosecution with a potential loss of livelihood if you are licensed under California’s business and professional code.
Similar is the reverse eggshell audit, in which a criminal investigation is effectively masked as a “normal” civil audit. This increases the danger of accidental self-incrimination, or criminal admission being made by your ill prepared and under qualified tax representative, making experience and properly trained legal representation critical.
Federal Sentencing for Tax Evasion and Related Fraud Offenses
Tax charges are of serious concern due to the harsh criminal penalties they can result in if the defendant is convicted. These penalties – which can be further amplified by civil IRS penalties, such as the civil fraud penalty – include the following:
- 26 U.S. Code § 7201 – Attempt to evade or defeat tax
- Fine – $100,000 ($500,000 for corporations)
- Sentence – 5 years
- 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 ($100,000 for corporations)
- Sentence – 1 year
- 26 U.S. Code § 7206 – Fraud and false statements
- Fine – $100,000 ($500,000 for corporations)
- Sentence – 3 years
- 26 U.S. Code § 7207 – Fraudulent returns, statements, or other documents
- Fine – $10,000 ($50,000 for corporations)
- Sentence – 1 year
San Diego Criminal IRS Tax Audit Lawyers and CPAs
A tax audit is a daunting experience for any taxpayer, bringing with it the risk of costly additional tax assessments – plus any associated penalties or interest charges. Unfortunately, these financial risks are not the only danger the taxpayer faces. Depending on why you are being audited – and what the auditor discovers – you risk being criminally investigated by the IRS. An IRS criminal investigation could lead to prosecution by the Department of Justice, placing you at risk of prison time, a criminal record, and other serious consequences.
It is of vital importance that you take immediate action to begin preparing and strategizing. For a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our San Diego tax office at (619) 780-2538. You can also reach us by contacting (800) 681-1295. Please note that consultations at our San Diego office are by appointment only.
Note: 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:
