Awards & Recognition
During the course of a civil tax audit, the agent may refer a case for criminal tax investigation if he or she encounters apparent evidence of tax fraud (tax evasion). This may take the form of an eggshell tax audit, a highly dangerous reverse eggshell tax audit, or formal IRS criminal tax investigation. Even international tax evasion schemes that utilize remote tax havens are easily detected by the IRS, which works with tax and law enforcement agencies around the globe and throughout the United States.
If you or your small business is facing a tax audit in Orange County, and you are worried that it has the potential to result in criminal charges, you need to discuss your options with a competent Orange County tax attorney as soon as possible. With more than 20 years of tax experience, including over a decade of auditing experience, the tax defense lawyers at the Tax Law Office of David W. Klasing provide aggressive, sophisticated criminal tax audit representation to shield and protect our clients’ best interests.
Signs a Civil Tax Audit Could Cause an IRS Criminal Investigation
While some tax errors are attributable to honest misunderstandings or mistakes, others stem from deliberate, systematic efforts to defeat the Internal Revenue Code (IRC). Over time, the IRS has (1) identified certain indicators of criminal activity, which are known as “badges of fraud,” and (2) developed procedures by which civil audits can transition to criminal investigations.
Badges of fraud – for which IRS auditors are on high alert throughout any examination, no matter how seemingly “routine” – include, but are not limited to, the following:
- Destroyed, missing, or inconsistent books and records
- Improperly claimed tax credits or deductions
- Underreported income
- Unfiled returns or failure to file returns
- Hiding sources of income or assets in a collection scenario or lying on a collection information statement
Separate divisions of the IRS are dedicated to civil and criminal issues. If an IRS auditor (also called a “revenue agent”) detects badges of fraud and has cause to believe that a tax crime like tax evasion has occurred, he or she will refer the case to a fraud referral specialist whom will work up the audit for referral to the Criminal Investigation Division of the IRS (IRS-CI), at which point a “special agent” will be assigned. Warning signs that a civil audit has become or is in danger of becoming a criminal investigation include the following:
- Contacting your tax return preparer or bank
- Focusing on specific questions or issues, especially if the items in question are sensitive
- Issuing a summons or subpoena
- Suddenly becoming unreachable during the audit
Eggshell and Reverse Eggshell Audit Representation in Orange County, CA
The three main types of IRS audits are known as “field audits,” “correspondence audits,” and “desk audits.” Correspondence audits occur via mail, desk audits occur in various local IRS offices, and field audits occur in the taxpayer’s own home or place of business, which the auditor will visit to collect documents.
While each of these categories involves different auditing procedures, any can double as an “eggshell audit,” a term that refers to any audit in which the return under examination contains substantial misinformation – for instance, an omitted source of income, or earnings that have been drastically misrepresented. The audit seeks to determine whether the error was willful or negligent, which impacts the severity of the penalties that may be imposed. This distinction can make the difference between a 20% negligence penalty, and a 75% fraud penalty – in addition to possible jail time. The phrase “reverse eggshell audit” describes a situation in which a civil tax audit and IRS criminal investigation are simultaneously underway, posing extreme legal and financial danger to the taxpayer at its heart.
Criminal Penalty for Tax Evasion (Fraud)
Tax evasion and related charges may be filed as a result of any California or IRS tax audit, even if the examination is purely civil at the outset. If the taxpayer is convicted, he or she will face various civil and criminal penalties. While the maximum penalties for tax evasion and other crimes are set forth in their corresponding statutes, judges may order lighter penalties depending on the details of the case. The maximum statutory penalties for common tax crimes include the following:
- 26 U.S. Code § 7202 – Willful failure to collect or pay over tax
- Fines – Up to $10,000
- Prison – Up to 5 years
- 26 U.S. Code § 7203 – Willful failure to file return, supply information, or pay tax
- Fines – Up to $25,000
- Prison – Up to 1 year
- 26 U.S. Code § 7205 – Fraudulent withholding exemption certificate or failure to supply information
- Fines – Up to $1,000
- Prison – Up to 1 year
- 26 U.S. Code § 7206 – Fraud and false statements
- Fines – Up to $100,000
- Prison – Up to 3 years
- 26 U.S. Code § 7207 – Fraudulent returns, statements, or other documents
- Fines – Up to $10,000
- Prison – Up to 1 year
Orange County Criminal Tax Audit Lawyers and CPAs
Skilled legal representation can make the difference between an IRS audit concluding uneventfully – or spiraling into a dangerous criminal investigation. If you or your small business has been selected for a tax audit in Orange County, and you are concerned about a criminal investigation resulting from or occurring alongside the audit, you need to consult with an experienced Orange County tax lawyer right away. For a confidential, reduced-rate legal consultation, contact the Tax Law Office of David W. Klasing online, call our Orange County tax office in downtown Irvine at (949) 681-3502, or call our main office at (800) 681-1295.
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:
