Awards & Recognition
A tax audit is cause for concern for several reasons. Not only may the audit lead the IRS to conclude that the taxpayer owes the federal government money – it may also reveal evidence that the taxpayer has engaged in tax fraud, leading to a criminal tax investigation for felony tax evasion. If you are under audit, or were recently notified that you have been selected for a tax audit, and you are concerned that the examination could lead to a felony tax charges, talk to the criminal tax audit defense attorneys and CPAs at the Tax Law Office of David W. Klasing. We can work to limit your criminal tax exposure, potentially even avoiding prosecution by making a voluntary disclosure, depending on the specifics of your case. With offices located in San Jose, we represent taxpayers and businesses throughout the region. Please note that our San Jose, like all our satellite offices, are by appointment only.
Can an IRS Audit Lead to a Criminal Investigation for Tax Fraud?
The short answer to this question is yes; an examination that begins as a civil tax audit can give rise to, or even occur alongside, a criminal tax investigation. But how does this happen? And moreover, how does the taxpayer know it is occurring or has occurred?
Audits are performed by IRS employees known as “revenue agents.” Revenue agents are not criminal specialists, but they are trained to recognize certain indicators of fraud. If indicators of tax fraud are detected during a civil audit, the revenue agent may terminate the audit and refer the case to a “Special Agent.” IRS Special Agents are armed law enforcement officers who work for the IRS Criminal Investigation Division (IRS-CI).
In some cases, a tax audit and a criminal investigation can occur at the same time, which is known as a “reverse eggshell audit.” A standard eggshell audit is an audit in which the return under examination contains major misstatements of income, suggesting that fraud has occurred. For additional information on eggshell or reverse eggshell tax audits, readers may be interested in our articles discussing how a tax attorney can help during your eggshell audit, or what to do after an eggshell audit ends.
See our Audit Representation Q and A Library
Unfortunately, the taxpayer will not necessarily be informed when a civil tax audit is transitioning to a criminal investigation, which is one of the many reasons why it is so important to be represented by a competent attorney, limiting your risk of inadvertent self-incrimination. Even if the IRS initially states that you are wanted merely as a witness in another person’s case, you may shift to become the IRS’ focus, placing you in danger of prosecution. Other than abrupt cessation of the audit, other indicators that an audit has become a criminal investigation include sudden loss of contact with the auditor, issuance of subpoenas or summonses, and/or an increase in the number or frequency of IRS requests for documentation.
See our Criminal Tax Law Q and A Library
Penalties for Tax Evasion and Related Offenses
Under 26 U.S. Code § 7201, which is the federal statute establishing penalties for tax evasion, the criminal consequences of a conviction may include fines of up to $100,000 and/or up to five years in prison. 26 U.S. Code § 7202, relating to payroll tax fraud (willful failures to collect or pay over tax), imposes a maximum fine of $10,000 and/or maximum sentence of five years in prison. Willfully failing to file a return and willfully failing to pay taxes are both violations of 26 U.S. Code § 7203, which establishes maximum fines and sentences of $25,000 and one year, respectively, with a five-year maximum sentence for felony cases. Willfully making and subscribing a false return, or assisting another person to do so (such as a CPA assisting a client), is a violation of 26 U.S. Code § 7206 subject to fines of up to $100,000 and/or up to three years in prison.
It is important to note that, even if the government ultimately declines to prosecute the case, it does not necessarily mean that the taxpayer is “off the hook.” On the contrary, there can be devastating civil penalties and interest charges to contend with. If the audit does lead to criminal prosecution, and the taxpayer is convicted, the court may impose civil penalties atop any of the criminal penalties specified in the relevant statute. For example, the federal tax evasion statute, 26 U.S. Code § 7201, calls for criminal fines of up to $100,000. Civil fraud penalties of up to 75% of the underpayment may be imposed in addition to criminal fines – as well as IRS restitution.
Tax Audit Defense Lawyers and CPAs in San Jose, CA
With an outstanding record of case outcomes, an award-winning team of audit and criminal tax attorneys, and more than 20 years of civil and criminal tax law experience, the tax professionals at the Tax Law Office of David W. Klasing are here to deliver the sophisticated representation you need. Serving all of San Jose County, we bring comprehensive, hard-hitting trial and litigation experience to taxpayers facing serious criminal charges. If you are not happy with the result of an audit, we also offer IRS tax appeals and tax litigation representation.
See our Tax Litigation Q and A Library
See our IRS Appeals Q and A Library
If you need help with a criminal tax issue involving a California or IRS audit, contact us online today, or call the Tax Law Office of David W. Klasing at (805) 617-4566 for a reduced-rate consultation. Please note all meetings at our San Jose tax office must be scheduled in advance.
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:
