What is Criminal Tax Representation?

Suppose you’re under audit by the IRS. Suppose further you know you cheated on your last tax return. You think it’s only days away before the IRS finds out. The revenue agent is asking you questions in the neighborhood of the problem you know exists in the return. What do you do? What can you do? Is it possible to survive an IRS audit of your false return without risking exposure for tax crimes? Take a breath because the answer is quite possibly yes if you get proper representation.

Tax crimes are usually discovered through the civil audit process. When discovered, it may result in a civil penalty (i.e. a fine like the 75% of additional tax due fraud penalty) or the case may be referred to the criminal investigation division or “CID” for short for development for prosecution.

Before a civil penalty or your case being referred to the CID, however, the auditor must, of course, actually discover tax fraud. While they are highly trained to identify the “badges of fraud” (as it’s sometimes called), they must prove that you did the fraud willfully–with the intent to defraud the IRS. What’s that? It’s something more than making a mistake (or negligence).

For example, it’s likely the IRS will find that you did not commit a mere mistake but that you acted willfully in tax evasion if you used two different social security numbers, or you claimed on your return more exemptions for children that are not yours or live in another state (and they don’t depend upon you), or you maintained two different financial books. Other examples would include overstating or using bogus deductions and exemptions, or claiming a First Time Home Buyer credit when you didn’t even buy a house.

So the IRS must prove you acted willfully. You might be tempted to tell the IRS that you simply made a mistake. But they are not exactly always inclined to believe you at your word. The IRS, however, is more inclined to believe your tax attorney, since the attorney-client relationship forms a special fiduciary relationship, and because an attorney speaks the same “legalese” and tax language as the IRS auditor. Competent legal counsel will be able to inform you whether your act is likely considered negligent or intentional (willful).   Your attorney will also insulate your where necessary from speaking to the IRS in order to prevent you from making incriminating statements.

Sometimes, to help prove its case, the IRS agent will ask you to fill out Form 4822 which lists your living expenses. Generally, it’s good advice not to do so without first seeking counsel. You don’t want to help the IRS agent prove its case against you. There’s no penalty for declining to fill out Form 4822, so just let the agent do his own job without your assistance.   The agent will back into your actual income from demonstrating what your life style actually costs using “economic” evidence against you.

To criminally prosecute you, not only must the IRS show that you acted willfully, it must also prove guilt beyond a reasonable doubt–which is the standard of proof in all crimes. This is a specialized standard, one that your attorney is familiar with; for this reason, it is invariable preferable to consult legal counsel quickly to better defend you against the government.

Moreover, what the government must prove depends on the nature of the claim against you. Thus, whether you survive an audit you’ve cheated on depends upon the nature of the claim. For example, each of the following involve different things that must be proved against you. These are the sorts of things your attorney has special knowledge on, and will defend you against.

  • Tax Evasion
  • Tax Fraud
  • Filing a False Return
  • Making False Statements on a Return
  • Trust Account Abuse
  • Frivolous Filing
  • Non-Filing (Failing to File a Tax Return)
  • Faulty Refunds
  • Hiding Assets in Foreign Accounts
  • Overvaluations
  • Understatement of Income Tax
  • Understatement of Estate/Gift Tax
  • Understatement of Generation-Skipping Tax
  • Using a False Social Security Number