There are compliance, financial, and personal reasons why you should work with an experienced tax lawyer when challenged by the Internal Revenue Service (IRS). In the moment, you may not understand the importance of legal counsel, but hindsight offers a good view of when to get help.
Our law firm represents clients facing allegations of criminal tax evasion, tax fraud, and matters involving foreign bank account reporting, among other issues. A key step to managing an IRS audit or investigation is understanding the issue and your legal options at the outset.
Here are four situations where consulting legal counsel may improve your outcome and help you to respond appropriately to a civil or criminal tax concern from the IRS:
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Audit concerns: Audits are common and often routine. If your personal or business tax returns are complex, speaking with a tax lawyer when you receive an audit notice from the IRS is advisable. Importantly, if you know there are aspects of your return that could lead to penalties or even criminal charges, a legal strategy should be considered before any communication with the IRS occurs. Sensitive audits of this type are known as "eggshell audits." Making false statements to the IRS can escalate concerns and lead to further investigation.
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Activities of concern: If you are a business owner skimming funds, failing to collect and pay wage withholding to the IRS, or engaging in fraud related to payment practices or misclassification of employees, early strategic guidance can significantly affect how the matter unfolds. The IRS closely examines payroll tax issues involving reporting or payment failures. Similarly, if you have failed to file returns or pay taxes due for one or more years, get legal help.
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Offshore accounts: If you have offshore assets or maintain foreign bank accounts, regulatory reports are generally required annually. The Report of Foreign Bank and Financial Accounts (FBAR) applies to U.S. persons whose aggregate foreign account balances exceed the reporting threshold. If you are not compliant or are considering offshore investments and want to understand reporting obligations, careful evaluation before action is essential.
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Assessment of penalties: If you receive a letter notifying you of a penalty assessment by the IRS, read the notice closely. If there are significant monies involved, a structured review at the outset with your attorney can clarify whether an appeal or other dispute options are available. At the outset, there is an opportunity to appeal an assessment, which may result in the removal or reduction of the penalty. If it does neither, there is room ahead for further dispute resolution. It is not in your best interests to ignore the notice or fight it without knowing the issues and potential outcomes.
Because the IRS assesses interest on penalties and may pursue a criminal tax investigation if given reason, understanding potential exposure early can materially influence the outcome of a tax matter. If you are interested in a greater explanation of these topics, consider downloading our free eBook on legal questions we routinely receive from clients, including tax fraud, penalties, and offshore issues. It is never too soon to reach out to a tax attorney if you or your business is not tax compliant. Early intervention can sometimes make a big difference.
Looking for experienced legal advice on tax compliance or allegations of tax crime?
If you receive a notice of deficiency or IRS audit letter, consulting experienced counsel can help clarify your response options. At Robert J. Fedor, Esq., L.L.C., we provide representation in tax controversies and criminal tax matters. Contact us at 440-250-9709 or request a consultation. We serve clients internationally and in Northeast Ohio, Chicago, and New York City from our offices in Cleveland and Chicago.
