How an IRS Civil Tax Audit Turns Into a Criminal Tax Investigation

tax auditAn IRS civil tax audit can be a slippery slope toward a far-reaching IRS criminal tax investigation. If you understand the process, you may have a better chance of avoiding a criminal tax charge.


It is not difficult to be selected for a civil tax audit. With every income tax return, FBAR, or other compliance filing, any small anomaly can bump your return into the “flagged for follow-up” pile. If business associates with whom you do business are audited, you could be as well.


Notice of an IRS audit arrives in the mail. First tip—when you receive an audit letter, speak with your tax attorney before you respond. Being prepared for your audit is more than pulling together documents; your lawyer can help you understand the IRS process and what is needed.


As we discussed earlier, audits take place in two ways—either by correspondence or in-person. By nature, a correspondence audit is more informal as documents and information are exchanged by mail. In-person audits, either to interview you, or to thoroughly examine your books, are of a more serious nature and conducted by agents with more extensive experience.


During a correspondence audit, it is not unusual for the IRS examiner to find problems with your return. You may be assessed more tax and a penalty, or the auditor may find no change is needed to your returns. That said, if an examiner has reason to believe deductions or expenses are inflated, or if the income you report does not concur with documentation provided to the IRS, there could be a problem.


While mistakes are frequently found on returns, evidence of intent to mislead--such as filing a fraudulent tax return--can quietly lead to referral of your case for a criminal tax investigation. Criminal tax audits often pick up where an original civil tax audit left off. If your civil audit starts to go south, be mindful of what you say and provide to the IRS. For example:

  • If asked by an auditor if you have committed a tax crime, do not offer an admission.
  • Do not provide falsified documents to prove that your income or deductions are accurate.
  • Do not provide evidence or statements that might be construed as revealing intent to file a false tax return.

Again, if you receive an audit letter, talk to a tax attorney who is well versed with IRS practices and procedures before you respond to the IRS. Your attorney can carefully review your books, discuss weaknesses or outright problems, and help you prepare and understand how to respond in an audit. If there is strong evidence of criminal tax fraud in your personal or corporate filings, your attorney can discuss options before an audit is initiated.


Skilled legal representation with IRS investigations, audits, and compliance issues

Serving local and international clients from offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC helps you respond strategically to questions about tax returns and FBAR reporting, tax controversy, and foreign bank accounts. Call 800-579-0997 or contact us today.


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