Sketchy Tax Habits? What You Need to Know about Eggshell Audits

eggshell auditThe downward spiral of a business owner or company can be triggered by a simple letter from the Internal Revenue Service (IRS) announcing a civil tax audit.


If you, or your company, are involved in tax fraud or have made a serious misrepresentation on your tax return, you are a candidate for an eggshell audit. An eggshell audit is a proceeding where the taxpayer and their attorney, or accountant, are aware of deficiencies and potential tax crimes that may be uncovered during a standard civil audit—and of which the IRS examiner is not yet knowledgeable.


The obvious danger of a civil audit is the identification of errors and omissions on your tax return at best. At worst, the auditor may uncover evidence of willful tax crime and the civil audit could turn into an IRS criminal tax investigation which has the potential to put you in prison. Because of taxpayer vulnerability, it is critical to work with an experienced criminal tax attorney before you respond to the IRS.


When seeking legal counsel, be sure to connect with a tax attorney who has specific experience representing clients charged with tax crimes. An accountant or tax attorney may be unable to offer you the protective guidance needed during an eggshell audit.


When you work with counsel—come clean. Provide documents and the truth about your activities to your attorney. Do not forget about a second set of accounting books or compelling evidence of tax crime that the IRS would love to see. Your attorney will carefully review your documents and discuss the matter with you. At this point, full disclosure to your attorney can establish privileged communication, gain legal protection, and help you understand your legal options.


As the process moves forward, your attorney will work with you prior to speaking with the IRS.  One of the great advantages the IRS has in conducting civil audits is a taxpayer who provides documents or discussion without the benefit of legal counsel. A civil audit can give the IRS an opportunity to hear from a taxpayer who is nervous and frightened. During conversation, a taxpayer without adequate counsel may reveal information damaging to their interests, and help lead the auditor to ask difficult questions that reveal even more.


During a civil audit, there are some tips that an examiner may have uncovered evidence of criminal activity:

  • The audit is suspended
  • The examiner asks about your intentions around certain transactions or issues a subpoena of bank or other records
  • Document requests are excessive


During an eggshell audit, your best defense is experienced legal counsel. If potential tax fraud is identified, your attorney may be able to avoid the matter being referred for criminal prosecution. Beyond that, experienced counsel can help you avoid incriminating yourself and making a bad situation worse.


Received an audit letter?  Talk to a good criminal tax lawyer in your area.


Speak with reputable legal counsel when you need help regarding a tax crime

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, allegations of tax crime, and tax controversy. Call 800-579-0997 or contact us today.


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