Ultimate Guide to Tax Audits and Criminal Tax Law
Facing an IRS audit or being targeted by the IRS Criminal Investigation Division is a serious matter. Kevin E. Thorn, Managing Partner at Thorn Law Group is an experienced Washington D.C. tax audit lawyer who can help you avoid severe penalties.
What should you do if you receive an audit letter from the IRS? What do you need to know if you are being targeted for a criminal tax law violation? Both of these are extremely serious matters and hiring an experienced Washington D.C. tax audit lawyer will be critical to mitigating your risk of substantial penalties.
Kevin E. Thorn, Managing Partner at Thorn Law Group, has been representing individuals and businesses in federal tax audits, investigations and trials for almost two decades. He is known as a “go to” tax attorney in Washington D.C., and he has extensive experience in IRS matters involving domestic and foreign assets and income. If you are at risk for being prosecuted for tax fraud, tax evasion, an offshore disclosure violation, or any other tax-related offense, Mr. Thorn can help you, but you need to act quickly, and you need to make smart decisions about your defense. Below is some of the key information you need to know.
What Do You Need to Know If You are Being Audited by the IRS?
While an IRS audit is a distinct proceeding from a criminal tax law investigation, the consequences can be equally severe. If you have received an audit letter, you need to respond appropriately and you need to avoid mistakes that could jeopardize your ability to assert a successful audit defense. Not only can an audit lead to the imposition of interest, fines and other civil penalties, but if the audit reveals evidence (or purported evidence) of intentional tax law violations, then it could also trigger a criminal investigation.
1. Why Am I Being Audited by the IRS?
As the target of an IRS audit, you must determine what triggered the audit, and you must also figure out what is at issue. Discerning the answers to these questions will be critical to building an effective defense. Does the IRS believe that you underreported your domestic taxable income? Or, are you being targeted as the result of a report that your foreign bank filed under the Foreign Account Tax Compliance Act (FATCA)? These are two very different scenarios, and each requires its own unique defense strategy. Washington D.C. tax audit lawyer Kevin Thorn can help you make this determination and advise on appropriate strategies based on your specific situation.
2. What are the Different Types of Tax Law Audits?
Determining which type of IRS audit you are facing will tell you a lot about the types defense strategies that will be most effective as well. Currently, the IRS conducts three main types of tax law audits:
- Correspondence Audits – Correspondence audits are conducted by mail and typically involve requests for documentation which appears to be missing based upon the contents of the audited party’s return. Remember, even if you hired a tax professional to prepare and file your return for you, you are still personally responsible for submitting complete and accurate information to the IRS.
- Office Audits – Office audits involve meeting with IRS agents in person to discuss apparent deficiencies in your federal tax returns. They typically involve issues that are more complex than missing documentation but do not involve the appearance of intentional tax evasion. Any time you are meeting with IRS agents, it is important to be extremely careful about what you say; and, before you say anything, it is best to seek the advice of a Washington D.C. tax audit lawyer.
- Field Audits – Field audits involve IRS agents coming to your home or place of business to question you and review relevant documents in your possession. You are entitled to legal representation during all field visits, and you should insist that your attorney be present during any interviews and searches.
3. What are the Potential Outcomes of a Tax Law Audit?
In broad terms, an IRS audit can have two potential outcomes: (i) a determination that you have accurately reported your income and paid all applicable federal taxes; and, (ii) a determination that you have underpaid the IRS. If you are able to fully substantiate your federal tax returns, your interaction with the IRS will be over. If the IRS says that you have underpaid, then you will need to address its conclusions accordingly.
4. What are the Potential Consequences of a Tax Law Audit?
If an IRS audit results in a determination that you have underpaid your federal tax liability, you will be required to pay your outstanding tax balance plus interest and civil penalties. If the audit reveals evidence of intentional misconduct, it could also trigger a criminal tax law investigation.
5. How Can I Prove That I Don’t Owe More Tax?
When facing an IRS audit, the ideal scenario is to be able to prove that you have accurately reported your taxable income and paid all that you owe. However, this is often easier said than done.
As with most federal compliance and law enforcement issues, the key to proving tax law compliance is comprehensive documentation. If you have the records to prove that you have met your federal obligations, then providing these records to the IRS will likely be the best (and perhaps the only) way to prove that you don’t owe more tax. However, when providing the IRS with additional documentation, you need to be careful to provide no more than is absolutely necessary, as additional documents could raise additional questions that expand the scope of the IRS’s inquiry. Contact Washington D.C. tax audit lawyer Kevin Thorn to ensure you provide only what is needed in this regard.
6. What if I Have Underreported or Underpaid My Federal Tax Liability?
If you have underreported or underpaid your federal tax liability, then you need to be even more careful during the audit process. You should work with your attorney to determine the best course of action, and you should let your attorney communicate with the IRS agents who are handling the audit on your behalf. Ultimately, you will have to pay the tax that is legally owed; but, if you aren’t careful, you could end up paying interest and penalties that could have been avoided.
7. Can I Challenge the Outcome of My IRS Audit?
Yes, all IRS audit determinations are subject to appeal. While the preferred course of action is to resolve the audit in your favor, if this is not possible, your attorney will be able to file an appeal with the IRS Office of Appeals. If this appeal is unsuccessful, then your next step is to challenge the audit in federal court. Contact our Washington D.C. tax audit lawyer for immediate assistance.
What Do You Need to Know if You are Facing a Criminal Tax Law Investigation?
If you are under investigation for tax fraud, tax evasion or any other criminal violation of the Internal Revenue Code (IRC), you must quickly determine the scope and nature of the investigation so that you can develop and execute an effective defense strategy. You will need to work with an experienced Washington D.C. criminal tax lawyer who can use his or her experience to help you avoid an indictment, prosecution and criminal sentencing.
1. What is the IRS Criminal Investigation Division?
The IRS Criminal Investigation Division, “serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.” Its jurisdiction encompasses the Bank Secrecy Act and various other federal criminal statutes, and its 2,500+ special agents aggressively target and prosecute individual and corporate taxpayers suspected of a broad range of tax-related and other financial crimes.
2. Why Am I Being Targeted by the IRS Criminal Investigation Division?
The IRS Criminal Investigation Division focuses its efforts on its four identified “strategic priorities.” These are:
- Legal source tax crimes (i.e. underpayment of tax owed on income from legitimate sources)
- Illegal source financial crimes (i.e. racketeering-type crimes and other similar types of offenses)
- Narcotics-related financial crimes
- Counterterrorism financing
Obviously, these are four extremely broad categories. Similar to facing an IRS audit, when facing a criminal tax law investigation, determining why you are being investigated is the first step toward defending yourself effectively. Defending against allegations of underpayment is very different from defending against allegations of engaging in an illegal business or funding terrorism. By making contact with the special agents handling your investigation and relying on his or her similar past experience, your Washington D.C. criminal tax lawyer will be able to piece together the information necessary to determine precisely why you are under investigation.
3. Could I Really Be Guilty of a Federal Tax Crime?
The Internal Revenue Code, the Bank Secrecy Act, and the other statutes within the IRS Criminal Investigation Division’s jurisdiction are extraordinarily complex, and they proscribe a broad range of types of conduct. While it is entirely possible that the investigation is misguided, you must not assume that it will be resolved in your favor. Some of the most-common allegations in federal criminal tax law investigations include violations of:
- 18 U.S.C. § 371 (conspiracy to commit a federal offense or defraud the United States)
- 26 U.S.C. § 7201 (attempting to evade or defeat tax)
- 26 U.S.C. § 7202 (willful failure to collect or pay over tax)
- 26 U.C.C. § 7206 (submitting a false or fraudulent statement to the IRS or aiding in the preparation of a false tax document)
- 26 U.S.C. § 7212 (attempting to interfere with the administration of the Internal Revenue Code)
4. What are the Criminal Penalties for Tax Evasion and Tax Fraud?
The penalties for federal tax crimes are assigned on a statute-by-statute basis. For example, under 26 U.S.C. § 7202, potential penalties include 5 years in prison and a $100,000 fine ($500,000 for corporate entities). Violations of 26 U.S.C. § 7212 can carry up to three years in prison and a $5,000 fine, while conspiracy to commit tax fraud (in violation of 18 U.S.C. § 371) is subject to the same penalties as “successfully” defrauding the federal government.
5. Do I Need to Be Worried about Other Criminal Allegations?
Oftentimes, criminal tax investigations are triggered by investigations into other alleged criminal practices. In these cases, the IRS Criminal Investigation Division works closely with other federal agencies (such as the U.S. Department of Justice (DOJ)) to prosecute individuals for multiple related federal offenses. In addition to general crimes such as money laundering, mail fraud and wire fraud, targets of criminal tax law investigations will also be at risk for prosecution under laws such as:
- Anti-Kickback Statute
- Health Care Fraud Statute
- Racketeer Influenced and Corrupt Organizations Act (RICO)
- Securities and Exchange Act
- 18 U.S.C. §§ 1341 and 1343 (criminal mail fraud and wire fraud)
6. Should I Cooperate in the Investigation?
Whether (and, if so, to what extent) you should cooperate in a criminal tax law investigation requires a critical and strategic assessment of the particular circumstances involved. While cooperating can be helpful under certain circumstances, it can also be dangerous, any offer to cooperate should be made with a clear understanding of the risks involved. Speak to Washington D.C. criminal tax lawyer Kevin Thorn before speaking to anyone related to the investigation
7. Should I Make an Offer in Compromise or Seek a Deferred Prosecution Agreement?
Offers in compromise and deferred prosecution agreements are very different remedies that can be appropriate under very different sets of circumstances. Before considering an offer in compromise or raising the potential for a deferred prosecution agreement, you need to be certain that the path you choose reflects your best interests. While offers in compromise and deferred prosecution agreements can significantly reduce your financial liability if you are guilty of a federal tax crime, they both come with their own risks and drawbacks as well.
Speak With an Experienced Federal Tax Audit and Investigation Lawyer in Washington, D.C.
If you have received an audit letter, subpoena or any other form of contact from the IRS or its Criminal Investigation Division, it is imperative that you seek legal advice promptly. To schedule a confidential initial consultation with Kevin E. Thorn, Managing Partner at Thorn Law Group, call 202-349-4033 or tell us how to reach you online now.