An audit can be a time-consuming process. While you cannot avoid a tax audit, you can minimize your risk of an audit by avoiding potential flags on their tax return. The most frequent IRS audits are caused by inconsistencies or errors in your tax return that raise red flags in the eyes of the IRS.
When you work with Milikowsky Tax Law, you get more than an experienced tax litigation attorney. You get an experienced business and tax advisor who can work with you to reduce your chances of being audited, with our comprehensive tax return assessment system and years of business experience.
California’s Top IRS Audit Attorney
Our leading tax litigation attorney, John Milikowsky, has decades of experience representing countless businesses in legal tax matters. Mr. Milikowsky is dedicated to relentlessly defending his clients in everything from state and federal tax audits to criminal tax investigations. As a full-service tax law firm, we frequently work with business owners to empower owners to identify issues on their own tax returns. While there is no way to guarantee you will avoid a tax audit, we can teach you to significantly minimize your risk of an audit.
Get Expert IRS Audit Defense Today
Milikowsky Tax Law Defends Businesses in IRS Audits
When you’re faced with the formidable presence of a tax audit, don’t panic. Reach out to Milikowsky Tax Law, and we will protect your company to keep your business in business. Our skilled tax litigation attorneys will protect your rights every step of the way.
Whether you’ve just received a letter from the IRS, or you need help analyzing your legal rights and financial data reported on your tax returns, contact us today. The team at Milikowsky Tax Law is here to help.
San Diego Tax Attorney – Your Relentless Advocate in IRS Audits
Business owners may not be sure where to start if IRS audits their company. However, an IRS audit doesn’t have to overwhelm your life or impede your ability to conduct business. With the experienced team at Milikwosky Tax Law, you can navigate the process of an IRS audit secure in the knowledge that your tax attorneys are advocating for you every day.
There is little to no margin for error during an audit, a tight timetable, and potentially severe consequences for a poorly handled interaction with IRS. Unlike CPAs who do not have attorney-client privilege, attorneys are able to speak with your IRS officer on your behalf without risk of subpoena or summons of records discussed. A qualified attorney can, review your documents with an expert eye, create the right strategy for you, represent you or your business, and provide valuable advice and guidance.
If you receive a letter from IRS confirming your business tax return has been selected for examination, review your return and identify the items that will likely be investigated so you can be prepared. Then, before communicating with IRS, reach out to an experienced IRS audit attorney. Having a game plan is critical. You want to be honest and prepared when speaking with your IRS revenue agent.
Anytime you file taxes, there is a chance that your tax return might be audited by the Internal Revenue Service (IRS). The agency conducts standard procedures to find any errors or discrepancies among taxpayers. The audit process is meticulous and, should you find yourself under the scrutiny of IRS, will require detailed information from you.
In the article below, you’ll learn about the audit process and frequently asked questions surrounding IRS audits.
Why was I selected for an IRS Audit?
There are different reasons you may be flagged for IRS audits. Some are due to random checks; however, you have a low chance of being audited this way. Most taxpayers have less than a 0.6% chance of receiving a random audit check.
IRS runs tax returns through its Discriminant Information Function (DIF) system to continually update their database and make sure they are tracking industry benchmarks for each industry and tax bracket.
The DIF system also checks for incorrect tax filing information. Any discrepancies in tax forms, such as an imbalance of tax returns, a discrepancy between reported earnings and employer filings, or unreported cash transactions by one member of a transactional party, will trigger DIF to send your return to an IRS audit officer.
People are more susceptible to an audit if they:
- Earn less than $25,000 or more than $500,000
- File incorrect or incomplete returns
- Have large numbers of cash transactions
- Claim a disproportionate number of deductions
- Are self-employed
- Have a home-based business
- Have a cash business
- Have foreign assets
Sometimes you can be audited as a result of your business partners or investors going through an audit.
How Will I Know If I am Selected for an Audit?
You will know if you are selected for an audit if you receive a verified letter in the mail from IRS. They do not call to notify you about your audit.
What Do I Do If I’m selected for an Audit?
If you or your business are selected for an audit, make sure you read all of the information sent to you in your audit notification letter. The letter and accompanying information request packet will notify you as to what entity is being audited (business or personal) what year(s) are under review and who your auditor is. Once you know what IRS needs, make sure you collect all of the records and supporting documentation requested (but nothing additional). You will need to submit records from banks, vendors, and businesses you have worked with, invoices and pay stubs, payroll records, and medical expenses among other information.
Should I Hire an IRS Tax Attorney to Help Me?
We suggest contacting a qualified tax attorney to help guide you through your audit, to ensure you are timely, responsive, compliant, and do not unintentionally increase the scope of your audit to other areas of your business or personal finances that would otherwise remain unscrutinized.. There is little to no margin for error during an audit, a tight timetable, and potentially severe consequences to a poorly handled interaction with IRS. Unlike CPAs who do not have attorney-client privilege, attorneys are able to speak with your IRS officer on your behalf without risk of subpoena or summons of records discussed. A qualified attorney can, review your documents with an expert eye, create the right strategy for you, represent you or your business, and provide valuable advice and guidance.
How long do I have to reply to an IRS audit?
You have 30 days to reply to the initial audit letter. Do not hesitate, and make sure you take the appropriate steps early on. IRS is not likely to provide extensions unless you have a good reason. Your attorney can help by advocating for more time with the IRS agent. A good attorney will know many of your local IRS auditors and have strong relationships built on well-structured prior cases and mutual respect.
How Long Do Audits Take?
The time it takes to conduct an audit depends on the case. It fluctuates depending on:
- The seriousness of the tax reporting error
- When and whether the right information is provided to IRS
- Communication between the person being audited and IRS officer
How Many Years of Tax Returns Can IRS audit?
IRS audits tax returns from the past three years; however, most are from the past two years. Only when IRS agents find discrepancies within the audit they are conducting do they dig for information older than three years. Most audits do not look for information past six years. Though in cases of criminal audits IRS can look back 9 years and longer.
If you or someone you know received an audit letter from IRS, reach out to our expert team at Milikowsky Tax Law. We have over a decade of experience working with IRS and tax audits and are experts in defending business owners in the face of IRS or other government agency audits.
Your Guide to California and Federal Tax Evasion Penalties
The law imposes significant tax evasion penalties to deter activities that could lead to a conviction for evasion or fraud. In addition to financial penalties, a tax fraud conviction can result in several years of jail time, depriving you of your liberty.
While these penalties may seem harsh, the IRS is committed to seeking custody for those who intentionally break tax laws. Penalties vary based on the nature of the offense, but the law clearly outlines the maximum fines and jail terms.
Is Tax Evasion a Federal Crime?
In an ideal world, you’d never find yourself searching for the answer to the question: is tax evasion a federal crime? Unfortunately, tax evasion is indeed a serious federal offense with significant repercussions if convicted.
The justice system imposes harsh penalties for tax crimes, and felony convictions can have long-lasting impacts on your ability to seek employment or run a business. Tax evasion, as defined by Section 7201 of the US Internal Revenue Code, includes two primary offenses that constitute a federal crime.
Willful Evasion of Tax Assessment
A willful attempt to evade or defeat the assessment of a tax is considered a federal crime. For instance, if an individual hides assets under another person’s name or transfers assets to obscure their actual tax liability from the IRS, it is deemed willful evasion.
Willful Evasion of Tax Payment
Similarly, a willful attempt to evade or defeat the payment of a tax liability is also a federal crime. This occurs when a person intentionally tries to avoid paying taxes that are due.
Proving Willful Intent
The term “willful” is crucial in these cases. To secure a conviction, the prosecution must prove beyond a reasonable doubt that the accused performed an intentional act to evade or defeat the assessment or payment of a tax. Additionally, they must demonstrate that the accused owes additional tax.
Tax evasion carries severe penalties, including substantial fines and lengthy jail terms, underscoring the importance of complying with tax laws and addressing any discrepancies proactively.
Tax Fraud Jail Time: Can You Go to Jail for Tax Evasion?
The consequences of tax fraud are severe, including substantial fines and the possibility of jail time. If you’re convicted, you can indeed go to jail for tax evasion. While the legal process can be lengthy as it moves through the court system, incarceration is a very real outcome for those found guilty of evading taxes.
You might wonder, “Why do I have to pay Uncle Sam my hard-earned cash?” or “Why do I owe state taxes?” But if you intentionally avoid paying them, you risk ending up behind bars.
The Path to Criminal Prosecution
Before the IRS initiates a case for criminal prosecution, a series of events typically occur. It often begins with an audit of a filed tax return. The IRS examines the return for patterns indicating willful evasion over several years, often involving significant amounts of money.
Most criminal prosecutions arise from unreported income. Taxpayers might habitually omit large transactions or entire income sources to reduce their tax liabilities intentionally. Deliberately hiding records or making false statements during an audit signals to IRS auditors that the case may warrant criminal prosecution.
Factors Influencing Jail Time
The length of tax evasion jail time varies based on several factors, including the amount of money involved and whether the defendant is a repeat offender. Sentencing guidelines establish minimum terms, influencing how long a convicted individual will be incarcerated.
Mitigating the Consequences
While the consequences for intentional tax evasion are harsh, most taxpayers facing an audit will only incur penalties if the evidence shows they didn’t intentionally break the law. Having skilled tax audit representation can work in your favor. Experienced tax audit attorneys can help demonstrate to the IRS that any discrepancies were unintentional, potentially saving you from a long and difficult trial.
In summary, while jail time for tax evasion is a severe penalty, proper representation and transparent communication with the IRS can mitigate the worst outcomes. Compliance with tax laws and prompt addressing of any issues is crucial to avoid these severe consequences.
Tax Evasion Sentencing Guidelines: Who Goes to Jail for Tax Evasion?
Understanding the reasons behind tax evasion penalties can clarify why a prison sentence may be imposed if you’re convicted. The federal sentencing guidelines outline the baseline prison terms for tax evasion, with additional penalties including substantial fines.
The Severity of Criminal Tax Evasion
Tax evasion is a serious offense. The law is strict on those who consciously attempt to evade their tax liabilities, and leniency is rarely an option. Prosecutors typically seek the maximum possible jail time for such crimes.
If you’re worried about whether you’ll go to jail for not filing your tax return on time, there’s some relief. Simply failing to file a timely return isn’t enough for a tax evasion conviction. Criminal prosecution occurs only when there is a deliberate attempt to evade filing returns or filing false returns. Mistakes or forgetfulness won’t result in criminal charges, but it’s still wise to consult a tax attorney if facing charges to develop a robust defense strategy.
Acts That Can Lead to Jail Time for Tax Evasion
Here are a few deliberate acts that can result in a jail sentence for tax evasion:
1. Hiding Income from a Side Hustle
Side hustles are common in today’s economy, from driving for rideshare services to making deliveries. It’s crucial to report income from these activities. Failing to declare this income over several years is considered willful tax evasion by the IRS.
2. Helping Someone Else Evade Taxes
Even if you’re not personally concealing income or filing false returns, you can still be convicted of tax evasion if you help someone else evade taxes. Section 7201 of the US Internal Revenue Code states that aiding another in evading their tax liability is a prosecutable offense.
3. Failure to Disclose Offshore Bank Accounts
Americans must pay taxes on foreign income. Hiding foreign income in offshore bank accounts can lead to severe penalties. If the IRS proves that you willfully failed to disclose these accounts, you could face heavy fines and imprisonment.
Tax Evasion Punishment: How Long Do You Go to Jail for Tax Evasion?
Understanding the punishment for tax evasion involves knowing how sentences are calculated under federal guidelines. The length of jail time for tax evasion is primarily determined by the federal sentencing guidelines, which use a numeric system to assess the seriousness of the offense and the defendant’s criminal history.
Federal Sentencing Guidelines Overview
The guidelines consist of 43 levels representing the severity of offenses. Generally, the more serious the crime, the higher the base offense level. Specific characteristics of the offense can adjust this base level. For example, a guilty plea might reduce the offense level.
Criminal History Consideration:
A defendant’s criminal history significantly impacts sentencing. Repeat offenders face harsher sentences, in line with the guidelines’ policy of penalizing recidivism more severely. However, it’s important to note that these guidelines are advisory. Judges have the discretion to impose sentences above or below the suggested range.
Key Factors in Determining Sentence Length
Tax Loss to the Government:
Base Offense Level:
Examples of Offense Level Adjustments
Increased Offense Level:
Reduced Offense Level:
Practical Application of the Guidelines
The exact jail time depends on the offense level and the defendant’s criminal history. Here’s a simplified outline:
Low-Level Offenses (Level 6-8):
Minor tax evasion cases with small tax losses may result in shorter sentences, typically ranging from probation to a few months in prison.
Mid-Level Offenses (Level 9-16):
More significant tax losses and moderate criminal history can lead to sentences of several months to a few years.
High-Level Offenses (Level 17-36):
Major tax evasion cases involving substantial tax losses and/or extensive criminal activity can result in long prison terms, often several years or more.
Average and Maximum Jail Time for Tax Evasion
Average Jail Time for Tax Evasion
The average jail time for tax evasion typically ranges between 3 to 5 years. The exact duration of the sentence depends on the specifics of each case, including factors like the amount of tax evaded, the defendant’s criminal history, and the complexity of the evasion scheme. Generally, defendants convicted of tax evasion can expect to serve a sentence within this range.
Longest Sentence for Tax Evasion
The longest sentence for tax evasion is set by Section 7201 of the US Internal Revenue Code, which prescribes a maximum sentence of five years. In addition to imprisonment, those convicted of tax evasion may also be required to pay substantial financial penalties. These penalties aim to recover the evaded taxes and serve as a deterrent against future tax evasion attempts.
Potential Penalties for Tax Evasion in California
When individuals or entities are convicted of tax evasion in California, they can face substantial penalties, including:
Imprisonment
Fines
Restitution
The court may order the defendant to pay restitution to cover the tax liability owed, ensuring that the state recovers the evaded taxes.
Collateral Consequences
There are also severe collateral consequences that come along with a conviction of tax evasion, including revocation or suspension of professional licenses of people who are lawyers, doctors, or accountants, and a severe damage to the defendant’s personal and professional reputation.
Any Questions?
At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax audits. We’re experts in defending business owners in the face of IRS or other government agency audits.
Interested in learning more? Read on to learn how to respond to an IRS audit.