What Do I Do if I Have an IRS Criminal Audit?

Facing an IRS criminal audit is a daunting experience that can have serious implications for your financial and legal well-being. Unlike a standard civil audit, an IRS criminal investigation involves potential criminal charges related to tax fraud or evasion. In this blog, we will delve into the intricacies of an IRS criminal audit and provide guidance on how to navigate the process while safeguarding your interests.

In this comprehensive guide, we will address common questions and provide step-by-step guidance on how to navigate an IRS criminal audit.

First, What Happens During an IRS Criminal Investigation?

An IRS criminal investigation is a meticulous process conducted by specialized agents, often from the IRS Criminal Investigation Division. They scrutinize your tax returns and financial records to uncover potential criminal conduct. The agents will gather evidence to determine if there is sufficient cause to pursue criminal charges.

Now, let’s discuss the steps you can take if you are involved in an IRS criminal audit.

Seek Professional Assistance

Given the complexity of an IRS criminal audit, seeking help from a tax professional or attorney experienced in handling criminal tax cases is highly advisable. An expert can guide you through the process, ensure you understand your rights, and represent you effectively during interactions with the IRS.

Gather Relevant Financial Records and Documentation

In preparation for the audit, gather all relevant financial records and documentation that can support the accuracy of your tax returns. This includes receipts, invoices, bank statements, and any other evidence that can substantiate your income and deductions.

Respond Promptly and Truthfully

If you receive any communication from the IRS regarding the audit, respond promptly, respectfully, and truthfully. Avoid providing information beyond what is requested, but make sure to address all inquiries honestly and transparently.

Keep Detailed Records of All Communications

Maintain meticulous records of all interactions with the IRS throughout the audit process. This includes keeping copies of letters, emails, and any other forms of communication exchanged between you and the IRS. Having a well-documented trail of communication can be invaluable in case of any disputes or misunderstandings.

Be Aware of Your Appeal Rights

If you disagree with the audit findings, familiarize yourself with your appeal rights and options. You have the right to challenge the results and present additional evidence to support your case. Your tax professional or attorney can guide you through the appeals process.

Prioritize Compliance and Honesty

During the audit, prioritize compliance and honesty. Cooperate fully with the IRS while ensuring that you don’t inadvertently provide information that could be used against you. Having a transparent approach and demonstrating a willingness to cooperate can positively impact the audit process.

Stay Informed and Educated

Educate yourself about the tax laws relevant to your situation and stay informed about updates or changes that may affect your case. Being well-informed can help you make better decisions throughout the audit process.

Protect Your Rights

Throughout the audit, be mindful of your rights as a taxpayer. You have the right to legal representation, the right to privacy, and protection against self-incrimination. Ensure that these rights are respected during interactions with the IRS.

IRS Criminal Audit FAQs

Can an IRS Audit Lead to Jail?

Yes, an IRS audit can potentially lead to jail time, but it’s essential to distinguish between civil and criminal audits. A civil audit focuses on assessing tax accuracy, typically resulting in penalties such as fines or tax adjustments. However, if the IRS uncovers intentional tax fraud or evasion during an audit, it can escalate into a criminal investigation, potentially leading to imprisonment upon conviction.

What Happens if You Are Audited and Found Guilty?

If you are audited and found guilty of committing tax fraud or other criminal tax offenses, the consequences can be severe. Potential penalties include substantial fines, restitution of owed taxes, forfeiture of assets, and, in some cases, imprisonment. It’s crucial to understand the gravity of the situation and the impact on your personal and financial life.

Is an IRS Audit Criminal Investigation?

An IRS audit can be either civil or criminal. The majority of audits are civil and focus on verifying the accuracy of your tax returns. However, if the IRS suspects criminal conduct, they can initiate a criminal investigation to determine if tax fraud or evasion has occurred. The shift from civil to criminal proceedings is a critical juncture that demands heightened caution and legal representation.

When can the IRS put you in jail?

The IRS can pursue criminal charges when they have evidence of willful tax evasion, fraudulent reporting, or deliberate noncompliance with tax laws. Engaging in activities like hiding income, using false deductions, or maintaining fraudulent records can trigger a criminal investigation. Understanding potential triggers can help you avoid actions that may raise suspicion.

How often does the IRS pursue criminal charges?

The IRS is selective about pursuing criminal charges, and not all audits lead to criminal investigations. The focus is primarily on cases involving substantial tax liabilities, high-income individuals, and instances where intentional tax evasion is suspected. Complying with tax laws and reporting accurately reduces the likelihood of becoming a target of criminal scrutiny.

How do I survive an IRS audit?

Surviving an IRS audit, whether civil or criminal, requires careful preparation and adherence to the following steps:

  1. Gather all relevant financial records and documentation to support your tax returns.
  2. Seek assistance from a tax professional or attorney experienced in handling IRS audits.
  3. Respond promptly, respectfully, and truthfully to all IRS inquiries.
  4. Avoid volunteering information beyond what the IRS requests.
  5. Keep meticulous records of all communications with the IRS.
  6. Familiarize yourself with your appeal rights and options if you disagree with the audit findings.

How worried should I be about an IRS audit?

While an IRS audit can be anxiety-inducing, it’s essential to remember that most taxpayers will never face a criminal investigation. By filing accurate and honest tax returns, keeping detailed records, and seeking professional guidance when necessary, you can minimize the likelihood of an IRS criminal audit.

Does everyone go to jail for tax evasion?

No, not everyone found guilty of tax evasion goes to jail. The severity of penalties depends on factors such as the extent of tax evasion, the level of intent, prior compliance history, and cooperation during the investigation. Many cases result in civil penalties and financial restitution instead of imprisonment.

Final Notes

An IRS criminal audit is a serious matter that demands meticulous attention and adherence to tax laws. By staying informed, seeking professional guidance, and remaining compliant, you can navigate the process more effectively and safeguard your financial and legal interests. Remember, facing an IRS criminal audit is a critical juncture, and seeking legal advice is crucial to protect your rights and interests throughout the investigation.

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.