How to Survive an IRS Tax Audit and Avoid Criminal Charges of Tax Fraud & Evasion
Everyone hates paying taxes and everyone dreads a tax audit. However, most people don't really know what goes on during an audit. So, when you get a letter from the IRS that says "we have selected your federal income tax return for the year shown above for examination" you shouldn't panic, but you should take action right away. Entire books have been written on the audit process, so this guide will just hit some important points. What type of audit are you facing? There are several types of audits with some worse than others. Only a tax professional will be able to help you make sense of the notice. Some of the worse types include "National Research Program" where your tax returns will be examined line by line and "face-to-face" which could last for hours. "IRS Special Projects" focus on some of the most common tax scams. Who prepared your return? If you prepared your own return, you probably made some big mistakes. If you used a tax professional, contact him/her and let them know about the notice. While a CPA can help you prepare for the audit, they are not attorneys. Thus, you may want to at least consult with an attorney before you do anything. You should also request all of your records from the tax professional you used. Why you should remain silent and let someone else do the talking If you have ever watched any law enforcement TV show, you know that anything you say, can and will be used against you. The same holds true for audits. If you say anything, it could be twisted or used against you in a way you never thought possible. Also, no matter how much you read on the Internet, you still have no idea what you are doing. Leave the heavy lifting for a professional. There's a mistake and then there's a crime You are probably not going to need a criminal defense attorney if you added up a figure wrong or if you can't prove that you gave $500 to a local charity. However, if your returns are complex, you make a lot of money, there is unreported income or your Schedule C looks like you have created a sham business, then you could be facing a criminal investigation. Keep in mind that the audit may be the tip of the spear in a criminal tax fraud case. After the audit, your case can eventually reach the criminal investigation division. By that time, it may be too late. The best time to stop a criminal case is before it starts. Hiring a tax evasion defense attorney as part of your audit team can go a long way to prevent any criminal charges from ever being filed. What to expect In almost every case, your attorney will not have you appear at the audit. Instead, he/she will appear on your behalf, possibly along with an accountant. However, there is a lot to do before you get there. They key to success at an audit is to prepare before you get there. Your attorney will likely give you a ton of homework to provide records. Reviewing and organizing these records will be necessary to convince the examiner that any issues with your examiner are nothing more than a mistake. After the audit, there may be additional document that need to be provided. After the audit Once the examiner completes the audit process, you may owe additional taxes and penalties. If there are no criminal tax issues, the only question remaining is whether or not you should appeal the decision. If you do not appeal, you will work out how you will pay the IRS (or if you will make an offer) and the case will be over. As scary as an audit is made out to be, it is nothing compared to a criminal tax fraud case. However, seeking professional help right away before you do anything can go a long way to avoiding a criminal tax fraud investigation.