Disputing Allegations of Philadelphia Tax Evasion and Fraud

Disputing Allegations of Philadelphia Tax Evasion and Fraud

Getting that letter from the IRS or state of Pennsylvania with allegations of tax evasion or fraud can be downright scary. Your palms sweat, your heart races – am I really in trouble here? Did I do something wrong? What’s going to happen to me?

While it’s totally normal to feel anxious in this situation, try to take a deep breath. An allegation or audit does not necessarily mean you’re guilty or did anything intentionally wrong. There are plenty of ways to dispute allegations and protect yourself if the IRS or state comes knocking with questions. Here’s what you need to know:

Gather Your Records

First things first – get your records in order. Pull out tax returns, W-2s, 1099s, receipts, bank statements – anything that shows proof of your income, deductions, credits, etc. Having complete documentation that supports the tax return numbers will be key to disputing any allegations of evasion or fraud.

Make copies of everything, get organized, and create a timeline of events. It’s a painstaking process but worth it to have your ducks in a row. Consider making a spreadsheet listing income, deductions, etc. and include the documentation that proves each item. This will help you (and your tax pro if you have one) easily respond to any issues raised.

Understand the Allegations

Carefully review the notice from the IRS/state and try to understand exactly what they are questioning. Are they saying you underreported income? Claimed false deductions? Incorrectly calculated credits? Making an effort to pinpoint the exact issues will help focus your response.

For example, if they believe you failed to report cash side income, focus your efforts on proving why that simply isn’t true. If they question charitable deductions, pull the documentation that shows your donations. Target your dispute to the specifics of their allegations.

Get Representation

While you can certainly dispute tax evasion or fraud allegations yourself, it’s highly advisable to have an experienced tax attorney represent you instead. These cases can quickly get complex, with layers of tax codes and regulations. A knowledgeable tax lawyer knows how to present persuasive arguments and evidence that cast doubt on the allegations.

Plus, they understand audit and legal processes and can negotiate with the IRS or state on your behalf. Representation gives you an advocate in your corner, fighting to protect your rights and resolve the case as favorably as possible. Look for a tax attorney experienced specifically in evasion and fraud disputes.

File a Formal Protest

To officially dispute the allegations, you or your representative will need to file a formal protest and request a hearing. The protest will lay out the facts of your case, present evidence contradicting the allegations, and ask that the proposed penalties be dropped.

Work with your representative to submit a well-written, compelling protest. Focus on reasonable doubt – give plausible explanations for any gray areas and show how circumstances do not necessarily point to intentional evasion or fraud. The goal is to convince them that while mistakes may have happened, you did not willfully break tax laws.

Attend the Hearing

An IRS or state tax audit usually culminates in an in-person hearing, where you or your representative can present arguments and evidence. Use this as an opportunity to clarify facts, explain your side, and try to poke holes in their case. Point out assumptions, inaccuracies, or flaws in their reasoning.

Stay calm and professional as you make your points. Bring thorough documentation to address any issues. The auditor may push back on some items, so be prepared to negotiate or provide additional proof if needed. Make your case for abating penalties due to reasonable doubt.

Receive a Final Ruling

After the audit process concludes, you will receive the final ruling – hopefully with reduced or eliminated penalties. But if penalties are still upheld, all is not necessarily lost. You still have appeal options, including going to tax court, where a judge will take an objective look at each side’s case.

A tax attorney can advise if appealing the decision seems worthwhile. Don’t give up hope – even penalties for tax evasion or fraud can sometimes be reduced or abated with the right legal strategy. Stay the course and keep fighting if you truly believe you did nothing intentionally wrong.

Takeaways for Avoiding Tax Allegations

While dealing with allegations is no fun, there are things you can do proactively to avoid them in the first place:

• Keep meticulous tax records so you have documentation to support returns if audited.
• Review returns carefully before filing to catch any mistakes upfront.
• If you’re not sure about an item, take the conservative approach or ask a tax pro.
• If you have side income, report it – don’t assume it’s all cash under the table.
• Be very careful claiming home office or business use of vehicles. These are hot audit triggers.
• Educate yourself on common red flags that can lead to audit and penalties.
• Respond promptly to any IRS or state tax notices and provide requested info.
• If you make a mistake, file an amendment to correct it as soon as possible.
• If you get behind on taxes, file returns even if you can’t pay in full. Not filing exacerbates problems.
• Seek help from a tax pro if you have a complicated return or are dealing with financial difficulties.
• Always err on the side of caution – it’s better to overpay a bit than take aggressive positions that could be seen as evasion.

Bottom line – tax evasion and fraud allegations should be taken very seriously. Stay calm, get representation, and fight back with the facts. Make your case for reasonable doubt whenever possible. And going forward, do what you can to avoid red flags and allegations in the first place. With the right tax preparation, reporting, and response, you can get through an audit unscathed.