How to Prevent an IRS Criminal Tax Evasion Investigation

How to Prevent an IRS Criminal Tax Evasion Investigation

Dealing with the IRS can be intimidating, but a criminal tax investigation is on a whole other level. Tax evasion charges carry stiff penalties like huge fines and even jail time. The best way to avoid this outcome is to prevent the criminal investigation before it starts.

Understand What Triggers a Criminal Investigation

Many people unintentionally commit minor tax errors without consequence. But tax evasion involves intentionally avoiding taxes you owe, which the IRS takes very seriously. Here are some red flags that may prompt a criminal investigation:

• Failing to file returns or pay taxes owed for multiple years
• Hiding income or assets from the IRS
• Claiming false deductions or exemptions
• Using a fake Social Security number
• Laundering money or participating in other illegal activities related to finances

If the IRS suspects you’ve engaged in fraudulent activities to avoid taxes, they may open a criminal investigation. So it’s crucial to avoid anything that seems intentionally deceptive.

File Accurate Tax Returns

The best way to avoid tax evasion charges is by filing timely, accurate returns. Even if you owe taxes you can’t pay, it’s better to file truthfully than not file at all. According to the IRS Tax Crimes Handbook, failure to file is one of the most common triggers for criminal charges¹. So get your taxes done every year, even if you need to set up a payment plan.

Keep Immaculate Financial Records

You must keep reliable records to support the income, deductions, and credits claimed on your tax returns. The IRS considers sloppy record-keeping a potential sign of fraud. Under-reporting your income is also a red flag. So save all receipts and financial statements to back up what you report.

If you run a business, meticulous bookkeeping is even more critical. Make sure to report all cash transactions and keep records of your earnings and expenses. Unexplained mismatches between your books and tax returns may trigger an audit or criminal charges.

Be Careful Claiming Deductions and Credits

Only claim tax deductions and credits you qualify for and can prove. Falsely padding your deductions is illegal. Some common audit triggers are:

• Claiming personal expenses as business deductions
• Exaggerating charitable contributions
• Claiming credits like the Earned Income Tax Credit when ineligible

So review requirements carefully and make sure you have proper documentation before claiming deductions and credits.

Avoid Tax Protester Activities

Some people intentionally try to avoid taxes by claiming the tax laws don’t apply to them. They file returns with zero income even when they’ve earned money. Or they send letters to the IRS citing bizarre arguments why they don’t have to pay taxes. The IRS labels these illegal tactics as “frivolous tax submissions.”

People making these types of false arguments face criminal charges for tax evasion. The courts have repeatedly penalized these illegal tax avoidance schemes. So don’t buy into claims you can avoid paying taxes. You must file returns and pay taxes just like every other law-abiding citizen.

Seek Help If You Have Tax Issues

If you receive an IRS notice and don’t understand what it means, get help. An experienced tax professional can help you interpret confusing IRS notices. They can also let you know if the IRS suspects criminal activity. This gives you a chance to address any problems before an audit or criminal investigation begins.

If you already face criminal charges, immediately consult with a criminal tax defense attorney. The IRS burden of proof requirements differ in civil vs. criminal cases. A knowledgeable tax attorney can poke holes in the government’s case against you. They understand what penalties you may face and can negotiate with prosecutors for reduced charges.

The IRS warns that “Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible.”² So getting expert help puts you on the right track to resolve tax issues in a legal manner.

Make Use of IRS Tax Amnesty Programs

If you failed to file returns or report income in previous years, taking advantage of IRS tax amnesty programs can help you get right with your taxes. Programs like the Offshore Voluntary Disclosure Program (OVDP) allow you to avoid criminal prosecution by voluntarily disclosing unreported income. You still must pay back taxes, interest, and penalties. But the IRS will not pursue criminal charges if you qualify and follow OVDP rules.

These programs encourage non-compliant taxpayers to disclose what they owe. In return, the IRS offers more lenient tax penalties and avoids criminal prosecution. This lets you correct previous tax mistakes without facing jail time for tax evasion.

Don’t Panic If You Get Audited

If you receive an IRS audit notice, don’t assume you’ll automatically face criminal charges. In most cases, the IRS just wants to verify items reported on your returns. They will request documentation to support your tax deductions, business income/expenses, contributions, etc. Gather everything they request and provide a thorough response.

As long as you filed accurately and have the records to back up what you claimed, an audit likely won’t lead to an evasion investigation. The IRS simply wants to confirm you reported the right amounts. With good record-keeping, an audit should result in little or no additional tax. But not responding may raise suspicions and trigger a criminal investigation.

Seek Legal Help Immediately If Facing Criminal Charges

If arrested or contacted by IRS criminal agents, remain silent and immediately contact a criminal tax defense lawyer. The IRS may use deceptive tactics to get you to incriminate yourself unintentionally. So insist on speaking with an attorney first before answering any questions.

A skilled criminal tax attorney understands IRS procedures and can build the strongest defense. They look closely for violations of your rights and procedural errors by IRS agents. For example, the IRS may have obtained evidence improperly or failed to read you your rights. An experienced lawyer exploits these technical mistakes to get charges dismissed or reduced.

With so much at stake, a tax evasion investigation is no time for amateurs. The IRS devotes significant manpower and resources to these cases. So you need an aggressive defense lawyer on your side who knows how to fight the government.

Ask for Help, But Choose Your Tax Advisor Carefully

Getting help from a tax professional can help prevent many IRS problems. But take care in choosing an advisor. Look for credentials like Enrolled Agent (EA) or Certified Public Accountant (CPA). Check disciplinary records to ensure they have no history of unethical conduct.

Avoid tax preparers who:

• Promise larger refunds than other preparers
• Charge fees based on a percentage of your refund
• Fail to sign returns they prepare
• Encourage you to make questionable claims

Advisors who engage in shady practices may increase your audit risk and even expose you to criminal liability. So do your homework to find a reputable tax pro committed to helping you comply with tax laws.

The Bottom Line

Dealing with scary IRS legal problems feels overwhelming. But avoiding criminal charges boils down to filing honest, accurate returns and keeping thorough financial records. If you discover a past mistake, make things right through the IRS voluntary disclosure program. And if you face an audit or criminal allegations, seek help right away from a tax controversy expert. They can help guide you through the process and achieve the best possible outcome.

1. IRS Tax Crimes Handbook, https://www.irs.gov/pub/irs-utl/tax_crimes_handbook.pdf [↩︎]

2. IRS Internal Revenue Manual, https://www.irs.gov/irm/part9/irm_09-001-003 [↩︎]