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The Differences Between an IRS Audit and Criminal Investigation

March 21, 2024

So, you got a letter from the IRS. Your heart sinks, palms get sweaty – what now? Take a deep breath, it might not be as bad as you think. But, you need to know the difference between an audit and a criminal investigation.

What’s an IRS Audit?

An IRS audit is basically a review of your accounts and financial information to verify the accuracy of your tax returns. It‘s a civil procedure, not a criminal one. The IRS does these all the time – in fact, they audited over 1 million tax returns in 2016 alone.3Now, an audit doesn’t automatically mean you did anything wrong. The IRS selects some returns randomly, while others get flagged for specific reasons like:

  • Income that doesn’t match third-party reports3
  • Certain deductions or tax credits3
  • Your tax return scored high in their system for potential errors3

So, an audit is just the IRS double-checking your numbers and making sure you followed the rules. No biggie, right? Well, not exactly

The Audit Process Isn’t Fun

While not criminal, an IRS audit is no walk in the park. The auditor will scrutinize your records, ask lots of questions, and you’ll need to provide documentation for all your claims. If they find errors, even unintentional ones, you could face:

  • Tax deficiency penalties
  • Failure to file/pay penalties
  • Accuracy-related penalties
  • Interest charges on any unpaid tax4

Those penalties can really add up fast. And if the auditor suspects fraud or intentional wrongdoing? That‘s when things can escalate to a criminal investigation.4

When Does It Become Criminal?

A criminal tax investigation is a whole different beast. This is when the IRS suspects you knowingly committed tax fraud or tax evasion – in other words, you intentionally tried to underpay or evade taxes.1Some common triggers for criminal investigations include:

  • Concealing income or assets1
  • Claiming false deductions1
  • Failing to report taxable income1
  • Money laundering or other financial crimes1

If the IRS opens a criminal case, they’ll hand it over to their Criminal Investigation Division (CI). These special agents don’t mess around – their sole purpose is gathering evidence to prosecute tax crimes.4And the punishments are way more severe than civil penalties. We’re talking potential prison time, massive fines, asset seizure, and felony charges.4 Tax evasion alone can net you 5 years in prison and up to $250,000 in fines.4 No bueno.

Christine Twomey
Christine Twomey
2024-03-21
Just had my Divorce case settled 2 months ago after having a horrible experience with another firm. I couldn’t be happier with Claire Banks and Elizabeth Garvey with their outstanding professionalism in doing so with Spodek Law Group. Any time I needed questions answered they were always prompt in doing so with all my uncertainties after 30 yrs of marriage.I feel from the bottom of my heart you will NOT be disappointed with either one. Thanks a million.
Brendan huisman
Brendan huisman
2024-03-18
Alex Zhik contacted me almost immediately when I reached out to Spodek for a consultation and was able to effectively communicate the path forward/consequences of my legal issue. I immediately agreed to hire Alex for his services and did not regret my choice. He was able to cover my case in court (with 1 day notice) and not only was he able to push my case down, he carefully negotiated a dismissal of the charge altogether. I highly recommend Spodek, and more specifically, Alex Zhik for all of your legal issues. Thanks guys!
Guerline Menard
Guerline Menard
2024-03-18
Thanks again Spodek law firm, particularly Esq Claire Banks who stood right there with us up to the finish line. Attached photos taken right outside of the court building and the smile on our faces represented victory, a breath of fresh air and satisfaction. We are very happy that this is over and we can move on with our lives. Thanks Spodek law 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️
Keisha Parris
Keisha Parris
2024-03-15
Believe every single review here about Alex Z!! From our initial consultation, it was evident that Alex possessed a profound understanding of criminal law and a fierce dedication to his clients rights. Throughout the entirety of my case, Alex exhibited unparalleled professionalism and unwavering commitment. What sets Alex apart is not only his legal expertise but also his genuine compassion for his clients. He took the time to thoroughly explain my case, alleviating any concerns I had along the way. His exact words were “I’m not worried about it”. His unwavering support and guidance were invaluable throughout the entire process. I am immensely grateful for Alex's exceptional legal representation and wholeheartedly recommend his services to anyone in need of a skilled criminal defense attorney. Alex Z is not just a lawyer; he is a beacon of hope for those navigating the complexities of the legal system. If you find yourself in need of a dedicated and competent legal advocate, look no further than Alex Z.
Taïko Beauty
Taïko Beauty
2024-03-15
I don’t know where to start, I can write a novel about this firm, but one thing I will say is that having my best interest was their main priority since the beginning of my case which was back in Winter 2019. Miss Claire Banks, one of the best Attorneys in the firm represented me very well and was very professional, respectful, and truthful. Not once did she leave me in the dark, in fact she presented all options and routes that could possibly be considered for my case and she reinsured me that no matter what I decided to do, her and the team will have my back and that’s exactly what happened. Not only will I be liberated from this case, also, I will enjoy my freedom and continue to be a mother to my first born son and will have no restrictions with accomplishing my goals in life. Now that’s what I call victory!! I thank the Lord, My mother, Claire, and the Spodek team for standing by me and fighting with me. Words can’t describe how grateful I am to have the opportunity to work with this team. I’m very satisfied, very pleased with their performance, their hard work, and their diligence. Thank you team!
Anthony Williams
Anthony Williams
2024-03-12
Hey, how you guys doing? Good afternoon my name is Anthony Williams I just want to give a great shout out to the team of. Spodek law group. It is such a honor to use them and to use their assistance through this whole case from start to finish. They did everything that they said they was gonna do and if it ever comes down to it, if I ever have to use them again, hands-down they will be the first law office at the top of my list, thank you guys so much. It was a pleasure having you guys by my side so if you guys ever need them, do not hesitate to pick up the phone and give them a call.
Loveth Okpedo
Loveth Okpedo
2024-03-12
Very professional, very transparent, over all a great experience
Bee L
Bee L
2024-02-28
Amazing experience with Spodek! Very professional lawyers who take your case seriously. They treated me with respect, were always available, and answered any and all questions. They were able to help me very successfully and removed a huge stress. Highly recommend.
divesh patel
divesh patel
2024-02-24
I can't recommend Alex Zhik and Spodek Law Firm highly enough for their exceptional legal representation and personal mentorship. From the moment I engaged their services in October 2022, Alex took the time to understand my case thoroughly and provided guidance every step of the way. Alex's dedication to my case went above and beyond my expectations. His expertise, attention to detail, and commitment to achieving the best possible outcome were evident throughout the entire process. He took the time to mentor me, ensuring I understood the legal complexities involved to make informed decisions. Alex is the kind of guy you would want to have a beer with and has made a meaningful impact on me. I also want to acknowledge Todd Spodek, the leader of the firm, who played a crucial role in my case. His leadership and support bolstered the efforts of Alex, and his involvement highlighted the firm's commitment to excellence. Thanks to Alex Zhik and Todd Spodek, I achieved the outcome I desired, and I am incredibly grateful for their professionalism, expertise, and genuine care. If you're in need of legal representation, look no further than this outstanding team.

Know Your Rights

This is where it’s crucial to understand the differences in taxpayer rights for civil audits versus criminal investigations. In an audit, you have to cooperate by providing records, answering questions, and signing statements.2 Failure to do so can lead to negative inferences by the IRS.But in a criminal probe? You have full Constitutional protections, including:

  • The right to remain silent (5th Amendment)4
  • The right to legal counsel 4
  • Protection against unreasonable searches/seizures (4th Amendment)4
  • Presumption of innocence until proven guilty4

The IRS must follow strict rules and can’t compel self-incriminating testimony or evidence from you.4 So if they start asking questions that could expose criminal liability, shut it down and lawyer up immediately.

How to Survive an Audit

Okay, back to regular audits. Getting that IRS letter is scary, but there are smart steps you can take:

  1. Don’t panic, but don’t ignore it either. Respond promptly and get your documents in order.2
  2. Request an extension if you need more time. The IRS must complete the audit within a certain timeframe, so use that to your advantage.2
  3. Don’t give them more than they ask for. Only provide documents for the tax year being audited unless specifically requested.2 Offering up extra years can open a whole new can of worms.
  4. Reconstruct records if you’re missing any. The IRS allows you to recreate documents like receipts or logs if you’ve lost them.2 Just be sure to document your process.
  5. Know when to negotiate. You can dispute the auditor’s positions on specific tax issues or deductions. But don’t argue the total tax amount – that’s a losing battle.2
  6. Understand your rights. Read up on the Taxpayer Bill of Rights and don’t let the auditor bully you.2 If they get hostile or unfair, you can request to speak to a manager.
  7. Know when to call in reinforcements. If the auditor starts using words like “fraud” or “evasion,” stop right there and get a tax professional involved immediately.2 Same goes if you just feel overwhelmed or the audit isn’t going well.
  8. Consider appealing if you disagree. You have options to appeal within the IRS system or go to Tax Court if you can’t resolve the audit findings.2

The key is being organized, knowing your rights, and not letting the auditor intimidate you into admissions that could escalate things criminally. It‘s a civil procedure, so treat it that way.

When to Lawyer Up

On the other hand, if the IRS is pursuing a criminal tax investigation against you, hiring an experienced criminal tax defense attorney is absolutely essential. Do not, I repeat, do NOT try to handle this on your own.Criminal tax cases require an aggressive defense strategy from someone well-versed in IRS criminal procedures and tactics. Your lawyer can:

  • Ensure your Constitutional rights are protected
  • Prevent you from making self-incriminating statements
  • Challenge the IRS’s evidence and investigation methods
  • Negotiate for reduced charges or penalties
  • Represent you at trial if it comes to that

The consequences of a criminal conviction are far too severe to risk going it alone. Hire a reputable criminal tax defense firm as soon as the IRS criminal division gets involved.

The Bottom Line

At the end of the day, being audited by the IRS is never fun, but it’s a civil procedure with financial penalties at worst. As long as you were honest on your taxes and can substantiate your claims, it may just be an inconvenient process.But a criminal tax investigation? That’s life-altering stuff with potential for prison time and crushing fines. The IRS has to prove intentional fraud, but they’ll use every tool to do it.So know the differences, understand your rights, and get the right legal representation for your situation. With some preparation and professional guidance, even an IRS audit or criminal tax case can be resolved favorably.1234

How to Tell If It’s an Audit or Criminal Case

Okay, so you know the key differences between an IRS audit and criminal investigation. But how can you actually tell which situation you’re dealing with? Here are some telltale signs:

It’s Likely Just an Audit If:

  • You get an official letter calling it a “correspondence audit” or “office audit”2
  • The IRS is asking for specific documents or tax year information2
  • The auditor identifies themselves as an “Internal Revenue Agent”4
  • The inquiries seem focused on verifying your income, expenses, deductions, etc.2

While audits are never fun, this doesn‘t necessarily mean accusations of criminal behavior. The IRS could simply be reviewing your return for accuracy and completeness.

Watch Out – It May Be Criminal If:

  • You get a letter from the “Criminal Investigation Division” of the IRS4
  • IRS special agents identify themselves as such (not revenue agents)4
  • Agents read you rights about remaining silent, having an attorney, etc.4
  • Questions seem aimed at showing intentional fraud or evasion on your part1
  • Agents execute search warrants or make arrests4

If any of those factors are present, you are likely under criminal tax investigation. At that point, you should immediately hire legal counsel and assert your Constitutional rights against self-incrimination.The IRS is required to follow strict procedures and protocols when conducting a criminal probe. Make them do it by the book to protect yourself.

When a Civil Audit Goes Criminal

It’s also possible for a routine civil audit to turn into a criminal investigation if the auditor uncovers evidence of intentional tax fraud or evasion.4 Maybe you claimed false deductions, omitted income sources, or failed to file returns.If this happens, the auditor must suspend the civil case and refer it to the Criminal Investigation Division.4 They cannot continue to compel you to provide information or testimony that could be self-incriminating.Signs a civil audit is shifting criminal include the auditor:

  • Using terms like “fraud,” “evasion,” or “criminal”
  • Asking questions about intent or willfulness
  • Ending the interview abruptly
  • Refusing to answer questions about the case

If you get that vibe, it’s time to politely terminate the audit and call a criminal tax defense lawyer immediately. Don‘t give the IRS any ammunition to use against you.

The Burden of Proof

One key distinction between civil audits and criminal cases is the burden of proof the IRS must meet. For an audit, the IRS only needs a preponderance of evidence that you underpaid taxes or made errors on your return.4 Basically, just 51% probability you messed up.But for criminal tax fraud or evasion, the IRS must establish proof beyond a reasonable doubt.4 That‘s the highest legal standard of evidence, the same used for criminal prosecutions. The IRS has to prove intentional lawbreaking to get a conviction.So while audits happen frequently based on relatively loose criteria, opening a criminal investigation requires much stronger evidence from the start. The IRS can‘t just go on a fishing expedition.

Statute of Limitations

There are also different time limits for the IRS to initiate civil audits versus criminal prosecutions. For most tax returns, the IRS has 3 years from the filing date to start a civil audit.3However, that 3-year clock restarts if the audit reveals a substantial error and the IRS has to look at other years.3 And if fraud is detected, there is no statute of limitations – the IRS can audit any year, indefinitely.4For criminal cases, the IRS has 6 years from the violation to file charges.4 But that can be extended if the taxpayer traveled abroad, concealed income assets, or took other evasive actions.4So in general, you have a little more time before criminal exposure. But it’s still crucial to retain financial records for at least 6 years, and probably longer if there are any red flags.

Your Best Defense

At the end of the day, the best way to avoid IRS criminal troubles is being fully compliant on your taxes from the start. Keep immaculate financial records, report all income fully, and make sure you understand the tax laws for your situation.If you do get caught up in an audit or criminal tax case, the expertise of an experienced attorney is invaluable. They know the IRS rules and procedures inside-out and can ensure your rights are protected every step of the way.

Lawyers You Can Trust

Todd Spodek

Founding Partner

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RALPH P. FRANCHO, JR

Associate

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JEREMY FEIGENBAUM

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ELIZABETH GARVEY

Associate

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CLAIRE BANKS

Associate

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RAJESH BARUA

Of-Counsel

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CHAD LEWIN

Of-Counsel

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