The IRS Special Enforcement Program (SEP): Audits From Hell

The IRS Special Enforcement Program (SEP): Audits From Hell

Dealing with the IRS is never fun, but getting hit with a Special Enforcement Program (SEP) audit can feel like you’ve been sent straight to audit hell. The SEP is the IRS’ version of a special forces team that handles the most complex and high-profile tax cases. If your case gets sent to the SEP, you know you’re in for a rough ride.

The SEP group is made up of the most experienced IRS auditors and investigators. They take on cases involving suspected tax fraud or other criminal violations where the IRS thinks more than $10 million in taxes is at stake. These audits are no joke – the SEP team will dig through every aspect of your finances with a fine-tooth comb.

What Triggers a SEP Audit?

There are a few red flags that may cause the IRS to send your case to the SEP rather than a normal audit:

• Signs of tax fraud or evasion, like hiding income or assets offshore
• Suspicious activity, like making large cash transactions to avoid reporting requirements
• Major discrepancies between your lifestyle and reported income
• Ties to organized crime or drug trafficking
• High-profile cases that draw media attention

The SEP team also handles audits of major partnerships and corporations. So if you’re a business owner, issues during an IRS audit may land you in the SEP’s crosshairs.

What to Expect During a SEP Audit

SEP audits are incredibly invasive – these agents will look at every corner of your financial life. Here’s some of what you can expect:

• Requests for extensive documentation – bank and credit card statements, loan applications, titles, deeds, etc.
• Interviews with you, your family, business partners, employees, etc.
• Visits to your home, office, or other properties
• Using informants or undercover agents to gather information
• Getting records from third-parties like banks, employers, etc. via summons
• Potential criminal prosecution if tax fraud or other violations are uncovered

SEP auditors often take an adversarial approach, treating subjects more like suspects. They’ll look for any inconsistencies or suspicious activity to build a tax fraud case.

Surviving a SEP Audit

Once you’re in the SEP’s sights, it’s incredibly difficult to avoid an exhaustive audit. But there are a few things you can do to prepare:

• Gather records – Compile bank statements, tax returns, business records, etc. going back at least 3 years. Thorough documentation is key.
• Review records – Look for any red flags, mistakes, or discrepancies that may draw scrutiny.
• Hire representation – Having an experienced tax attorney or CPA represent you can help manage inquiries.
• Be cooperative but cautious – Answer questions from auditors but avoid volunteering too much or admitting guilt.
• Stay calm – The invasive nature of SEP audits can be intimidating, but losing your cool won’t help.

Even if you’ve made some mistakes, there are defenses that can help like relying on a tax professional’s advice or showing actions weren’t willful. An attorney may also be able to push for a settlement to avoid criminal prosecution.

The bottom line is SEP audits are the IRS’ high-stakes investigations of major tax cases. If you suddenly find yourself in the SEP’s crosshairs, staying calm and prepared with thorough documentation and experienced legal help are your best bets for getting through the audit from hell.

References

IRS Internal Revenue Manual, Part 4 Examining Process: https://www.irs.gov/irm/part4

IRS Internal Revenue Manual, Part 9 Criminal Investigation: https://www.irs.gov/irm/part9

Federal Register on Treatment of Special Enforcement Matters: https://www.federalregister.gov/documents/2020/11/24/2020-25904/treatment-of-special-enforcement-matters

The IRS Special Enforcement Program Explained: https://www.federallawyers.com/criminal-defense/the-irs-special-enforcement-program-sep-explained/