The Differences Between an IRS Audit and Criminal Investigation

The Differences Between an IRS Audit and Criminal Investigation

Dealing with the IRS can be scary for anyone. But there are important differences between a regular IRS audit and a criminal investigation. While an audit reviews your taxes and financial information, a criminal investigation means the IRS suspects serious tax fraud or other crimes.

Knowing how IRS audits and criminal probes vary can help you understand your rights and options if you ever face questions from the IRS.

What Triggers an IRS Audit?

There are a few different things that can cause the IRS to audit your taxes:

• Random chance – All tax returns have a small chance of being randomly selected for audit.
• Unreported income – A mismatch between your reported income and forms like W-2s from employers can flag your return.
• Suspicious deductions – Unusually high deductions compared to your income and profession may prompt an audit.
• Math errors – Simple math mistakes on your forms can lead to an IRS inquiry.
• Previous audits – If your returns were audited before, you may be at higher risk of future audits.

In most cases, an audit is just the IRS double-checking your numbers and making sure your tax return is accurate. Audits don’t necessarily mean the IRS suspects you of cheating or lying.

The Audit Process

If your return gets flagged for audit, the first step is usually a letter from the IRS explaining what they want to review. This may include requests to provide more documentation for deductions, proof of income, or explanations for errors.

For most audits, the IRS will not require you to go anywhere. You can handle the process by mail. But you may also have the option to meet with the auditor in person if you want to explain things more fully.

It’s important to respond to any audit notice and provide the requested documents promptly. If you ignore an audit, the IRS may disallow deductions or assess penalties.

Your Rights in an Audit

You have important rights during an IRS audit, like:

• The right to representation – You can have a tax pro, attorney, or any person enrolled with the IRS represent you in the audit.
• The right to appeal – You can appeal the results of your audit if you disagree with the IRS findings.
• The right to recording – You can record in-person audit interviews yourself or request the IRS auditor record it.

Exercising these rights can help you navigate the audit process and get the best possible outcome.

What Triggers a Criminal Investigation?

IRS audits focus on reviewing tax returns and financial records for errors and underreported income. Criminal investigations are much more serious.

A criminal probe means the IRS suspects you of:

• Tax evasion – Intentionally not paying taxes you owe.
• Filing false returns – Lying or falsifying documents.
• Identity theft – Using a stolen Social Security number.
• Employment tax fraud – Not paying payroll taxes as an employer.

Criminal cases typically start from referrals from other IRS divisions, other government agencies, or external tips.

The Criminal Investigation Process

If the IRS believes you committed tax crimes, the first step is usually an interview. IRS special agents will inform you that your case is under criminal investigation and read you your rights.

The agents can then proceed to:

• Issue summons for financial records from banks, employers, etc.
• Conduct interviews of you, your employees, business partners, etc.
• Execute search warrants to obtain evidence.

If the investigation uncovers substantial evidence, the IRS may recommend criminal prosecution by the Department of Justice. Charges can include tax evasion, filing false returns, or identity theft.

Your Rights in a Criminal Case

The IRS must inform you of your Constitutional rights if they begin a criminal investigation, including:

• The right to remain silent – You can refuse to answer questions from IRS agents.
• The right to an attorney – You have the right to have legal counsel present for questioning.

Exercising your right to remain silent or consult a criminal tax attorney is crucial to protect yourself early in an IRS criminal case.

Key Differences Summarized

To recap, some key differences between IRS audits vs. criminal investigations include:

As you can see, audits are focused on correcting errors, while criminal probes aim to build cases for prosecution. Understanding the difference is key to exercising your rights properly.

Get Representation

If you receive an audit notice or the IRS contacts you for a criminal investigation, don’t panic. But make sure to consult a tax professional or attorney to protect your rights. Representation can help guide you through the process and achieve the best resolution.

Dealing with the IRS is never fun, but understanding the differences between audits and criminal probes can make the process less daunting. If you find yourself facing an IRS inquiry, here are some tips:

Respond Quickly

If you get an audit notice or are contacted for an investigation, respond promptly. Missing deadlines can cause the IRS to assess penalties or even pursue criminal charges in severe cases[1]. Provide requested documents as soon as possible.

Exercise Your Rights

• Hire representation to assist you and protect your rights.
• Record in-person interviews so you have documentation.
• Remain silent if questioned during a criminal probe until you consult counsel.

Appeal Audit Findings

If audited, you can file an appeal within 30 days if you disagree with the IRS findings. Submit supporting documentation and a written explanation outlining the basis for your appeal[2].

Negotiate Settlements

In some cases, you may be able to negotiate a settlement on tax debts through an Offer in Compromise or other agreement. This can save money compared to the original amounts the IRS claims you owe[3].

Explore Legal Options

For criminal investigations, work with a tax attorney to understand your rights and legal options. In some cases, charges can potentially be reduced or dismissed based on protections under the 4th and 5th Amendments[4].

Dealing with IRS inquiries is stressful, but taking prompt action to exercise your rights can help you get the best resolution possible. With the right tax professional on your side, you can make it through audits or criminal probes as smoothly as possible.