Facing a tax problem, whether it’s an aggressive audit or a criminal investigation, raises questions most people have never had to ask before. The rules governing what the IRS can do, what you are required to say, and when a routine matter turns serious are not intuitive, and getting them wrong can be costly. Chapman, Dowling & Mallek offers tax defense services and answers some of the most common questions we hear from clients dealing with the IRS.
What is the Difference Between Tax Evasion and Tax Fraud?
Tax evasion, under 26 U.S.C. Section 7201, specifically refers to willfully attempting to avoid paying taxes owed. Tax fraud is a broader term that can include evasion, along with related offenses like filing a false return under Section 7206 or failing to file altogether under Section 7203. All of these require the government to prove willfulness, meaning a voluntary, intentional violation of a known legal duty, not an honest mistake or a good-faith disagreement about how the law applies.
Can an Audit Turn Into a Criminal Investigation?
Yes. If a revenue agent conducting a civil audit finds what the IRS calls “badges of fraud,” such as unreported income, falsified records, or concealed assets, the agent can refer the case to IRS Criminal Investigation. This shift often happens without the taxpayer’s knowledge, and warning signs include an agent who suddenly goes quiet or stops discussing extensions.
Do I Need a Tax Attorney or Is My Accountant Enough?
Your accountant can be an important part of resolving a tax problem, but conversations with an accountant generally are not protected by attorney-client privilege. If there is any risk of criminal exposure, an attorney should be involved before you say anything further, since communications with your attorney, and with an accountant working under an attorney’s direction, can be protected.
What Should I Do if an IRS Special Agent Contacts Me?
Do not answer questions on the spot. IRS-CI special agents are federal law enforcement officers, and anything you say can become part of the government’s case. Politely decline to answer, get the agent’s contact information, and call a criminal tax defense attorney immediately.
What is the Difference Between an IRS Summons and a Grand Jury Subpoena?
An administrative summons is issued directly by the IRS during an investigation to obtain records or testimony. A grand jury subpoena is issued once the Department of Justice has become involved and a federal grand jury is investigating potential criminal charges, and it signals the case has moved further toward possible indictment.
Is There Still Time to Fix a Tax Problem Before It Becomes Criminal?
Sometimes. Voluntary disclosure programs may be available to taxpayers who come forward before an investigation begins, but this option disappears once IRS Criminal Investigation is already involved. The earlier you get legal advice, the more options are likely available to you.
What Penalties Do Federal Tax Crimes Carry?
Penalties vary by offense. Tax evasion under Section 7201 can mean up to five years in federal prison and fines up to $100,000 for individuals ($500,000 for corporations), while filing a false return under Section 7206 can mean imprisonment of up to three years. Beyond prison and fines, a conviction typically also brings restitution obligations, civil penalties, and lasting consequences for professional licenses and employment.
Talk to Chapman, Dowling & Mallek
Tax problems rarely resolve themselves, and waiting to get legal advice can close off options that were available earlier. Chapman, Dowling & Mallek represents individuals and businesses facing IRS audits and criminal tax investigations. Call 346-242-7626 or contact us online to discuss your situation.