There are many businesses and individuals with tax problems. The IRS says it’s mission is to help taxpayers understand and meet their tax responsibilities and to enforce the law with integrity and fairness to all. That means insuring that everyone pays their fair share of taxes. To accomplish that mission, the IRS primarily relies on voluntary compliance and an tax audits. Some audits are random while others are highly targeted using tips and questionable data on tax returns.
The states operate in much the same way. In most states, auditors concentrate more on sales and corporate taxes. Because state individual income tax is almost entirely based on federal income taxes, states enter into information exchange agreements with the IRS and simply piggyback off their income tax audits.
Frequently we hear from business owners after a “routine” audit becomes a full fledged criminal investigation. By then, its much harder and more expensive to avoid prosecution and huge fraud penalties. In our experience, once criminal special agents spend hundreds of hours investigating a case, they want their pound of flesh. We have earned our fair share of “no prosecution” letters but firmly believe the best way to prevail in a criminal tax case is to avoid one.
The best way to avoid a criminal investigation? Nip the problem at the tax audit stage.
Earlier today I read that a bar owner in Clear Lake, South Dakota was sentenced to probation and house arrest after pleading guilty to tax evasion. Although the details are sketchy, it appears that the case is over $4,500 in state taxes. That’s it! 51 year old Jacquelyn Mellendorf is now a convicted felon because of a few thousand dollars of delinquent taxes.
How did the case start? Most cases start when an auditor refers the case for prosecution after determining the taxpayer is being uncooperative or finding evidence of fraud.
Some taxpayers try to deal with auditors on their own. Some believe they can outsmart than the auditor or won’t get caught. And others rely on a tax preparer to assist them.
We work with CPA’s and enrolled agents on a daily basis. Their work is essential but unfortunately, they do not enjoy the same confidentiality privileges that tax lawyers do. That means the IRS or state revenue department can subpoena your accountant and compel him or her to testify against you.
We are not suggesting that you need a lawyer in every audit case. If you your tax problems are significant, if you failed to file returns (a misdemeanor in most jurisdictions) or if you know of false returns or have “two sets of books,” call an experienced tax lawyer immediately.
A good lawyer can best protect your rights throughout the tax audit process.
If you or your business is under audit, don’t delay in seeking help. We have provided tax audit defense for all sized businesses from sole proprietorships all the way up to a Fortune 500 corporation. Our IRS tax attorneys know how to work quickly and fully protect your rights.
Founding partner Brian Mahany is a former agent, Assistant Attorney General – Tax and commissioner of Maine’s state revenue agency. Our team has decades of tax audit defense experience ready to help you and your business.
Post by Brian Mahany, Esq.