201711.14
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IRS Criminal Investigation (Learn How the IRS Investigates Tax Crime)

IRS Criminal Investigation (Learn How the IRS Investigates Tax Crime)  - Golding & Golding

IRS Criminal Investigation (Learn How the IRS Investigates Tax Crime) – Golding & Golding

IRS Criminal Investigation (Learn How the IRS Investigates Tax Crime)

Are You Under IRS Criminal Investigation? We have represented numerous clients who have come to us at various stages of an IRS Criminal Investigation.

Sometimes, the client contacts us once the IRS Special Agents (they travel in pairs) have already descended upon them, and other times…it’s just a hunch that they are under investigation.

Your hunch may be right; here are 5 Common IRS Criminal Investigation Tactics.

IRS Criminal Investigation 

It is becoming more and more clear that the IRS, Department of Justice and the U.S. Government as a whole have made Federal Tax Crimes involving Tax Evasion and Tax Fraud that involve Foreign Income and Offshore Accounts a key enforcement priority.

Typical IRS Criminal Tax Investigations include:

  • Offshore Tax Evasion
  • Offshore Tax Fraud
  • Offshore Money Laundering
  • Offshore Structuring

If you committed one of these types of Offshore Tax Crimes and are audited by the IRS, you have to be very careful. That is because you may not know the extent of the information the IRS already has against you, which may lead to a referral to the Criminal Investigation Division (CID) of the IRS.

Moreover, when an IRS Audit ends and depending on the strategies or tactics used by the specific agent who examined you,an IRS Investigation or inquiry by the IRS Fraud Division may start before you even know it.

The following is a brief summary of the common key tactics the IRS may use in trying to build a case against you, and/or moving your civil audit to a criminal investigation.

Contacting Your Bank Manager

It is safe to say the IRS would have no legitimate reason for speaking with the manager at the bank that you currently use, unless the IRS is trying to build a case against you.

Otherwise, why would the Internal Revenue Service take the time to go visit your bank manager? Oftentimes, when the IRS agent visits your bank manager, it is to begin comprehensive research on issues such as transfers, moving money offshore, and other matters related to your bank account.

They may want to know how often you come to the bank, and how often you request cash as opposed to other transfers. They may also want to know if there any other non-primary individuals on the account, accessing your information and if there are other accounts that the IRS may not know about yet.

Showing up at Your Home, Unannounced

When a person is not cooperating with the IRS, or consistently avoids appearing before the IRS, the IRS can get frustrated. One way the IRS relieves its frustration is by visiting by a person’s residence to try to put pressure on them.

This can be done for two main reasons: The first reason is to put some pressure on the individual to let them know that the IRS is aware of where person lives and that the situation is not going away so quickly. Second, is so the IRS can monitor how the person reacts after the IRS appears at their home. For example, as a result of the IRS visiting their home unannounced, in a person begins making significant transitions or transfers of money from one location or account to another – it may help the IRS pursue a criminal investigation.

Showing up at your Employment or Place of Business

This is a little more intense, and is usually not protocol unless a person owns their own business. We have had many clients tell us, in the pre-criminal investigation phase that the IRS showed up at their place of business to ask themselves – and other employees – various questions.

Of course, other individuals at the place of employment not required to speak to the IRS if they are not under subpoena or summons. Nevertheless, oftentimes people are so scared that when the IRS approaches, that they feel like they have to answer the question — and do. The employees mistakenly believe that by simply answering the questions it will make it go away – usually, the reverse happens and it just gives the IRS more ammunition to go after you.

Sudden Stopping of Communication From the IRS

If you are ever in an audit and the audit ends, but you are unable to obtain a closing letter or any other documentation from the IRS it may be cause for concern. That is because when a civil audit is stopped either abruptly (or with a little more tact), before it seems like the audit is complete, it is because the IRS agent believes there is a criminal issues

In a civil situation, the IRS is absolutely prohibited from asking further questions. That is because in a criminal setting, a person has a right against self-incrimination. A civil audit is not a criminal investigation, and therefore the agent does not have the right to ask criminal type questions.

Interviewing your CPA

If the IRS believes the CPA has information regarding a potential criminal tax matter, the IRS will send them a summons and bring their own “court reporter” with them to a question-and-answer session.

While the CPA has the right to counsel, it is important to understand that if the IRS is taking these types of actions against people on your behalf, then chances are the IRS is at least trying to put together all the evidence he can to determine whether there may be a criminal issue at play.

Danger of Non-Compliance

When a person receives an audit notice, they are not required to appear at the audit. In other words, Counsel may represent them at the audit. Oftentimes, this may be a good idea but it is important to be using counsel who fully understands the complexities of not bringing the client to the audit, but still providing sufficient information to the auditor to appease the auditor.

Oftentimes, the IRS agent wants to see the individual in-person. This does not mean the person should appear, but counsel should at least have the following in preparation for the hearing:

  • A Full understanding of the case
  • A Knowledge of the underlying facts
  • All the necessary documentation
  • A multi-step plan to facilitate compliance without the client getting in harms way

Avoid these Issues with IRS Offshore Disclosure

If you have come to the realization that you have undisclosed unreported foreign accounts-either because you acted willfully or non-willfully, there are options available to you to get into compliance.

Some people will believe that they would just wait until they are contacted by the IRS before making any representation to the IRS regarding the foreign accounts. This is a bad idea for many reasons, with the primary reason being following: if you wait until the IRS contacts you regarding undisclosed foreign accounts you will be on defense.

Sure, you know you are non-willful, but why would the IRS agent believe you or even if they do, they will take you to task typically require much more paperwork than would otherwise be required if you made a proactive representation to the IRS.

Moreover, the penalties may be a lot worse in an audit then an offshore disclosure situation.

What Type of Attorney Should I Hire?

You should hire a Tax Attorney who has the following credentials:

  • ~20 Years of Private Practice experience representing his/her own clients
  • Experienced in Criminal and Civil Tax Litigation
  • Experienced representing clients in Eggshell and Reverse Eggshell Audits.
  • Advanced Tax Degree (LL.M.)
  • EA (Enrolled Agent) or CPA (Certified Public Accountant)
  • Preferably a Board Certified Tax Law Specialist

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)

Our Managing Partner, Sean M. Golding, JD, LLM, EA  earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists 

The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.

In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.

Beware of Copycat Law Firms

Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.