Red Flags for Tax Fraud

Red Flags for Tax Fraud

Red Flags for Tax Fraud

Red Flags for Tax Fraud: When it comes to IRS civil tax violations, tax fraud is one of the worst violations a taxpayer can get investigated for. Not only are the penalties higher than ordinary infractions and violations, but the IRS has a higher burden of proof (clear and convincing evidence) as opposed to regular preponderance of the evidence — which can motivate them to also refer the matter for criminal investigation. In addition, having a tax fraud violation on your permanent record can impact other parts of your life such as employment. While taxpayers are not always able to determine if they are under investigation by the US Government, there are some telltale warning signs and situations that should not be ignored.

Let’s go through five (5) common examples of warning signs that you might be under tax fraud investigation:

Are You Being Followed by the IRS?

While most of us have a bit of a Dale Gribble “conspiracy theorist” in us, which may occasionally send your sixth sense into overdrive — sometimes that vehicle you’ve seen a few times during the day while you were out and about may actually possibly be the IRS or DOJ.

Here’s a real-world example: We had a taxpayer come to our office several years ago and was considering submitting a pre-clearance letter for prior OVDP/OVDI. They were a bit hesitant and also believed that they had been followed to our office. On the way home, they thought they were also being followed again so they called us to let us know they planned on getting us information for the preclearance letter later that evening. Unfortunately, right as they were returning to their beachfront estate, they were met by nine cars of government personnel with a search warrant in hand — who confiscated their computers and records. 

Are You Being Goaded in an Online Forum?

Some taxpayers prefer to do their research on the dark web using an onion router or similar VPN. While it may provide some protection, that doesn’t mean that there are not other IRS agents also on the dark web trying to catch you (just look at what happened to Silk Road). Sometimes taxpayers may be goaded (not entrapped) into transferring money illegally or moving accounts offshore because they are assured they could never be caught. Sometimes the person doing this on the other end of the computer is an IRS agent — so always stay aware.

Do You Know a Disgruntled Former Business Partner?

Sometimes a soured relationship can result in more than just bad feelings. Oftentimes, when a business partner or investor believes they have been slighted (and feel like they have nothing to lose), they may consider entering the voluntary disclosure program (VDP) in order to come clean as well as to get a former business partner or company in trouble. Of course, they do not provide any notice to the former business partner. In some instances, a foreign financial institution may reach out to the noncompliant taxpayer (depending on the nature of the relationship) to let them know they were contacted by the IRS – but this is becoming much less common.

Do You Owe Taxes But Like to Travel?

Some taxpayers owe taxes to the IRS but rather than pay back the IRS, they decide to travel. These days, the IRS has the power to cancel or deny your passport when there is a significant amount of tax debt. The threshold amount is $50,000 — which is not very high when it involves multiple years, unused tax credits or FEIE, etc.

While a taxpayer may think that they can still travel on the US passport without issue, it may result in them being stopped at a port of entry and being investigated. Since most taxpayers don’t travel with their attorneys, it is important to stay calm and not provide any information until your attorney arrives.

Do You Have a Disgruntled Ex-Spouse?

Sometimes after a divorce happens, one spouse may want to get into compliance using one of the offshore disclosure programs. Depending on how acrimonious the divorce was, the taxpayer making the disclosure knows they will not be able to obtain consent or approval from the former spouse. The IRS is aware of this and will allow taxpayers to submit to voluntary disclosure without the consent of the former spouse (aka without requiring the former spouse to sign the documentation). If you are the former spouse and you have unreported offshore accounts, this can become a bit of a problem.

The IRS Has Many Weapons at its Disposal

In conclusion, the Internal Revenue Service is empowered to pursue taxpayers for tax fraud and oftentimes can do so, without the taxpayer being aware that they are even under investigation. The penalties for tax fraud can be serious and then unfortunately can lead to a criminal investigation as well. If you believe that you are under investigation, you should reach out to an experienced specialist to assess your options.

Golding & Golding: About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

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