The IRS Called Me about Tax Fraud. What Do I Need to Know?
Each year, the Internal Revenue Service (IRS) audits and investigates taxpayers across the country who are suspected of underreporting or underpaying their federal tax liability. This includes not only liability for federal income tax, but also unemployment tax, Social Security and Medicare taxes, and federal excise taxes.
An IRS audit or investigation can begin in a number of different ways—and you can learn that you are being audited or investigated in a number of different ways as well. While you might receive a letter or subpoena, you might also receive a phone call. If the IRS has called you about possible tax fraud, what do you need to know? Here is an overview from our federal defense attorneys:
5 Questions to Ask Yourself if You Have Been Contacted By the IRS
The first thing you need to know if you have been called by the IRS is that you should not simply dismiss the call. The IRS does not call taxpayers unless it has a very good reason to do so. Does this mean that you are facing an imminent threat of prosecution for federal tax fraud? Not necessarily. Does it mean you need to take proactive steps to protect yourself? Yes, absolutely.
In order to begin to assess your situation, there are a number of questions you can attempt to answer yourself. While you may or may not be able to answer all of these questions definitively, they should at least help you gain some insight into why the IRS has called you. For example:
1. What Type of IRS Agent Called You?
When the IRS called you regarding possible tax fraud, what type of IRS agent was on the other end of the line? Did the agent introduce himself or herself as a “revenue agent”? If so, this most likely means that you are facing an audit, either as a result of random selection or as a result of an issue flagged in one of your returns. Did the agent introduce himself or herself as being affiliated with “IRS CI”? If this is the case, then you could be at risk for facing serious allegations of federal tax fraud from IRS Criminal Investigations.
2. Have You Filed All Necessary Returns and Forms?
One of the most-common issues that leads to trouble with the IRS is failure to file all necessary returns and forms. Have you filed your federal income taxes consistently (and on time) every year? If you are an individual taxpayer and you receive regular paychecks and a W-2 at the end of the year, then annually filing Form 1040 (or one of its variants, such as Form 1040A or Form 1040EZ) might be enough. However, if you own your own business, if you work as an independent contractor, if you are an investor, or if you engage in any of various other income-producing activities, then you may need to file various other forms and schedules as well.
3. Are Your Tax Filings Accurate?
Unless you have intentionally underreported your taxable income, you probably either (i) are fairly certain that your federal tax filings are accurate, or (ii) don’t really know whether your tax filings are accurate or not. At this point, now that you have been contacted by the IRS, it will be important for you to work with an experienced federal tax defense attorney to make sure you have not inadvertently omitted or misrepresented any information on your federal returns.
If you have an accountant, you generally should not go back to him or her at this time. If your accountant made a mistake, you will still be directly liable to the IRS, but you may have grounds to pursue civil action against your accountant to recover any interest, penalties, and other losses you incur. You do not want to run the risk of your accountant making another mistake – or worse, attempting to hide his or her mistake and exacerbating your issues with the IRS.
4. Have You Paid Everything You Owe?
Here, too, unless you have intentionally underpaid the IRS, you might not know for certain whether you have paid everything you owe. However, you can review your account records to make sure all of your federal tax payments have gone through, and you can review your tax records to make sure everything appears to be correct based on your finances and your understanding of the federal tax forms and schedules that you filed.
5. Are Any of the Following Relevant to You?
Currently, there are several issues that the IRS has identified as top law enforcement priorities. If you answer “Yes” to any of the following questions, there is a good chance that this is why you have received a call from the IRS:
- Do you own a business? The IRS recently established a new Fraud Enforcement Office within its Small Business/Self-Employed Division. This new office is directly targeting self-employed individuals and small business owners whose companies earn less than $10 million per year.
- Do you invest in cryptocurrency? Cryptocurrency has become a central focus for the IRS in recent years; and in addition to sending letters to cryptocurrency investors, the IRS is targeting cases of suspected cryptocurrency tax fraud through other means as well.
- Do you have offshore assets or accounts? U.S. taxpayers who own offshore accounts and other offshore assets owe special reporting obligations to the IRS. If your foreign bank or another entity has reported your offshore holdings to the IRS and you have not, you could be at risk for substantial penalties.
- Did you receive a Paycheck Protection Program (PPP) loan? If you received a loan under the Paycheck Protection Program (PPP) during the COVID-19 crisis, this could be the reason for the IRS’s phone call. There have been reports of widespread fraud under the PPP, including tax-related fraud offenses.
- Have you received funds under any other federal program? The IRS often works with the U.S. Department of Justice (DOJ), Centers for Medicare and Medicaid Service (CMS), Federal Bureau of Investigation (FBI), and other agencies to target individuals and businesses that fail to accurately report and pay taxes owed based on the receipt of federal program funds.
5 Questions to Ask Your Attorney if You are Facing an IRS Audit or Tax Fraud Investigation
Due to the risks involved with dealing with the IRS on your own, if you have received a call from the IRS regarding potential tax fraud, it is important that you speak with an attorney as soon as possible. During your initial consultation, you will want to ask questions such as:
1. What Constitutes Tax Fraud Under Federal Law?
In broad terms, “tax fraud” involves any failure to timely and accurately report and pay your federal income tax obligations. However, the Internal Revenue Code is an extraordinarily complex statute, and understanding whether you have failed to meet your obligations to the IRS requires intimate knowledge of the statutory provisions that apply.
2. What Should I Do if I am Being Audited or Investigated By the IRS?
If you are facing an IRS audit or investigation, it is imperative that you have a clear understanding of whether and to what extent you may have violated any provisions of the Internal Revenue Code. If you have not violated the law, you will need to be able to demonstrate compliance in order to resolve the inquiry without additional liability. If there are issues that need to be addressed, you need to know what these issues are before you engage further with the IRS.
3. What are the Penalties for Federal Tax Fraud?
The penalties for tax fraud vary depending on whether a case is civil or criminal in nature. In audits and other civil inquiries, penalties can include interest and fines (in addition to liability for unpaid taxes). In criminal tax fraud cases, potential penalties include statutory fines and a multi-year federal prison sentence.
4. What are My Options for Negotiating a Resolution with the IRS?
If you have underreported and/or underpaid your federal tax liability, it may be possible to negotiate a favorable outcome with the IRS. Depending on the circumstances involved, this may involve negotiating a settlement agreement or an offer in compromise, or it may involve working through one of the IRS’s “voluntary compliance” programs. When you choose Oberheiden P.C., our federal tax defense lawyers will work closely with you to help you determine your best path forward.
5. What are Defenses to Tax Fraud Under the Internal Revenue Code?
There are numerous potential defenses to allegations of tax fraud under the Internal Revenue Code, and the defenses you have available will depend on the specific facts of your case. As a client of Oberheiden P.C., our attorneys will work with you one-on-one to develop a comprehensive defense strategy designed to protect you to the fullest extent possible.
Schedule a Complimentary Initial Consultation at Oberheiden P.C.
Have you received a call from the IRS? If so, we encourage you to speak with one of our federal tax fraud defense lawyers right away. To discuss your situation in confidence as soon as possible, call 888-680-1745 or tell us how we can reach you online now.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.