What’s the Difference Between Tax Fraud and Tax Negligence?

For many reasons — some of which are justified and necessary, and others that frankly do not make sense and obfuscate rather than clarify — the Internal Revenue Code (IRC) is an excessively complex set of volumes, which contain laws enforced by the IRS (published as Title 26 of the United States Code/USC).

Partly due to this inherent complexity — and also because the web is riddled with incomplete, misleading or outright wrong “advice” on tax controversies— there continues to be significant confusion around two fundamentally separate concepts: tax fraud and tax negligence.  

What is Tax Fraud?

According to the IRS, tax fraud is “an intentional wrongdoing, on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing.” To make things even clearer, let’s drill down into each aspect of this definition.

  • An intentional wrongdoing…” The IRS does not believe that ignorance of the law is a defense. Taxpayer’s have a legal obligation to be informed. However, as will be described in the section on tax negligence, the IRS may, at its discretion (or the appeals division and/or U.S. Federal Court’s discretion if necessary), take into consideration that an act or attestation was done without illicit intent. While this will not erase any penalties and interest, it will avoid criminal prosecution.
  • “…on the part of a taxpayer…” This means that blaming your accountant, bookkeeper, parent, spouse, “financial wizard next-door-neighbor” or anyone else for the information on your tax returns is not an option. The IRS doesn’t care if taxpayers went through their return line-by-line, or if they scanned and signed it. If their name is on it, then they’re accountable.
  • “…with the specific purpose of evading a tax…” This means that the IRS doesn’t consider all errors or omissions on a tax return (or any other submitted tax-related document) as fraudulent. The intentional wrongdoing noted above must be associated with an attempt to evade tax. It’s not like a college exam where all wrong answers count towards the final grade.
  • “…known or believed to be owing.” This is a very important part of the definition that can be easily overlooked. The IRS doesn’t care if a taxpayer intentionally attempted to evade taxes that, in fact, it turns out they did not owe. As long as they believed they owed taxes, and attempted to evade paying them, the IRS will classify that action as tax fraud.  

The penalties for tax fraud are severe and can include having to pay all of your tax owing plus interest, plus 75% of the evaded amount. And while jail time is not the norm, it does indeed happen. It is not a false threat.

What is Tax Negligence?

As noted above, the IRS takes the position that ignorance of tax laws and filing requirements is not a defense. However, in some cases, taxpayers submit incorrect information without a willful attempt to evade taxes. In these situations — which the IRS assesses on a case-by-case basis — a charge of tax negligence may be levied.

Keep in mind that tax negligence does not mean that the IRS “forgives” the mistake. It simply means that they cannot justify an investigation that may ultimately turn into criminal prosecution. Taxpayers who commit tax negligence will be responsible for paying their full tax liability, plus interest and penalties (which is usually an additional 20% of the tax owing).  

Learn More

If you have received a letter, phone call or visit from the IRS — or if you are concerned that information provided to the IRS was incorrect, or if you know that it was incorrect — then contact the Law Offices of Jeffrey B. Kahn, P.C. today. All communication is protected by attorney-client privilege, and we have three decades of experience making sure that taxpayers are treated fairly by the IRS.

Also, be sure to check out our FREE eBook to learn what you need to do if you owe taxes to the IRS:

Tools And Tactics That IRS Criminal Investigation Division Uses To Gather Information About You

A simple mistake, oversight, or your accountant’s malpractice may trigger an IRS criminal investigation. Specifically, unreported income, a false statement, the use of an impermissible accounting or banking service, or declaring too many deductions are things that could initiate an audit, which could then rise to the level of an IRS criminal investigation.

As you can imagine, the IRS Criminal Investigation Division (“CID”) uses a vast array of tools to investigate a suspected tax evasion case or while conducting a criminal investigation. If you think about it, every employee of the IRS has a single task of ensuring that the IRS tax collections are maximized. IRS Special Agents, who work on the criminal tax cases, are no different. If you file your taxes, their goal is to prove that you may have understated or omitted income or sources of income or you may have falsified sources of income or taken deductions or credits for which you do not qualify.

The tools that the IRS Special Agents have at their disposal include interviewing the suspect, summons, search warrants, and use of grand juries.

Should I talk to the IRS Special Agent during an IRS Criminal Investigation and what are my rights?

Since the IRS Special Agents conduct a criminal investigation, you have a right to remain silent and not incriminate yourself and the right to an attorney. At your first encounter, the IRS Special Agent will advise you of your rights. You should exercise them and ask for an attorney. The Special Agent is then required to terminate the encounter.

As you can imagine, nothing you say to a Special Agent is off-the-record! If you choose to disregard this advice, the IRS Special Agent will be more than happy to continue with the encounter. You’ll be surprised how people continue to dig themselves into a deeper hole even after all these warnings.

Interview with an IRS Special Agent

The “interview” is the most obvious and also the most common tool is the old fashioned approach of directly asking you if you are engaged in tax evasion. This interview can take place at your home or your place of business or both. When an IRS field officer comes to interview a subject suspected of tax evasion, that officer doesn’t just ask questions. They are also required to assess your standard of living as compared to the income shown on your tax return. In addition, the Special Agents have the legal authority to examine books and records and take your testimony under oath.

During the interview, the Special Agents (they travel in pairs so one can interview and the other takes notes) will find out about other persons who may have knowledge about your sources of income and if there is cash that you may not have disclosed to the IRS. One of the primary goals of the interview is to establish cash on hand because one of the common defenses is uncertainty about cash on hand. If they seem to always appear at the most inconvenient time, it is because they are required to timely obtain confessions or admissions from the subjects and witnesses who may have information about the case. These witnesses may include your spouse, friends, neighbors, your tax return preparer and others including others with whom you may have a business relationship like banks and brokerages.

I must mention here that the tax return preparer must also not talk to the IRS Special Agent without consulting an attorney. This attorney should be different than the attorney who is representing the person who is under IRS criminal investigation.

Methods of Proof that the IRS Special Agents Use to Prove Their Case

To prove tax evasion, the IRS Special Agents may use many different methods like:

  1. Specific Item Method: One or more specific transactions that the taxpayer engaged in were not full or accurately reported.
  2. Net Worth Method: Attributes taxable income to the difference between assets and liabilities.
  3. Expenditures Method of Proof: Taxpayers’ expenses are more than reported sources of income.
  4. Bank Deposits Method: In case of a business, IRS assumes that proof of deposits is a substantial evidence of taxable revenue receipts.
  5. Percentage Markup Method: IRS takes a big data approach and assumes that based on its analysis of a typical business.
  6. Unit and Volume Methods: Estimate receipts based on volume of business activity.

Needless to say, each of these methods has its own pros and cons and some defenses. The method that the IRS Special Agent applies depends on the circumstances of the case and in case of businesses, the type of business and the method of accounting employed by that business.

Typically in IRS criminal investigation cases, the Agents are tight lipped about the details of the case. For this reason, at the conclusion of the IRS criminal investigation, your attorney should request a conference with the Special Agents in charge of the investigation. Much can be gleaned from the line of questioning of the Agents.

IRS does give consideration to the fact that you voluntarily disclosed the information that the IRS asked and also your age, health and mental condition. Essentially, the IRS is weighing their chances of winning a case.

What Should You Do?

Whether and when to answer questions from the IRS, or whether to stand on your 5th Amendment rights, are questions that only a tax fraud lawyer can help you answer. Your financial well being, as well as your personal freedom may depend on the right answers. If you or your accountant even suspects that you might be subject to a criminal or civil tax fraud penalty, the experienced tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and San Diego and elsewhere in California can determine how to respond to these inquiries and formulate an effective strategy.

Description: Working with a tax attorney lawyer is the best way to assure that your freedom is protected and to minimize any additional amount you may owe to the IRS.

Target San Diego County, California – Think You Can Hide From The IRS? 

The IRS is using its extensive Big Data resources to pin-point their investigations to the wealthiest areas in San Diego County, California. The idea being that anyone who is selected for investigation in these areas will result in a higher tax liability than those who live in less affluent areas. The government is looking for non-filers, persons engaged in on-line and virtual currency transactions, businesses cheating or delinquent on employment taxes and individuals with undisclosed foreign bank accounts.

Non-Filers

When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers under the Automated Substitute for Return program, totaling $6.7 billion in additional taxes owed. And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes. We even had cases where the IRS ended up owing our clients money.

Before contacting a non-filer, the IRS will often attempt to identify the non-filer’s occupation, location of bank/savings accounts, sources of income, age, current address, last file return, adjusted gross income of last filed return, taxes paid on last filed return – amounts and methods of payment (withholding, estimated tax, pre-payments), number of years delinquent, and the non-filer’s standard of living.  They will search public records for evidence of additional unreported income, tax assessor and real estate records for assets held by the non-filer, and records of professional associations and business license bureaus for information on businesses being operated by the non-filer. They will also search sales tax returns and the state records to disclose corporate charter information including principals of any businesses that have failed to file returns. They will contact the last known employer to determine if the non-filer is still employed and the specific occupation of the non-filer.  

It is to those individuals, who deliberately fail to comply with their obligation to file required tax returns and pay any taxes due and owing, that IRS Criminal Investigation devotes its investigative resources.  In the most egregious cases or if the Special Agent discovers subsequent acts of tax evasion (false statements, refusal to make records available, etc.), criminal prosecution is recommended to the United States Attorney’s office.

On-line And Virtual Currency Transactions

The increased use of on-line transactions with such services that include but are no limited to eBay and Craigslist and the increased use of virtual currencies such as Bitcoins have also raised interest by the Department Of Justice.

Many people think of online auction sites, such as eBay and Craigslist, as virtual garage sales — a convenient way to clean out cluttered closets and attics stuffed with old clothes, books and knickknacks inherited from relatives.

But if you’re a frequent or big-time seller, the government might consider your proceeds to be income and could come after you for taxes.

The tax law requires the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS. With this information the IRS can now track your sales and make sure they are being reported on your individual income tax return.

Bitcoins, a widely used virtual currency, are an alternative to money online. Unlike regular money, Bitcoins are not backed by any government or company. The currency is circulated without intermediaries such as banks. As such the government believes that taxpayers are able to avoid reporting income using this currency,

The IRS Criminal Investigation Division has committed a team of IRS Special Agents to master Bitcoin and other virtual currencies. The IRS knows that to use Bitcoins, one needs a virtual wallet along with private keys and public addresses.  Unknown to many Bitcoin users is the fact that every Bitcoin transaction is included in a ledger called a block chain.

The IRS is simply accessing the block chain to review all Bitcoin transactions.  From that point, the IRS works its way back to the public address that was used in the Bitcoin transaction. While the public address itself does not identify the user, the IRS has been very clever in associating the public address with the identity of the Bitcoin user. Thus, Bitcoin and other cyber or crypto currencies do not provide the level of complete anonymity many have ascribed to crypto currencies.

While the IRS has been focusing on the use of virtual currencies and crypto currencies in money laundering cases, the IRS is now focusing on the ability and likelihood that some users are committing tax evasion and tax fraud with virtual currencies. This is especially true because large amounts of virtual currency can change hands anywhere in the world instantaneously. Used correctly, it is another financial tool in our ever-shrinking world.  Used incorrectly, it is a very dangerous tool for those with a leaning towards and involved in illegal activities including tax evasion.

Employment Taxes

The IRS is especially vigorous in going after payroll taxes withheld from wages that somehow don’t get paid to the government.  The IRS calls it trust fund money that belongs to the government.

That makes any failure to pay—or even late payment—much worse. 

In fact, that’s so regardless of how the employer or its principals use the money and regardless of how good a reason they have for not handing the money over to the IRS. When a tax shortfall occurs in this setting, the IRS will usually make personal assessments against all responsible persons who have an ownership interest in the company or signature authority over the company accounts.

The practice the government is going after is sometimes called “pyramiding.” The Department of Justice defined pyramiding where the business has made minimal payments of its tax debts and that attempts to induce voluntary compliance failed. To stop the bleeding in a case like this, the Justice Department can seek an injunction to require a company and its principals to make timely tax deposits, to pay all withheld employment taxes, and to timely file all employment tax returns.

The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every “responsible person.” The penalty is assessed under Section 6672(a) of the tax code, and the IRS uses it liberally. You can be responsible and therefore liable even if have no knowledge that the IRS is not being paid. If there are multiple owners, multiple officers, multiple check signers, they all may draw a 100% penalty assessment.

When multiple owners and signatories all face tax bills they generally squabble and do their best to sic the IRS on someone else. Factual nuances matter in this kind of mud-wrestling, but so do legal maneuvering and just plain savvy. One responsible person may get stuck paying while another who is even guiltier may get off scot-free.

If the IRS is going after individuals, the IRS will still try to collect from the company that withheld on the wages. The IRS also wants to make sure this kind of bad tax situation doesn’t occur again and the IRS wants to collect as much money as quick as possible from as many parties as it can get to.

Undisclosed Foreign Bank Accounts And Unreported Foreign Income

The 2010 Foreign Account Tax Compliance Act (“FATCA”) which requires foreign banks and financial institutions to report the assets of their American account holders is now in full swing. This information is being transmitted to the IRS and the IRS is comparing this information what was reported on U.S. Federal Income Tax Returns. FATCA was passed as part of the U.S. government’s effort to crack down on U.S. tax evaders.  Initially, the IRS concentrated its efforts on Swiss Banks but now banks in all foreign countries are subject to the severe penalties for noncompliance and lack of compliance would limit their ability to do business in America. 

This focus has led to an increase in the enforcement of the requirement that Americans and American residents file a Foreign Bank Account Report on every account held abroad that is worth more than $10,000.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.  Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges which if sustain can result in jail time.

U.S. taxpayers with account holdings should seriously consider coming forward and disclosing their assets to the IRS.  If you have never reported your foreign investments on your U.S. Tax Returns, the IRS has established the Offshore Voluntary Disclosure Program (“OVDP”) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.

Where Do The Highest Earners Live In San Diego County, California?

Given the resources involved in any tax investigation (criminal or civil), the IRS is looking to focus on those areas that are more affluent and therefore yield the greatest potential for prosecution and revenue collection. When looking at different areas one factor that may be considered by the IRS is sales prices of real estate in San Diego County, California. The 13 most expensive zip codes in San Diego County based on median home sales price data from 2007 are as follows:

Rank

Zip Code

Location

Median Home Sales Price

1

92067

Rancho Santa Fe

$2,475,000

2

92118

Coronado

$1,420,000

3

92014

Del Mar

$1,310,000

4

92091

Rancho Santa Fe

$1,040,000

5

92037

La Jolla

$905,000

6

92075

Solana Beach

$812,500

7

92007

Cardiff By The Sea

$792,500

8

92130

San Diego

$740,000

9

92106

San Diego

$729,500

10

92024

Encinitas

$725,000

11

92009

Carlsbad

$710,000

12

92011

Carlsbad

$694,500

13

92127

San Diego

$682,000

The Stakes Are High!

So if you receive an audit notice or even worse a visit by government agents, it is important that you don’t ignore this. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. from their San Diego County office in Downtown San Diego defend you from the IRS.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and minimize the chance of any criminal investigation or imposition of civil penalties.

IRS Voluntary Disclosure Program – It’s Not Just For Undisclosed Foreign Bank Accounts.

A tax crime is complete on the day the false return was filed.

It is a federal crime for anyone to knowingly and willfully file an income tax return that he or she knows to be false in some material way. 26 U.S.C. § 7207 provides:

Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both. Any person required pursuant to section 6047 (b), section 6104(d), or subsection (i) or (j) of section 527 to furnish any information to the Secretary or any other person who willfully furnishes to the Secretary or such other person any information known by him to be fraudulent or to be false as to any material matter shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.

In filing false tax return cases, the Government does not need to prove that it has been deprived of any tax by reason of such filing of the false return; even if it is shown that additional taxes may be due, the person can still be held accountable because they willfully filed a false tax return.

Avoiding Criminal Prosecution By Submitting To Voluntary Disclosure

The Voluntary Disclosure Practice is a longstanding practice of IRS Criminal Investigation of taking timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted.  It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution.  When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice. However, if the IRS has initiated a civil examination, regardless of whether it relates to undisclosed foreign accounts or undisclosed foreign entities, the taxpayer will not be eligible to come in under the IRS’s Voluntary Disclosure Practice.

Required Elements Of A Qualified Disclosure

IRS administrative practice recognizes that a taxpayer may still avoid prosecution by voluntarily disclosing a tax violation, provided that there is a qualifying disclosure that is (1) timely and (2) voluntary. A disclosure within the meaning of the practice means a communication that is truthful and complete, and the taxpayer cooperates with IRS personnel in determining the correct tax liability. Cooperation also includes making good faith arrangements to pay the unpaid tax and penalties “to the extent of the taxpayer’s actual ability to pay”.

Timely.

A disclosure is timely if it is received before the IRS has begun an inquiry that is (1) “likely to lead to the taxpayer” and (2) the taxpayer is reasonably thought to be aware” of that inquiry; or the disclosure is received before some triggering or prompting event has occurred (1) that is known by the taxpayer and (2) that triggering event is likely to cause an audit into the taxpayer’s liabilities.

Voluntary.

Voluntari­ness is tested by the following factors: (1) how far the IRS has gone in determin­ing the tax investigation potential of the taxpayer; (2) the extent of the taxpayer’s knowledge or awareness of the Service’s interest; and (3) what part the triggering event played in prompting the disclosure (where the disclosure is prompted by fear of a triggering event, it is not truly a voluntary disclosure).

No voluntary disclosure can be made by a taxpayer if an investigation by the Service has already begun. Therefore, once a taxpayer has been contacted by any Service function (whether it be the Service center, office examiner, revenue agent, or a special agent), the taxpayer cannot make a qualifying voluntary dis­closure under IRS practice.

A voluntary disclosure can be made even if the taxpayer does not know that the Service has selected the return for examination or investigation may be too restrictive. Consequently, if there is no indi­cation that the Service has started an examination or investigation, Tax Counsel may send a letter to the Service stating that tax returns of the taxpayer have been found to be incorrect and that amended returns will be filed as soon as they can be accurately and correctly prepared. This approach has the advantage of putting the taxpayer on record as making a voluntary dis­closure at a time when no known investigation is pending. However, neither the taxpayer nor the lawyer can be completely certain that the volun­tary disclosure will prevent the recommendation of criminal prosecution.

“Quiet Disclosure”.

Where no IRS examination or investigation is pending a taxpayer’s alternative is the preparation and filing of delinquent or amended returns. Such action is called a “Quiet Disclosure”. The advantage of filing delinquent or amended returns without a communication drawing attention to them is that the returns may not even be examined after being received at the Service Center. In such an event, the taxpayer not only will have made a voluntary disclosure but will have avoided an examination as well. The disadvantage is that during the time the returns are being prepared, the taxpayer may be contacted by the Service and a voluntary disclosure prevented. Another disadvantage is that the IRS could use the filed amended income tax returns to constitute an admission that the correct income and tax were willfully not reported and institute criminal prosecution.

What Should You Do?

There is no set formula as to whether a taxpayer should pursue a Voluntary Disclosure or Quiet Disclosure. It really depends on a case by case basis which is why you are best served by consulting with a criminal tax attorney expert in evaluating these matters. Your financial well being, as well as your personal freedom may depend on the right answers. If you or your accountant even suspects that you might be subject to a criminal or civil tax fraud penalty, the experienced tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and San Diego and elsewhere in California can determine how to respond to these inquiries and formulate an effective strategy.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and minimize the chance of any criminal investigation or imposition of civil penalties.

Target Orange County, California – Think You Can Hide From The IRS?

The IRS is using its extensive Big Data resources to pin-point their investigations to the wealthiest areas in Orange County, California. The idea being that anyone who is selected for investigation in these areas will result in a higher tax liability than those who live in less affluent areas. The government is looking for non-filers, persons engaged in on-line and virtual currency transactions, businesses cheating or delinquent on employment taxes and individuals with undisclosed foreign bank accounts.

Non-Filers

When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers under the Automated Substitute for Return program, totaling $6.7 billion in additional taxes owed. And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes. We even had cases where the IRS ended up owing our clients money.

Before contacting a non-filer, the IRS will often attempt to identify the non-filer’s occupation, location of bank/savings accounts, sources of income, age, current address, last file return, adjusted gross income of last filed return, taxes paid on last filed return – amounts and methods of payment (withholding, estimated tax, pre-payments), number of years delinquent, and the non-filer’s standard of living.  They will search public records for evidence of additional unreported income, tax assessor and real estate records for assets held by the non-filer, and records of professional associations and business license bureaus for information on businesses being operated by the non-filer. They will also search sales tax returns and the state records to disclose corporate charter information including principals of any businesses that have failed to file returns. They will contact the last known employer to determine if the non-filer is still employed and the specific occupation of the non-filer.  

It is to those individuals, who deliberately fail to comply with their obligation to file required tax returns and pay any taxes due and owing, that IRS Criminal Investigation devotes its investigative resources.  In the most egregious cases or if the Special Agent discovers subsequent acts of tax evasion (false statements, refusal to make records available, etc.), criminal prosecution is recommended to the United States Attorney’s office.

On-line And Virtual Currency Transactions

The increased use of on-line transactions with such services that include but are no limited to eBay and Craigslist and the increased use of virtual currencies such as Bitcoins have also raised interest by the Department Of Justice.

Many people think of online auction sites, such as eBay and Craigslist, as virtual garage sales — a convenient way to clean out cluttered closets and attics stuffed with old clothes, books and knickknacks inherited from relatives.

But if you’re a frequent or big-time seller, the government might consider your proceeds to be income and could come after you for taxes.

The tax law requires the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS. With this information the IRS can now track your sales and make sure they are being reported on your individual income tax return.

Bitcoins, a widely used virtual currency, are an alternative to money online. Unlike regular money, Bitcoins are not backed by any government or company. The currency is circulated without intermediaries such as banks. As such the government believes that taxpayers are able to avoid reporting income using this currency,

The IRS Criminal Investigation Division has committed a team of IRS Special Agents to master Bitcoin and other virtual currencies. The IRS knows that to use Bitcoins, one needs a virtual wallet along with private keys and public addresses.  Unknown to many Bitcoin users is the fact that every Bitcoin transaction is included in a ledger called a block chain.

The IRS is simply accessing the block chain to review all Bitcoin transactions.  From that point, the IRS works its way back to the public address that was used in the Bitcoin transaction. While the public address itself does not identify the user, the IRS has been very clever in associating the public address with the identity of the Bitcoin user. Thus, Bitcoin and other cyber or crypto currencies do not provide the level of complete anonymity many have ascribed to crypto currencies.

While the IRS has been focusing on the use of virtual currencies and crypto currencies in money laundering cases, the IRS is now focusing on the ability and likelihood that some users are committing tax evasion and tax fraud with virtual currencies. This is especially true because large amounts of virtual currency can change hands anywhere in the world instantaneously. Used correctly, it is another financial tool in our ever-shrinking world.  Used incorrectly, it is a very dangerous tool for those with a leaning towards and involved in illegal activities including tax evasion.

Employment Taxes

The IRS is especially vigorous in going after payroll taxes withheld from wages that somehow don’t get paid to the government.  The IRS calls it trust fund money that belongs to the government.

That makes any failure to pay—or even late payment—much worse. 

In fact, that’s so regardless of how the employer or its principals use the money and regardless of how good a reason they have for not handing the money over to the IRS. When a tax shortfall occurs in this setting, the IRS will usually make personal assessments against all responsible persons who have an ownership interest in the company or signature authority over the company accounts.

The practice the government is going after is sometimes called “pyramiding.” The Department of Justice defined pyramiding where the business has made minimal payments of its tax debts and that attempts to induce voluntary compliance failed. To stop the bleeding in a case like this, the Justice Department can seek an injunction to require a company and its principals to make timely tax deposits, to pay all withheld employment taxes, and to timely file all employment tax returns.

The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every “responsible person.” The penalty is assessed under Section 6672(a) of the tax code, and the IRS uses it liberally. You can be responsible and therefore liable even if have no knowledge that the IRS is not being paid. If there are multiple owners, multiple officers, multiple check signers, they all may draw a 100% penalty assessment.

When multiple owners and signatories all face tax bills they generally squabble and do their best to sic the IRS on someone else. Factual nuances matter in this kind of mud-wrestling, but so do legal maneuvering and just plain savvy. One responsible person may get stuck paying while another who is even guiltier may get off scot-free.

If the IRS is going after individuals, the IRS will still try to collect from the company that withheld on the wages. The IRS also wants to make sure this kind of bad tax situation doesn’t occur again and the IRS wants to collect as much money as quick as possible from as many parties as it can get to.

Undisclosed Foreign Bank Accounts And Unreported Foreign Income

The 2010 Foreign Account Tax Compliance Act (“FATCA”) which requires foreign banks and financial institutions to report the assets of their American account holders is now in full swing. This information is being transmitted to the IRS and the IRS is comparing this information what was reported on U.S. Federal Income Tax Returns. FATCA was passed as part of the U.S. government’s effort to crack down on U.S. tax evaders.  Initially, the IRS concentrated its efforts on Swiss Banks but now banks in all foreign countries are subject to the severe penalties for noncompliance and lack of compliance would limit their ability to do business in America. 

This focus has led to an increase in the enforcement of the requirement that Americans and American residents file a Foreign Bank Account Report on every account held abroad that is worth more than $10,000.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.  Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges which if sustain can result in jail time.

U.S. taxpayers with account holdings should seriously consider coming forward and disclosing their assets to the IRS.  If you have never reported your foreign investments on your U.S. Tax Returns, the IRS has established the Offshore Voluntary Disclosure Program (“OVDP”) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.

Where Do The Highest Earners Live In Orange County, California?

Given the resources involved in any tax investigation (criminal or civil), the IRS is looking to focus on those areas that are more affluent and therefore yield the greatest potential for prosecution and revenue collection. When looking at different areas one factor that may be considered by the IRS is sales prices of real estate in Orange County, California. The five most expensive zip codes in Orange County based on median sales price data from 2012 are as follows:

Rank Zip Code Neighborhood/City Median Sales Price 2012
1 90742 Sunset Beach / Huntington Beach $2.17 million
2 92657 Newport Coast / Newport Beach $1.9 million
3 92662 Balboa Island / Newport Beach $1.7 million
4 92625 Corona del Mar / Newport Beach $1.45 million
5 92661 Newport Beach $1.4 million

You might have noticed a trend by now. Four of the five most expensive zip codes in Orange County occur within the same city. Newport Beach is clearly one of the priciest real estate markets in the country. In fact, if we ran this list out to the ten most expensive zip codes, Newport Beach would have five of the top ten spots and is almost a million dollars more than the next most expensive market, Pacific Palisades.

The Stakes Are High!

So if you receive an audit notice or even worse a visit by government agents, it is important that you don’t ignore this. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. from their Orange County office in Newport Beach defend you from the IRS.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and minimize the chance of any criminal investigation or imposition of civil penalties.

Target San Francisco Bay Area, California – Think You Can Hide From The IRS?

The IRS is using its extensive Big Data resources to pin-point their investigations to the wealthiest areas in the San Francisco Bay Area and Silicon Valley.  The idea being that anyone who is selected for investigation in these areas will result in a higher tax liability than those who live in less affluent areas.  The government is looking for non-filers, persons engaged in on-line and virtual currency transactions, businesses cheating or delinquent on employment taxes and individuals with undisclosed foreign bank accounts.

Non-Filers

When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers under the Automated Substitute for Return program, totaling $6.7 billion in additional taxes owed.  And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes.  We even had cases where the IRS ended up owing our clients money.

Before contacting a non-filer, the IRS will often attempt to identify the non-filer’s occupation, location of bank/savings accounts, sources of income, age, current address, last file return, adjusted gross income of last filed return, taxes paid on last filed return – amounts and methods of payment (withholding, estimated tax, pre-payments), number of years delinquent, and the non-filer’s standard of living.  They will search public records for evidence of additional unreported income, tax assessor and real estate records for assets held by the non-filer, and records of professional associations and business license bureaus for information on businesses being operated by the non-filer. They will also search sales tax returns and the state records to disclose corporate charter information including principals of any businesses that have failed to file returns. They will contact the last known employer to determine if the non-filer is still employed and the specific occupation of the non-filer.

It is to those individuals, who deliberately fail to comply with their obligation to file required tax returns and pay any taxes due and owing, that IRS Criminal Investigation devotes its investigative resources.  In the most egregious cases or if the Special Agent discovers subsequent acts of tax evasion (false statements, refusal to make records available, etc.), criminal prosecution is recommended to the United States Attorney’s office.

On-line And Virtual Currency Transactions

The increased use of on-line transactions with such services that include but are no limited to eBay and Craigslist and the increased use of virtual currencies such as Bitcoins have also raised interest by the Department Of Justice.

Many people think of online auction sites, such as eBay and Craigslist, as virtual garage sales — a convenient way to clean out cluttered closets and attics stuffed with old clothes, books and knickknacks inherited from relatives.

But if you’re a frequent or big-time seller, the government might consider your proceeds to be income and could come after you for taxes.

The tax law requires the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS. With this information the IRS can now track your sales and make sure they are being reported on your individual income tax return.

Bitcoins, a widely used virtual currency, are an alternative to money online. Unlike regular money, Bitcoins are not backed by any government or company. The currency is circulated without intermediaries such as banks. As such the government believes that taxpayers are able to avoid reporting income using this currency,

The IRS Criminal Investigation Division has committed a team of IRS Special Agents to master Bitcoin and other virtual currencies. The IRS knows that to use Bitcoins, one needs a virtual wallet along with private keys and public addresses.  Unknown to many Bitcoin users is the fact that every Bitcoin transaction is included in a ledger called a block chain.

The IRS is simply accessing the block chain to review all Bitcoin transactions.  From that point, the IRS works its way back to the public address that was used in the Bitcoin transaction. While the public address itself does not identify the user, the IRS has been very clever in associating the public address with the identity of the Bitcoin user. Thus, Bitcoin and other cyber or crypto currencies do not provide the level of complete anonymity many have ascribed to crypto currencies.

While the IRS has been focusing on the use of virtual currencies and crypto currencies in money laundering cases, the IRS is now focusing on the ability and likelihood that some users are committing tax evasion and tax fraud with virtual currencies. This is especially true because large amounts of virtual currency can change hands anywhere in the world instantaneously. Used correctly, it is another financial tool in our ever-shrinking world.  Used incorrectly, it is a very dangerous tool for those with a leaning towards and involved in illegal activities including tax evasion.

Employment Taxes

The IRS is especially vigorous in going after payroll taxes withheld from wages that somehow don’t get paid to the government.  The IRS calls it trust fund money that belongs to the government.

That makes any failure to pay—or even late payment—much worse.

In fact, that’s so regardless of how the employer or its principals use the money and regardless of how good a reason they have for not handing the money over to the IRS. When a tax shortfall occurs in this setting, the IRS will usually make personal assessments against all responsible persons who have an ownership interest in the company or signature authority over the company accounts.

The practice the government is going after is sometimes called “pyramiding.” The Department of Justice defined pyramiding where the business has made minimal payments of its tax debts and that attempts to induce voluntary compliance failed. To stop the bleeding in a case like this, the Justice Department can seek an injunction to require a company and its principals to make timely tax deposits, to pay all withheld employment taxes, and to timely file all employment tax returns.

The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every “responsible person.” The penalty is assessed under Section 6672(a) of the tax code, and the IRS uses it liberally. You can be responsible and therefore liable even if have no knowledge that the IRS is not being paid. If there are multiple owners, multiple officers, multiple check signers, they all may draw a 100% penalty assessment.

When multiple owners and signatories all face tax bills they generally squabble and do their best to sic the IRS on someone else. Factual nuances matter in this kind of mud-wrestling, but so do legal maneuvering and just plain savvy. One responsible person may get stuck paying while another who is even guiltier may get off scot-free.

If the IRS is going after individuals, the IRS will still try to collect from the company that withheld on the wages. The IRS also wants to make sure this kind of bad tax situation doesn’t occur again and the IRS wants to collect as much money as quick as possible from as many parties as it can get to.

Undisclosed Foreign Bank Accounts And Unreported Foreign Income

The 2010 Foreign Account Tax Compliance Act (“FATCA”) which requires foreign banks and financial institutions to report the assets of their American account holders is now in full swing.  This information is being transmitted to the IRS and the IRS is comparing this information what was reported on U.S. Federal Income Tax Returns.  FATCA was passed as part of the U.S. government’s effort to crack down on U.S. tax evaders.  Initially, the IRS concentrated its efforts on Swiss Banks but now banks in all foreign countries are subject to the severe penalties for noncompliance and lack of compliance would limit their ability to do business in America.

This focus has led to an increase in the enforcement of the requirement that Americans and American residents file a Foreign Bank Account Report on every account held abroad that is worth more than $10,000.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide.  U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year.  Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges which if sustain can result in jail time.

U.S. taxpayers with account holdings should seriously consider coming forward and disclosing their assets to the IRS.  If you have never reported your foreign investments on your U.S. Tax Returns, the IRS has established the Offshore Voluntary Disclosure Program (“OVDP”) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.

Where Do The Highest Earners Live In The San Francisco Bay/Silicon Valley Area?

Given the resources involved in any criminal tax investigation, the IRS is looking to focus on those areas that are more affluent and therefore yield the greatest potential for prosecution and revenue collection.

Rank Neighborhood(s) Household income (median) 2013
1 Hillsborough Heights – Brewer Subdivision $529,024
2 Diablo & Blackhawk $482,897
3 Fruitvale (Saratoga) $451,448
4 Hillsbourough Oaksbridge – Ryan Tract $439,682
5 Paradise Cay (Marin-Tiburon) $437,226
6 Atherton $340,915
7 Los Altos Hills $338,932
8 Menlo Park Central $333,990
9 Skyfarm-Carrolands (Hillsborough) $328,999
10 Orinda View-Orinda Downs $322,746
11 Sea Cliff [San Francisco] $321,878
12 Balboa Terrace [San Francisco] $308,244
13 Presidio Heights [San Francisco] $281,206
14 Russian Hill -Southeast [San Francisco] $263,623
15 Inner Richmond [San Francisco] $243,719

The Stakes Are High!

So if you receive an audit notice or even worse a visit by government agents, it is important that you don’t ignore this.  Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. with Northern California locations in San Francisco, San Jose, Walnut Creek and San Rafael defend you from the IRS.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and minimize the chance of any criminal investigation or imposition of civil penalties.

 

Target: Los Angeles, California – Think You Can Hide From The IRS? 

The U.S. Attorney’s Office in Los Angeles is taking on a pilot project to pin-point their investigations to the wealthiest zip codes in the L.A. metro area. The idea being that anyone who is selected for investigation in these areas will result in a higher tax liability than those who live in less affluent areas. The government is looking for non-filers, persons engaged in on-line and virtual currency transactions and businesses cheating or delinquent on employment taxes.

Non-Filers

When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers under the Automated Substitute For Return Program, totaling $6.7 billion in additional taxes owed. And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes. We even had cases where the IRS ended up owing our clients money.

Before contacting a non-filer, the IRS will often attempt to identify the non-filer’s occupation, location of bank/savings accounts, sources of income, age, current address, last file return, adjusted gross income of last filed return, taxes paid on last filed return – amounts and methods of payment (withholding, estimated tax, pre-payments), number of years delinquent, and the non-filer’s standard of living.  They will search public records for evidence of additional unreported income, tax assessor and real estate records for assets held by the non-filer, and records of professional associations and business license bureaus for information on businesses being operated by the non-filer. They will also search sales tax returns and the state records to disclose corporate charter information including principals of any businesses that have failed to file returns. They will contact the last known employer to determine if the non-filer is still employed and the specific occupation of the non-filer.  

It is to those individuals, who deliberately fail to comply with their obligation to file required tax returns and pay any taxes due and owing, that IRS Criminal Investigation devotes its investigative resources.  In the most egregious cases or if the Special Agent discovers subsequent acts of tax evasion (false statements, refusal to make records available, etc.), criminal prosecution is recommended to the United States Attorney’s office.

On-line And Virtual Currency Transactions

The increased use of on-line transactions with such services that include but are no limited to eBay and Craigslist and the increased use of virtual currencies such as Bitcoins have also raised interest by the Department Of Justice.

Many people think of online auction sites, such as eBay and Craigslist, as virtual garage sales — a convenient way to clean out cluttered closets and attics stuffed with old clothes, books and knickknacks inherited from relatives.

But if you’re a frequent or big-time seller, the government might consider your proceeds to be income and could come after you for taxes.

The tax law requires the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS. With this information the IRS can now track your sales and make sure they are being reported on your individual income tax return.

Bitcoins, a widely used virtual currency, are an alternative to money online. Unlike regular money, Bitcoins are not backed by any government or company. The currency is circulated without intermediaries such as banks. As such the government believes that taxpayers are able to avoid reporting income using this currency,

The IRS Criminal Investigation Division has committed a team of IRS Special Agents to master Bitcoin and other virtual currencies. The IRS knows that to use Bitcoins, one needs a virtual wallet along with private keys and public addresses.  Unknown to many Bitcoin users is the fact that every Bitcoin transaction is included in a ledger called a block chain.

The IRS is simply accessing the block chain to review all Bitcoin transactions.  From that point, the IRS works its way back to the public address that was used in the Bitcoin transaction. While the public address itself does not identify the user, the IRS has been very clever in associating the public address with the identity of the Bitcoin user. Thus, Bitcoin and other cyber or crypto currencies do not provide the level of complete anonymity many have ascribed to crypto currencies.

While the IRS has been focusing on the use of virtual currencies and crypto currencies in money laundering cases, the IRS is now focusing on the ability and likelihood that some users are committing tax evasion and tax fraud with virtual currencies. This is especially true because large amounts of virtual currency can change hands anywhere in the world instantaneously. Used correctly, it is another financial tool in our ever-shrinking world.  Used incorrectly, it is a very dangerous tool for those with a leaning towards and involved in illegal activities including tax evasion.

Employment Taxes

The IRS is especially vigorous in going after payroll taxes withheld from wages that somehow don’t get paid to the government.  The IRS calls it trust fund money that belongs to the government.

That makes any failure to pay—or even late payment—much worse. 

In fact, that’s so regardless of how the employer or its principals use the money and regardless of how good a reason they have for not handing the money over to the IRS. When a tax shortfall occurs in this setting, the IRS will usually make personal assessments against all responsible persons who have an ownership interest in the company or signature authority over the company accounts.

The practice the government is going after is sometimes called “pyramiding”. The Department of Justice defined pyramiding where the business has made minimal payments of its tax debts and that attempts to induce voluntary compliance failed. To stop the bleeding in a case like this, the Justice Department can seek an injunction to require a company and its principals to make timely tax deposits, to pay all withheld employment taxes, and to timely file all employment tax returns.

The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every “responsible person”. The penalty is assessed under Section 6672(a) of the tax code, and the IRS uses it liberally. You can be responsible and therefore liable even if have no knowledge that the IRS is not being paid. If there are multiple owners, multiple officers, multiple check signers, they all may draw a 100% penalty assessment.

When multiple owners and signatories all face tax bills they generally squabble and do their best to sic the IRS on someone else. Factual nuances matter in this kind of mud-wrestling, but so do legal maneuvering and just plain savvy. One responsible person may get stuck paying while another who is even guiltier may get off scot-free.

If the IRS is going after individuals, the IRS will still try to collect from the company that withheld on the wages. The IRS also wants to make sure this kind of bad tax situation doesn’t occur again and the IRS wants to collect as much money as quick as possible from as many parties as it can get to.

Where Do The Highest Earners Live In The L.A. Area?

Given the resources involved in any criminal tax investigation, the U.S. Attorney’s Office in Los Angeles is looking to focus on those areas that are more affluent and therefore yield the greatest potential for prosecution and revenue collection.

Rank

Zip Code

Neighborhood(s)

Home value (median) 2011

Household income (median) 2011

Total local bank deposits

1 90077 South Valley, Bel Air, Beverly Glen, Westwood, Holmby Hills

$1,000,000

$208,493

$99,573,000

2 90049 South Valley, Bel Air, Sawtelle, Brentwood, Westwood, Mid-City, Northeast, Mandeville Canyon

$1,000,000

$191,302

$1,516,866,000

3 90094 Marina Del Rey, Westchester, Playa Vista

$680,000

$172,813

$35,774,000

4 90024 West, Westwood Village, Westwood, Holmby Hills, Century City

$979,000

$156,511

$2,510,621,000

5 90064 West, Mar Vista, Sawtelle, Beverlywood, Westwood, Cheviot Hills, Rancho Park, Sunset Park, Century City

$933,500

$143,472

$2,175,029,000

6 90046 Central LA, Melrose, Hollywood Hills, Studio City, Little Armenia, Sunset Strip, East Hollywood, Laurel Canyon, Beverly Grove

$1,000,000

$136,875

$683,273,000

7 90068 Central LA, Hollywood Hills, Studio City, Greater Wilshire / Hancock Park, Los Feliz, Little Armenia

$1,000,000

$133,068

$683,273,000

8 90048 Central LA, Melrose, Mid City, Carthay Circle, La Brea, Mid-Wilshire, Beverly Grove

$978,600

$130,984

$869,973,000

9 90056 South, Ladera Heights

$801,000

$128,245

$102,201,000

10 90045 Westchester, North Valley, South Valley, North Hills East, Fox Hills

$720,600

$128,216

$1,190,694,000

11 90035 Central LA, Mid City, Pico – Robertson, Beverlywood, Cheviot Hills

$886,700

$127,402

$795,173,000

12 90066 Marina Del Rey, Westchester, Mar Vista, McLaughlin, Culver – West, Venice

$778,400

$121,828

$491,655,000

13 90025 West, Sawtelle, Central LA, Wilshire Center / Koreatown, Brentwood, Westwood Village, Westwood, Mid-City, Pico, Century City, East Hollywood

$684,500

$121,343

$2,065,874,000

14 90027 Central LA, Atwater Village, Wilshire Center / Koreatown, Silver Lake, Los Feliz, Little Armenia, Koreatown, Warner Bros. Studios, East Hollywood

$832,700

$121,314

$954,774,000

15 90034 Central LA, Mid City, Pico – Robertson, Beverlywood, Cheviot Hills, Art District, McManus, Lucerne – Higuera

$687,400

$118,925

$113,462,000

16 90028 Central LA, Hollywood Hills, Greater Wilshire / Hancock Park, Little Armenia

$756,900

$114,306

$850,817,000

17 90036 Central LA, Melrose, Mid City, Greater Wilshire / Hancock Park, Carthay Circle, La Brea, Miracle Mile, Mid-Wilshire, Beverly Grove

$989,200

$113,125

$2,197,367,000

18 90005 South, Central LA, Wilshire Center / Koreatown, Mid City, Greater Wilshire / Hancock Park, Rampart Village, Koreatown, Wilshire Center

$624,500

$105,156

$302,736,000

19 90015 South, Downtown, Central LA, Westlake, New Downtown, Fashion District, Venice

$478,600

$105,052

$1,043,868,000

20 90039 Atwater Village, Silver Lake, Echo Park, North Hollywood, Los Feliz

$668,800

$104,031

$620,875,000

21 90004 Central LA, Wilshire Center / Koreatown, Greater Wilshire / Hancock Park, Rampart Village, Silver Lake, Los Feliz, Koreatown, Wilshire Center, East Hollywood

$856,900

$102,681

$784,359,000

22 90065 Eagle Rock, Cypress Park, Glassell Park, Atwater Village, Highland Park, Chinatown, Mount Washington

$527,500

$98,824

$9,852,000

23 90012 Downtown, Central LA, Boyle Heights, Westlake, New Downtown, Civic Center / Little Tokyo, Chinatown, Echo Park, Bunker Hill

$413,500

$92,969

$2,550,146,000

24 90041 Eagle Rock, East LA, North Arroyo

$589,000

$92,138

$466,909,000

25 90017 Downtown, Central LA, Wilshire Center / Koreatown, Westlake, New Downtown, Miracle Mile, Koreatown, Venice, Wilshire Center

$507,900

$91,563

$15,996,167,000

The Stakes Are High!

So if you receive an audit notice or even worse a visit by government agents, it is important that you don’t ignore this. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. with locations in Downtown Los Angeles, Century City, Woodland Hills, Long Beach and Ontario defend you from the IRS.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and minimize the chance of any criminal investigation or imposition of civil penalties.

What Signs To Be On The Lookout For That You May Be Subject To An IRS Criminal Investigation.

A simple mistake, oversight, or your accountant’s malpractice may trigger an IRS criminal investigation. Specifically, unreported income, a false statement, the use of an impermissible accounting or banking service, or declaring too many deductions are things that could initiate an audit, which could then rise to the level of an IRS criminal investigation.

The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. effectively handle criminal tax defense against criminal income tax issues prosecuted by the IRS. The IRS is the world’s most powerful collection agency, with tremendous resources, and its Criminal Investigation Division (CID) is ruthless. Its goal is singular: to conduct a thorough investigation of the taxpayer who has engaged in tax fraud so that he can be criminally prosecuted.

A criminal investigation differs from an audit. With an audit, the IRS attempts to determine whether you have calculated your tax liability correctly. With a criminal investigation, the IRS seeks to mount a case against you so that the U.S. Department Of Justice can prosecute you and hold you out as an example to others as to what will happen if you cheat the government.

The IRS Criminal Investigation Process

The IRS criminal investigation process is serious business. CID is composed of federal agents (called “Special Agents”), who are highly trained financial investigators that carry a gun and wear a badge. Unlike your typical police department, CID conducts a very thorough investigation which may last years while they interview your family, friends, co-workers, employees, and business associates, and bankers, among others, to acquire evidence as to the extent of the tax evasion or tax fraud that may have occurred.

A criminal tax violation conviction results in severe consequences, and in addition to monstrous fines, including the cost of prosecution and jail time. Each count can result in five years in jail and it could spell financial, personal and social ruin. Compounding the situation is that often a taxpayer will not know when he is subject to an IRS criminal investigation until it is in its late stages at which time they surely have made incriminating admissions if they were not represented by competent counsel.

Signs that You May Be Subject to an IRS Criminal Investigation:

(1) An IRS Revenue Officer abruptly stops pursuing you after he has been requesting you to pay your IRS tax debt, and now does not return your calls. The agent might be getting ready to refer your case to the CID to investigate previous or current tax evasion or crimes you may have committed within the collection process. (i.e., making false statements, hiding income or assets).

(2) An IRS Revenue agent has been auditing you and now disappears for days or even weeks at a time. After a case is referred to the CID, both the Collection and Examination Divisions put things on “pause” because they do not want to jeopardize a successful criminal prosecution. CID is incredibly resourceful and tactful. To better position yourself against them, it is best to obtain an experienced IRS tax attorney as early as possible where criminal tax exposure is apparent in your fact pattern (like where you know you cheated on the return that is under audit). This is true even if your case is only at the civil investigation stage.

(3) Your bank informs you that your records have been summoned by the CID or subpoenaed by the U.S. Attorney’s Office.

(4) Your accountant is contacted by Special Agents, or has been subpoenaed to appear before a grand jury and told to bring your tax records. Unfortunately, the “accountant-client privilege” simply does not protect you in a criminal case and any statements made to your accountant can be used against you in a criminal investigation, either through the “discovery” process leading to trial or where the accountant is called as a witness during criminal tax trial.

What Should You Do?

Whether and when to answer questions from the IRS, or whether to stand on your 5th Amendment rights, are questions that only a tax fraud lawyer can help you answer. Your financial well being, as well as your personal freedom may depend on the right answers. If you or your accountant even suspects that you might be subject to a criminal or civil tax fraud penalty, the experienced tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and San Diego and elsewhere in California can determine how to respond to these inquiries and formulate an effective strategy.

Description: Working with a tax attorney lawyer is the best way to assure that your freedom is protected and to minimize any additional amount you may owe to the IRS.

Badges of Fraud: What Sets the Alarms Off at the IRS?

A new client once came to me saying she had made an error in preparing her tax return and inadvertently took a deduction to which she was not entitled. “Will I go to jail if I’m audited?” The answer of course, is no. If that were the case, you might as well surround the country in barbed wire and imprison all of us. After all, I’m sure almost everyone in this country has made an error or misunderstood a tax law and claimed a deduction they shouldn’t have or failed to report some income because the reporting document got lost in the mail or misplaced.

But some taxpayers go too far. Their tax returns read like a fiction novel. Therefore, IRS auditors have been trained to spot the hot issues which usually are present with dishonest taxpayers.  These hot issues are called by the IRS as the “Badges Of Fraud” which could result in your case being referred to the IRS Criminal Investigation Division (CID).

 The Badges Of Fraud include:

  • understatements of income;
  • inadequate records;
  • failure to file tax returns;
  • implausible or inconsistent explanations of behavior;
  • concealment of assets;
  • failure to cooperate with tax authorities;
  • engaging in illegal activities;
  • attempting to conceal illegal activities;
  • dealing in cash; and
  • failure to make estimated tax payments.

If you have any of these tax problems and you are audited by the IRS you may need to engage a tax fraud attorney. Actions you take during the course of a tax audit can turn a run of the mill tax controversy into a tax fraud case. For example, lying or giving evasive answers to IRS investigators, delaying tactics, and other actions designed to mislead IRS agents are all indicia of tax fraud.

The penalties for criminal tax fraud are very serious. They range up to 5 years in jail, plus fines of up to $500,000, plus the costs of prosecution for each separate tax crime. Once the criminal tax case is completed CID will refer the case back to the IRS Examination Division where the taxes will be assessed, and the IRS can be expected to add on the civil tax fraud penalty, on top of any criminal tax fraud fines.

Whether and when to answer questions from the IRS, or whether to stand on your 5th Amendment rights, are questions that only a tax fraud lawyer can help you answer. Your financial well being, as well as your personal freedom may depend on the right answers. If you or your accountant even suspects that you might be subject to a criminal or civil tax fraud penalty, the experienced tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco and San Diego and elsewhere in California can determine how to respond to these inquiries and formulate an effective strategy.

Description: Working with a tax attorney lawyer is the best way to assure that your freedom is protected and to minimize any additional amount you may owe to the IRS.

IRS Traps Gentlemen’s Club Owner Who Filed False Tax Returns And Maintained Two Sets Of Books.

You can’t have it both ways. More than one small business owner has either underreported his income or overstated his business expenses in order to save on income taxes. But that can come back to haunt them when they go to sell the business. While not universally true, most buyers base their offer on the cash flow from the business. Low income means a low selling price. That was the situation in this case. The big difference was the buyers were undercover IRS agents.

John M. Potter owned and operated a “gentlemen’s club” called Potter’s Pub, Inc. Potter’s Pub was a cash-based business that derived receipts from food and drink charges run through the cash register, door cover charges, juke box moneys, pool table receipts, and moneys paid to the pub by the dancers for the privilege of “dancing”. Mr. Potter was the president and sole owner. For each year at issue he filed, and signed as president, a Form 1120, U.S. Corporation Income Tax Return, for Potter’s Pub. Those returns reported losses for 2002 and 2003 and zero taxable income for 2004 and 2005. Mr. Potter’s individual income tax returns for the years at issue reported no wages, dividends, or other income from Potter’s Pub on the returns.

In December 2006 IRS Special Agents engaged in an undercover investigation of Potter’s Pub posing as buyers interested in acquiring the business. Mr. Potter assured the undercover agents that Potter’s Pub was much more profitable than it appeared. He explained that he deposited in the corporate account only enough of the business revenues to cover its expenses and that he wired the balance of its revenues to his personal bank account in Florida. These wire transfers were structured in amounts less than $10,000 to avoid reporting obligations by the bank to the IRS. In reality, Mr. Potter told the undercover agents, Potter’s Pub grossed more than $1 million annually and he took home between $400,000 and $520,000 each year. He showed the agents clandestine sales ledgers for 2003 and 2004 that supported the gross receipts he claimed, acknowledging that it might have been unwise to maintain documentary evidence of his skimming.

During a subsequent search of Potter’s Pub, IRS Special Agents seized upwards of $200,000 in cash and obtained the set of clandestine sales ledgers that tracked its daily receipts. These ledgers confirmed that Potter’s Pub’s annual receipts for 2002 to 2005 were vastly in excess of the amounts that Mr. Potter had reported to the IRS. The difference between its actual gross receipts and the gross receipts reported on the company’s Forms 1120 for those years exceeded $2 million.

In January 2009 Mr. Potter was criminally charged with eight counts under Section 7206(1) and (2) for making and subscribing false tax returns, and for assisting in the preparation of false tax returns, for himself and Potter’s Pub. In May 2009 he pleaded guilty to one count of making and subscribing a false Form 1120 on behalf of Potter’s Pub for 2002. Pursuant to his plea, he was sentenced to 18 months’ prison time and supervised release for one year. He was also ordered to pay restitution of $400,000.

Don’t think the case above could happen to you? In a case some years ago a taxpayer was selling his business and divulged the second set of books to the buyer. At some point the buyer had a falling out with the seller and reported him to the IRS.

One of the dangers of filing false returns, other than the obvious one of problems with the IRS (and the applicable state), is that how you deal with other parties who are interested in your financial position. For example, you’re going for a bank loan for your business, or a home mortgage, a car loan, or, as in this case, you’re trying to sell your business. If you present financials that conflict with your tax return you run the risk being accused of defrauding the lender or buyer. Worse, the financials presented to the bank can be used as evidence of fraudulent intent with respect to the tax returns.

Already filed returns which can be considered fraudulent? The sooner you hire tax counsel experienced in criminal tax matters, the higher the chance that further escalation of your case in the criminal arena could be avoided or limited.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California defend you from the IRS.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems and minimize the chance of any criminal investigation or imposition of civil penalties.