Preventing Criminal Tax Charges
If you haven’t filed your tax return or if you filed a return that you know understates the correct amount of your tax liability, there are two things you must immediately do to minimize the chances that the IRS will make a referral to its criminal investigation division (CID). They are obvious, but still, many people don’t do them.
1. File your return before the IRS refers your case to the CID – In order for the government to prevail in a criminal prosecution on a failure to file charge it must prove that you intentionally did not file your tax return. Your voluntary filing, even though late, makes it hard if not impossible for the government to prove intent.
2. Amend your return to correct the errors in the original return – Again, the government must be able to prove that you intentionally filed a false return. When you correct your return without being prompted to do so, it gives rise to the assumption that you made a mistake, rather than that you knowingly tried to evade taxes.
Many non-filers believe that because they have not received a nasty notice from the IRS demanding that they file their return they have gotten off Scot free. But nothing could be further from the truth. Here’s why:
When a case is referred to CID the special agent assigned to investigate it will immediately instruct the IRS to stop sending notices to the taxpayer requesting that the delinquent tax return be filed. The reason he does this is because he knows that a voluntarily filing by you before he has had the chance to complete his investigation will kill the government’s case while its still in it’s shell.
In short, the absence of IRS dunning notices is more troublesome than their presence because it signals a possible, and in many cases likely, criminal referral.
3. Hire a tax lawyer in order to get Attorney-Client Privilege – Of course, you shouldn’t embark on any course of conduct without first consulting with an experienced criminal tax attorney. Remember, there is no accountant-client privilege which means that a CPA, IRS Enrolled Agent or other non-lawyer tax advisor can be subpoenaed and forced to disclose statements you made to him in the course of their engagement. If you require the services of a non-lawyer tax advisor, you should hire a lawyer and have that lawyer engage the services of the tax advisor in order to subsume him under the attorney-client privilege.