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5 Ways to Protect Yourself Against IRS Tax Fraud Charges

Though the IRS pursues very few individuals for tax fraud, it’s one of the scariest charges you can face. In addition to receiving jail time and being saddled with a criminal record, the IRS can charge you 75% penalties if you are convicted of willful tax evasion.

The good news is the IRS really kind of prefers not to charge people with crimes. It’s usually the act of last resort after attempting, often multiple times, to get a person to cooperate, comply, and handle the obligation. Where people often get into trouble is assuming they can fool the IRS.

They usually can’t.

Follow these 5 tips to keep yourself out of trouble.

1. Understand the difference between an auditor and a CID agent.

An auditor is just trying to figure out what’s not right about your return. If you’ve just made an honest mistake, it’s usually a pretty good idea to cooperate with them.

In fact, auditors expect mistakes.

“IRS auditors look for what are called badges of fraud when looking for deception. When conducting an audit, examiners expect to find minor errors, foten due to the complexities of the federal tax code. In these cases, errors can be corrected, deductions denied, and unreported income added. These adjustments often result in a new tax liability, along with possible penalties and interest.” –Supermoney.com

Sometimes you’ll never even talk to the auditor. Someone at the IRS will just spot the mistake, send you a letter, and advise you of your new tax penalty. They can still charge you with 20% penalties for underreporting and negligence, but as long as you don’t try to hide anything from them it’s not a criminal matter.

See also: Should You Go to Trial for Federal Criminal Charges?

2. If CID is at your door, be careful what you say.

A CID agent (Criminal Investigation Division) is who gets sent your way when the auditor decides those “badges of fraud” resist. Usually this happens after the auditor makes a whole bunch of requests you chose not to cooperate with.

At that point, remember you have the right to remain silent. Decline to answer questions, call a criminal lawyer who specializes in tax fraud defense, and understand you are in a lot more danger than you were when it was just the frustrated auditor knocking on your door.

See also: What to Do If Your Business is Accused of a Phishing Scam.

3. Be careful what you say to your CPA.

Communications with your lawyer are privileged. Communications with your CPA are not.

And even if your CPA really, really likes you, he or she can be subpoenaed to testify against you in a court of law if you said or did anything incriminating.  

See also: 4 Types of Fraud that Require the Help of a NY Computer Fraud Lawyer.

4. Keep good records.

And be especially vigilant if you run a cash-based business. Most tax fraud comes from these sorts of businesses.

Pay attention to invoices, receipts, and received income. If you’re claiming something as a business expense, make sure you have the receipt to back it up. If there’s a fuzzy line between a business expense and a personal one (say, a computer that gets used for both purposes) it’s probably safest to treat it as a personal expense.

See also: Searching Cell Phones: When Can the Police Search Your Devices?

5. Make sure to report income from your side-hustle.

Don’t forget, if you make more than $600 on your side hustle you need to report that income to the IRS. Even if all of your customers or clients didn’t send you an 1099 to report the income because they personally didn’t pay you enough to have to.

The IRS is probably getting some indicators that side-hustle at least exists, and you can get into a lot of trouble if you consistently try to hide it.

Don’t forget, when you’re self-employed (even if you’re also employed by someone else) you are supposed to pay estimated taxes. It’s not a crime not to, but the IRS will charge you more money if you don’t.

Bonus tip: if you’re going to take deductions related to your side-hustle, make sure you understand how the IRS defines a business vs. a hobby that happens to make you some money.

See also: Taking the Stand? What to Expect if You Testify in Your New York Criminal Case.

Need help? Get help.

The moment you know the IRS has switched gears from considering you negligent or bad at doing your taxes to considering you fraudulent and attempting to evade them, it’s time to get help. Contact Koch Law to get an experienced white collar criminal defense lawyer on your side.