IRS Criminal Tax Audits: Understanding the Process and Potential Outcomes

For taxpayers who are facing IRS criminal tax audits, knowing what to expect during the process is critical. It is also critical to know what to expect in terms of potential outcomes. Here is a brief introduction from Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

5 Key Steps In an IRS Criminal Tax Audit

Criminal tax audits typically involve the same major steps. While the specific circumstances of an audit can vary widely, the major steps in the process are:

• The IRS’ Preliminary Analysis – An IRS criminal tax audit typically begins well before the taxpayer finds out about the inquiry. Before contacting the taxpayer, the IRS conducts a preliminary analysis to determine whether “there is sufficient evidence to initiate a . . . criminal [audit].”
• Notification of the Audit – If the IRS determines that a criminal inquiry is warranted, it will notify the taxpayer of the audit. This notification can take a variety of forms depending on the specific nature and status of the inquiry.
• Examination of the Taxpayer’s Files – During the audit, the IRS will examine the taxpayer’s files in order to assess compliance. When facing audits, taxpayers must be extremely careful to ensure that they do not inadvertently or unnecessarily disclose incriminating information.
• Direct Communication with the IRS – Taxpayers who are facing criminal tax audits can (and should) play a proactive role in the audit process. Taxpayers who engage defense counsel can rely on their attorneys to communicate with the IRS on their behalf.
• Resolution or Criminal Prosecution – IRS criminal tax audits can lead to various consequences. As discussed in greater detail below, these audits generally have three potential outcomes, and taxpayers can (and should) work with their defense counsel to steer their audits toward favorable resolutions under the circumstances at hand.

Potential Outcomes of an IRS Criminal Tax Audit

As we just discussed, IRS criminal tax audits generally have three potential outcomes. While the potential outcomes of any individual audit will depend on the specific circumstances involved, the potential outcomes generally include:

• Resolution with No Further Inquiry – When facing an IRS criminal tax audit, the best-case scenario is to resolve the audit without further inquiry and with no additional tax liability.
• Settlement with the IRS – If avoiding additional tax liability is not viable under the circumstances at hand, it may make sense to negotiate a settlement with the IRS that avoids criminal prosecution.
• A Federal Grand Jury and Indictment – If settling is not in a taxpayer’s best interests and the IRS is committed to pursuing criminal charges, then the only option may be to prepare to defend against the government’s case in court.

Request a Confidential Consultation with Virginia Tax Attorney Kevin E. Thorn

Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, has extensive experience representing individual and corporate clients during IRS criminal tax audits. To discuss an impending audit with Mr. Thorn in confidence, call 703-752-3752 or request a confidential consultation online now.