Work with experienced attorney to navigate IRS investigation
Previously, we began looking at the tax troubles of Mike “The Situation” Sorrentino, and his recent not guilty plea in charges of tax fraud. As we noted last time, there is a difference between tax fraud and tax negligence, and it is important for taxpayers who come under investigation to work with an experienced attorney to ensure their interests are protected in the process.
For one thing, what appears to be tax fraud is not necessarily always so. Whereas tax negligence involves mistakes on a tax filing attributable to failure to take reasonable care to fill out an accurate return, tax fraud involves intentionally attempting to deceive the IRS. The intention of the taxpayer is, therefore, critical in distinguishing between fraud and negligence.
In most cases, the IRS cannot prove tax fraud directly, and so it relies on circumstantial evidence of fraud. The Internal Revenue Manual, which establishes internal guidelines for tax investigations, identifies various factors that can indicate tax fraud. These include:
- False deductions, exemptions, or credits
- False explanations for tax items
- Hiding sources of income
- False records and other signs of an attempt to deceive
- Multiple erroneous items, all of which favor the taxpayer
- Large differences between actual income and reported income
The IRS generally needs to have more than one such factor to support charges of fraud. When enough factors are present to suggest intent to defraud, the IRS may refer the case for criminal investigation. For a taxpayer under investigation by the IRS, it is important to carefully communicate with the IRS to ensure they have all the information they need to conduct a fair investigation. We’ll say more about this in a future post.