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Criminal Tax

Many federal white-collar tax prosecutions are started by another federal investigative agency such as the FBI.

Since almost all financial crimes also involve tax crimes, the initial federal investigating agency will bring IRS CID into the case to sort through financial records for possible tax charges.

These charges could include counts relating to failure to file tax returns, false tax returns, tax fraud or tax evasion.

IRS Criminal Investigation Division's (CID) mission is to investigate and prosecute tax crimes with the intent of punishing the wrongdoer and more importantly deter others from considering similar criminal conduct that may undermine our voluntary tax system.

CID's referrals come from various sources inside and outside the IRS. IRS Examination can uncover potential criminal matters while conducting routine audits. The collection division also can make referrals when they deem the actions of the taxpayer as attempts to evade the payment of taxes. Tips to IRS Criminal Investigation from ex-business associates, ex-spouses, disgruntled employees or other outside sources often trigger the opening of a criminal investigation.

Usually, the last person to know of the criminal investigation is the target of the investigation. To complete the investigation of all potential tax charges, CID will attempt to interview the target for the purported purpose of hearing the Targets explanation of the tax discrepancies that are under criminal investigation. In Reality, IRS CID uses this explanatory interview to cut off any of the target's defenses. In fact, these interviews may end up allowing CID to bring an additional charge for giving a false statement to a federal agent.

Most federal criminal investigative agencies such as the FBI work directly with the local United States Attorneys office.

With criminal tax, the procedure is slightly different. CID has several tiers of review within the IRS before it refers the case to the Department of Justice and ultimately to the local United States Attorney's office. There are several tiers of review within the IRS and at the Department of Justice which the Target has a potential to stop the criminal case and eliminate the stress and strain of going through a criminal tax trial. If the case is strong, there is little chance that the case will not be prosecuted. However, there may be benefits to early negotiations prior to indictment.

The key to any white collar criminal case is always to keep the white collar client from talking to criminal agents and to get a qualified criminal tax attorney on the case at the earliest indication that there is a criminal tax problem.

To make sure that all defenses are raised, you need a qualified attorney who can handle not only federal criminal matters but the unique issues related to federal criminal tax matters.

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Audit Issues

The traditional image of an IRS tax audit is a face-to-face contact with an IRS agent. This, however, is the exception rather than the rule.

One-third of IRS "tax audits" are in the form of letters called correspondence audits asking for an explanation of certain tax items on a tax return or provide supporting documentation.

If you receive a tax audit letter from the IRS, determine whether you need to consult a tax attorney to review the issues. The time and legal fees spent are often well worth the piece of mind knowing what kind of matter you have with the IRS.

Often times the IRS inquiry is much ado about nothing but there are times that the IRS is looking for more than a no-change audit (An audit where the taxpayer walks away with no taxes owed).

If only a portion of the tax return is to be audited by the IRS, bring only those tax records pertaining to that part of the tax return being audited by the IRS.

A full tax audit will request all tax return information for that tax year. When with the agent, this is not the time to be glib. The IRS agents are trained professionals that are watching and listening to everything the taxpayer says looking for possible audit issues. Like the old T.V. show, it's what you don't say that counts.

IRS tax audits are triggered by a number of causes. For instance, large business losses over a period of several years, unusually large charitable or entertainment expenses, large capital or rental losses without obvious substantiation can cause an IRS inquiry.

Taxpayer Compliance Measurement Program (TCMP) is an IRS tax audit, which is the most thorough of all IRS tax audits. Persons selected for TCMP tax audits must verify all data on their tax return. The taxpayer will provide all information including proof of marriage and birth certificates for any dependent children. Of course, the IRS will require complete substantiation for every item deducted on the tax return. TCMP audits are useful to the IRS in determining the validity of their audit software program that determines a large percentage of the actual returns that require face-to-face audits.

You have the right to have a tax attorney, CPA, or Enrolled Agent go the audit to represent you. There is no requirement that you must be in attendance at the audit. If you have an aggressive agent, he or she may threaten an IRS Summons demanding the taxpayer's presence. To enforce the summons, the IRS agent would have to get a U.S. Federal District Court Judge to order you to appear. In only the most unusual circumstances would this happen.

Although IRS agents say that my practice of not having the client attend the audit is unusual, it works to the taxpayer's benefit. Further, I believe the taxpayer is entitled under the Taxpayer Bill of Rights to have full representation and not be forced to appear before an intimidating IRS Agent.

Over thirty years of practice, my clients on occasion have received an IRS summons demanding their appearance before the auditing agent. To date, none of them have ever been forced to appear before the auditing agent.

Depending on what type of audit you have, you must decide whether you would be better off hiring a qualified tax attorney that will give you the full benefit of the attorney-client privilege. Telling a non-attorney information that could be divulged by the non-attorney in an IRS criminal investigation is not wise though it may be save you money in representation costs.

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Collection Tax

Sometimes, taxpayers find themselves in a financial bind owing the IRS unpaid taxes.

If this is a small amount, it can be paid back with an installment agreement. There is a $43 charge for entering into an installment agreement. If the amount owed is small, this is the preferable way to handle assuming one cannot pay it all in a lump sum.

The downside to an installment agreement is unpaid taxes continue to accrue penalties and interest and depending upon the circumstances a federal tax lien may be filed to preserve any rights the IRS may have in any of the taxpayer's property.

If the amount owed to the IRS is large, a payment agreement is not always a viable option.

In these cases, an Offer in Compromise (OIC) may be the correct resolution though a tax bankruptcy may produce a better result if the taxpayer is not averse to filing a bankruptcy petition.

There are basically three types of offers in compromise. One type of offer goes to audit since it is based on Doubt as to Liability. This is the proper route if the taxpayer contends that he does not owe all or part of the tax debt.

The other two types are based on a financial analysis or a special fact situation.

The first type is based on Doubt of Collectability which simply states is you can't pay the debt due to insufficient income or lack of assets that can be liquidated and paid to the IRS or used as collateral for a loan.

In this case the IRS will settle the debt for less than is owed, based on your assets and income less allowable expenses. This requires an IRS form about your financial information. Be prepared to present proof of income and expenses or the OIC will be rejected.

The Second OIC is based on Effective Tax Administration. This type of offer requires special circumstances and is rarely given since it is a facts and circumstances test. For this offer to be successful, it requires the IRS to consider whether it would be in the long term best interest of the IRS to settle for less than the value of the assets owned by the taxpayer or the calculated amount based on the taxpayer's cash flow.

Doing nothing when you receive IRS letters that threaten levy and lien action is not an option. Failure or refusal to respond can result in Levies or Seizures. All of these adverse IRS actions produce additional financial hardship.

Meet the problem head on and take an aggressive position to handle the issue before the IRS takes an aggressive position to collect the taxes.

Penalties and Interest can be abated for reasonable cause (See the penalty heading for further guidance).

If you have a debt to the IRS contact a qualified tax attorney to determine the best method to alleviate the problems caused by that debt.

*We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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