"We first selected Gary Bode because of his familiarity with a creative financing scheme for our new small business. During our time with Gary, his insights have helped us better structure our small businesses, save money, and learn to be better small business managers. When it comes to small business accounting, a little hand-holding goes a long way."—Justin and Joelle LeBlancIRS tax audits can lead to felony convictions and incarceration. But not often! One source cites only 0.0022% of all taxpayers are convicted, versus an IRS estimate that 17% of taxpayers cheat in some way. And we’ll see below that convictions generally involve more than just tax evasion.
“Please note this post does not advocate tax evasion, even though it reads like a how not to get caught guide.”
Gary Bode, IRS tax audit CPA
IRS tax audits generally look for clarification of information. Sometimes that leads to additional tax, interest and penalties. Even in clear cases of intentional fraud, sometimes they levy only civil penalties and not criminal charges. Felony convictions arising from IRS tax audits often have the exacerbating factors discussed below.
Ways to get caught and/or convicted include:
- Bragging. Remember the arrogant owner of Studio 54 who boasted on TV that what the IRS didn’t know didn’t hurt him? IRS agents watching the interview weren’t impressed. So, the IRS tax audit was quick and merciless. The owner did three years, as I recall. The IRS whistleblower program, which includes rewards, makes loose talk dangerous.
- Stupidity. Years of experience and professionalism make the IRS a formidable foe. Some folks just cheat in blatantly obvious ways.
- Forged tax documents. This crosses the line from neglience into intentional fraud.
- Being in a profiled profession. For example restaurants and hairdressers get more IRS tax audits, probably because of the cash involved.
- Being famous. If the IRS doesn’t target celebrities, they sure get a lot of PR when they convict one.
- Being defiant about the government. Political dissent is our right, but it sometimes has the consequence of an IRS tax audit.
- Being married to the wrong person. You’re jointly responsible for a “married filing jointly” tax return. If your spouse is a tax cheat, you might be held responsible. (Although Innocent Spouse relief is available under certain circumstances.)
- Being rich. Again the PR from jailing a rich person sends the message that no one is immune to an IRS tax audit.
- Being a criminal. Remember Al Capone? The IRS tax audit became a crime busting tool.
- Making illegal money and not reporting it. Tax convictions are more likely to follow being caught for other crimes like Ponzi schemes, embezzlement, wire fraud, money laundering, receiving bribes etc.
- Using another person. One case involved using a girl friend to cash bad checks that became unreported income. She turned on him.
- Using multiple versions of a tax return. Programs like TurboTax make creating alternative versions of a tax return easy. For example, banks often require copies of past tax returns.
- Embezzling with held payroll taxes. As an employer, you hold these funds in trust for the various government agencies. Not remitting them is a crime. Paying employees “under the table” and not filing employment tax returns increase risk of conviction.
We’re a Wilmington NC CPA firm with a virtual office allowing us to represent you during an IRS tax audit, even if you don’t live in our area. Our posts on IRS tax audits and the federal lien process might help you gauge our expertise and proactive attitude. We offer a free initial telephone consult at (910) 399-2705.
