July 31, 2008

IRS CRIMINAL INVESTIGATIONS BECOMING MORE FREQUENT

According to the Associated Press the number of criminal investigations by the IRS is increasing. In the year 2007 the Justice Department prosecuted more tax criminal cases than any other year since 1998, gaining a conviction nearly 50% of the time. The conviction rate refers only to those cases that went to conclusion at trial and does not include those that came to an agreement with the government before the trial came to an end. Also included in the report were fraudulent refund claims by taxpayers, an indicator that IRS criminal investigations are expanding well beyond the financial and narcotics crimes of the notable past. It might come as a surprise to some taxpayers that IRS criminal investigations of financial and narcotics crimes, the ones that make the evening news, are really not considered "common" criminal tax offenses. The IRS is making it known they are back in the enforcement business and taxpayers need to be alerted to the more common tax offenses that carry the additional possibility of criminal prosecution.

Some of the more common tax offenses that carry criminal IRS penalties in addition to the civil penalties normally associated with IRS examinations are; failure to pay tax, failure to file a return, failure to keep records, failure to supply information, filing a false tax return, filing a false claim for refund, and assisting any person with any of the aforementioned acts. With the scope of criminal exposure being so broad it's important that taxpayers take steps to protect themselves. The most important steps any taxpayer can take to insulate themselves from being investigated and/or charged with a tax crime is to: 1. get and remain current with your tax return filings and 2. make sure you have adequate withholding from your paycheck and/or make timely estimated tax payments. While these steps may seem obvious to the average taxpayer, many taxpayers that haven't filed returns or paid taxes for a couple of years (or more) feel they have avoided the IRS's "radar" and are afraid that suddenly getting into compliance will "alert" the IRS to their situation.

Here's a wake-up call to taxpayers that think they have flown under the IRS's radar – the IRS knows you're not in compliance and it's only a matter of time. The IRS is continuously collecting information about taxpayers with what are called Informational Returns. These Informational Returns are forms that are required to be filed with the IRS reporting just about every type of transaction involving the exchange of money or sale of property. These returns are not just limited to W2's and 1099's any more. The IRS is aggressively closing the gap in their information loop and this is evidenced by the rising number of computer generated notices sent to taxpayers each year. Why is it important for you to get into compliance today? The criminal statute of limitations for failure to file and failure to pay is six (6) years. The IRS has a policy (not law) of not prosecuting taxpayers that voluntarily get into compliance before an investigation begins. If you are out of compliance, make sure at a minimum, you file your tax returns for the past 7 years, and get professional help if you have any doubts.