When the Internal Revenue investigates a taxpayer for a criminal matter, it is serious and they are trying to find out if a tax fraud case took place. They believe that the taxpayer is defrauding the system, and will work to prove that they are correct. The IRS will pursue a taxpayer for criminal charges if they believe that they are not reporting income, are under-reporting income, or are overstating deductions and expenses.
When the IRS opens a criminal investigation, the will work to prove that the taxpayer earned more money that they reported, and that the taxpayer knowingly did so. They will also work to prove that the taxpayer overstated deductions, expenses or credits as well. The IRS will reach out to the taxpayers’ employers, accountants, financial advisors, family members or anyone else who would be knowledgeable about the taxpayers’ finances.
The IRS has developed a system to prove their case against a taxpayer using direct methods, and once they do so, the taxpayer will be forced to pay all taxes in full, as well as interest and penalties on any incorrectly reported finances.
There are four steps the IRS always follows when creating a tax fraud case against a taxpayer:
- They must prove the correct amount of taxable income
- They must prove that the income was received by the taxpayer
- They must prove that the income was not reported by illegal means
- They must prove that the taxpayer was personally involved in failing to report their income.
The IRS can also work to prove tax fraud case with indirect methods. With this technique, the IRS studies the taxpayer’s finances and looks for patterns and practices. The IRS will look at net worth by analyzing assets, going over every bank account the taxpayers has, and learning about the taxpayer’s spending habits. The IRS looks for assets that are not reported, large amounts of money that are not being claimed on tax returns, and changes in expenditures.
The IRS has the tools are resources to thoroughly investigate taxpayers who commit tax fraud. If you are the subject of a criminal tax investigation for tax fraud, you should seek the consultation of an experienced New York Tax Lawyer.