Eggshell Audits & Parallel Proceedings

You may feel like you are walking on eggshells during any tax audit, but certain types of audits are specifically referred to as “eggshell audits” for good reason – you must take extreme care during the examination to prevent it from triggering a criminal investigation. Representation by a criminal tax attorney is therefore critical to individuals and businesses facing this kind of audit.

At Moskowitz LLP, our criminal tax attorneys can advise you how to answer questions lawfully during an eggshell audit in order to prevent the further criminal charge of “making a false statement,” whether to comply with or fight a summons for records, and when to exercise your 5th Amendment right against self-incrimination.

A success story

We recently represented a taxpayer who had several business entities disclosed on his individual income tax returns. The IRS auditor believed that there were several “badges of fraud,” but since the taxpayer had retained our counsel at the outset we were able to anticipate several areas of questioning that could be detrimental to his case. As anticipated, the auditor issued a summons for records. We addressed the summons without admitting to criminal activity, committing perjury, or engaging in obstruction of justice or any other crime (or civil offense). Ultimately, the auditor did not refer the case to the IRS Criminal Investigations (CI) unit. We were able to negotiate a favorable resolution to the civil tax audit and prevent criminal charges from being pursued.

Advice for the wary

Keep in mind that the IRS is a federal agency with very broad authority, and their investigations are powerful tools for discovering tax crimes and other violations. An auditor is unlikely to inform you that their civil examination has escalated to a criminal investigation, and may even be in the process of collecting evidence for a parallel criminal investigation without your knowledge.

It is important that you are represented only by a criminal tax attorney experienced in both criminal and civil tax law. Clients are protected by the attorney-client privilege, but statements you make to anyone else (including CPAs and Enrolled Agents) can and will be used against you to assist the IRS-CI in building its case. All conversations and materials shared with a non-attorney are admissible – the IRS will summon any advisor who is not an attorney and compel them to be a witness against you.

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