Tax fraud allegations are serious issues that should be handled by a knowledgeable lawyer. Most people don’t realize the severity of an investigation until it’s too late, but you can do yourself a favor by hiring a tax lawyer as soon as possible after an investigation is opened. Doing so could help you with your case significantly. Read on to learn more about what indirect proof the IRS might be gathering to bring a case of tax fraud against you should they choose to move forward.
Direct proof of fraud by the IRS usually consists of phony deductions and clearly overstated deductions or exemptions. Most of the time, income underreporting does not lead to direct proof by the IRS. Instead, the IRS will rely on the four indirect methods. These include:
- Bank deposits
- Specific items
- Net worth
- Requesting you fill out form 4822 (Statement of Annual Estimated Personal and Family Expenses)
Specific items refer to situations in which you received a check from your business and pocketed that money without putting it in your books. Usually, the IRS will identify more than one specific item to put together a fraud case.
The IRS’s favorite indirect method to identify unreported income is bank deposits. However, there can be legitimate explanations for non-taxable bank deposit sources like gifts, tax-exempt income, loans, and inheritances. This is why it is important to document everything. If an auditor requests that you fill out form 4822 you should politely decline or throw the form away.
The IRS cannot pursue you for refusing to fill out this form. The final indirect method of net worth involves an auditor adding up all of your assets and deducting any liabilities at the start and the end of the tax year under audit. You may be suspected of fraud depending on the result. Consulting with an experienced tax lawyer can help you identify the most appropriate course of action to take.
You need help if you suspect you’re being investigated for tax fraud or if you have already been accused.