Ultimate Guide to Massachusetts Tax Audits & Criminal Tax Law
If you live or work in Massachusetts and you have been contacted by the IRS, you must be extremely careful in order to avoid unnecessary taxes, interest and penalties. Learn what you need to know from Boston tax audit lawyer Kevin E. Thorn, Managing Partner at Thorn Law Group.
As a Massachusetts resident or the owner of a Massachusetts-based business, you do your best to pay the taxes you owe. You keep good records, you work with an experienced tax professional and, while you try to avoid paying more than necessary, you certainly do not try to underpay the IRS. So, why are you being targeted in an IRS audit or a criminal tax law investigation? Now that you have the IRS’ attention, do you need to hire a Boston tax audit lawyer to represent you?
In our experience, this scenario is very common. We regularly hear from individual taxpayers and business owners who are surprised – and scared – to learn that they are the target of a federal tax law audit or investigation. We also have an extensive track record of helping individuals and businesses avoid significant financial liability and prison time, and we have developed a staunch reputation in Massachusetts and nationwide for effectively dealing with the IRS.
When dealing with the IRS, there are key steps you need to take and critical mistakes you need to avoid. This guide provides an introduction to what you need to know if you are facing an IRS audit or criminal tax law investigation in Massachusetts.
Answers to 10 Key Questions About IRS Audits and Criminal Tax Law Investigations
We’ll start by answering 10 common – and important – questions about IRS audits and criminal tax law investigations:
1. Why is the IRS looking into my (or my business’s) tax returns?
There are a number of reasons why the IRS may have chosen to audit your tax returns or why the IRS Criminal Investigation Division may be looking into your personal or business tax filings. With regard to audits, there are three main types, and determining which type of audit you are facing will provide some insight into why you are being audited:
- Correspondence audits are the least-invasive form of audit and typically involve requests for documentation to substantiate the numbers in a return.
- Office audits involve in-person meetings with IRS agents in Boston and are typically initiated when there are issues that cannot be resolved by reviewing substantiating documentation.
- Field audits are the most-invasive form of audit and often involve serious issues with the potential for substantial additional tax liability, interest, and late-payment penalties.
While there are many distinctions between tax law audits and investigations, the most fundamental difference is that investigations are criminal in nature. If you are being targeted by the IRS Criminal Investigation Division, this means that the IRS has reason to believe that you have intentionally violated the Internal Revenue Code (IRC), the Foreign Account Tax Compliance Act (FATCA), the Bank Secrecy Act and/or another federal criminal statute. In any case, you should speak with a Boston tax audit lawyer promptly to determine the scope and nature of the IRS audit or investigation.
2. What information are the IRS agents seeking to obtain?
Ultimately, the goal of any tax law audit or investigation is to determine whether all legally-required tax has been paid. However, IRS agents will also be seeking to determine if you intentionally underreported or underpaid your tax liability, as intentional tax fraud and tax evasion can trigger criminal prosecution.
3. What happens if the IRS determines that I have underpaid my federal taxes?
If the IRS determines that you have underpaid your federal taxes, then you will be required to pay the balance you owe plus applicable interest and penalties. Again, if the audit or investigation reveals evidence of intent, you could also be prosecuted criminally. Amending your federal returns may mean that you need to amend your Massachusetts state tax returns as well.
4. Is the IRS targeting Massachusetts (or Boston) residents and businesses in particular?
Yes and no. Generally speaking, the IRS will audit or investigate any individual or business that appears to have underpaid its federal tax liability. However, Boston is one of several “hot spots” around the country where the IRS and other federal authorities have identified a prevalence of tax evasion and other organized and white-collar criminal activity.
5. How can I figure out if I still owe the IRS?
When facing a tax law audit or investigation, one of your first priorities should be to determine what (if anything) you owe the federal government. Depending on the scope and complexity of your income sources, domestic and foreign holdings, and tax planning strategies, this may be a time-intensive process. As a result, you should promptly consult an attorney who has extensive experience in IRS tax matters and who can pull in other experienced Boston tax professionals if necessary.
6. What should I do if I owe back taxes to the IRS?
If it turns out that you owe back taxes to the IRS, you will ultimately have to pay what you owe. However, this does not mean that you should admit wrongdoing and mail in a check to the IRS. You will need to handle your situation delicately giving due consideration to the legal risks involved and, to protect yourself to the greatest extent possible, you will need to work with an experienced Boston tax audit lawyer.
7. How can I convince the IRS that my tax returns are accurate?
While IRS audits and investigations often result in additional tax liability, many inquiries are misguided. If you have fully met your federal tax reporting and payment obligations, your attorney should be able to use the available evidence to convince the IRS to close its inquiry without a determination of liability.
8. If I accidentally underpaid the IRS, will I have to pay interest and penalties?
Most likely, yes. The IRS generally charges interest and penalties on past-due amounts, including amounts that are past due as a result of inadvertent filing mistakes. However, there are some exceptions (including innocent spouse relief), and the amount of interest and penalties you have to pay may be open for discussion. For example, depending on the circumstances of your audit or investigation, you may be able to negotiate an offer in compromise.
9. What is an offer in compromise?
An offer in compromise is a potential solution to a tax problem where the amount owed far exceeds what the taxpayer can afford to pay. If you make – and the IRS accepts – an offer in compromise, then you will be permitted to pay less than the full amount that you owe under the Internal Revenue Code. Negotiating an offer in compromise requires in-depth knowledge of the law and intimate familiarity with the IRS’s auditing, investigation and enforcement procedures; and, as a result, it is a matter that is best handled by an experienced attorney.
10. Can (and should) I hire a Boston tax audit lawyer to deal with the IRS on my behalf?
Generally speaking, yes. While you may be able to deal with a correspondence audit on your own, due to the risks involved in providing inaccurate information (or too much information) to the federal government, it is advisable to seek legal representation any time you are dealing with the IRS.
What to Do When You are Contacted by the IRS in Massachusetts
When dealing with the IRS in Massachusetts, there are some steps you should try to take immediately. This is true whether you are an individual taxpayer or you have been contacted with regard to your business’s federal tax filings. Upon receiving an audit letter, subpoena, or any other form of contact from the IRS, you should:
- Note Any Deadlines – Review the letter, subpoena or other correspondence to determine what deadline(s) you have been given. While you may be able to ask for an extension, you do not want to inadvertently let the deadline slip by.
- Talk to Your Attorney Before You Respond – Before you submit any response to an IRS inquiry, you should discuss your situation with an experienced Boston tax audit lawyer. You need to avoid sharing too much information, including information that may be protected by the attorney-client privilege.
- Avoid Speaking with IRS Agents Directly – If you have been contacted by an IRS agent directly, this probably means that your audit or investigation is of the more-serious variety. Let the agent know that you are represented and that he or she will be hearing from your attorney.
- Preserve and Collect Relevant Documentation – Ensure that any records that are potentially relevant to the audit or investigation are preserved, and begin collecting records that are responsive to the IRS’s inquiry. Destroying records (or even allowing them to be destroyed) can get you into trouble regardless of whether you have fully paid what you owe the IRS.
- Stay Calm – While dealing with the IRS can be stressful, it is important that you stay calm. Do not make any rash decisions, and avoid assuming that you have made tax mistakes. Many IRS audits and criminal tax law investigations are resolved with no finding of additional liability.
What Not to Do When You are Contacted by the IRS in Massachusetts
When facing an IRS audit or investigation in Massachusetts, there are some critical mistakes that you should try to avoid as well. While these mistakes will not necessarily jeopardize your ability to assert a successful defense, they may make it more difficult to work out a favorable resolution:
- Be Overly Cooperative – When conducting audits and investigations, IRS agents will use a variety of tactics to gather as much information as possible. If you are overly cooperative in the hopes that you will gain favor with the federal government, you will likely find yourself sorely disappointed.
- Share Too Much Information – Whether done intentionally or not, providing the IRS with too much information could potentially result in the audit or investigation being expanded beyond its initial scope. This is why you should not provide any information to the IRS unless advised to do so by your attorney.
- Assume that You Owe the IRS – Once again, many IRS audits and investigations are misguided. The fact that you are facing an audit or investigation does not necessarily mean that you owe money to the federal government.
- Assume that the IRS Will Go Away – On the same token, if you do owe money, the IRS is not simply going to go away. If there is evidence to suggest that you intentionally underreported your tax liability, you could face criminal charges under statutes including:
- 26 U.S.C. § 7201 (attempting to evade or defeat tax)
- 26 U.S.C. § 7202 (willful failure to collect or pay over tax)
- 26 U.C.C. § 7206 (submitting a false or fraudulent statement to the IRS or aiding in the preparation of a false tax document)
- 26 U.S.C. § 7212 (attempting to interfere with the administration of the Internal Revenue Code)
- Wait to Seek Professional Help – In order to present the strongest possible defense, you should seek professional help immediately after being contacted by the IRS. If you live in Massachusetts, your first call should be to an experienced Boston tax audit lawyer.
IRS audits can turn into criminal tax law investigations; and, in many cases, the IRS will work with the U.S. Department of Justice (DOJ) and other agencies to prosecute targets for multiple related offenses. For example, health care providers, business owners and other individuals targeted by the IRS may also be at risk for prosecution under:
- 18 U.S.C. § 371 (criminal conspiracy)
- 18 U.S.C. §§ 1341 and 1343 (criminal mail fraud and wire fraud)
- 18 U.S.C. § 1956 (money laundering)
- Anti-Kickback Statute
- Health Care Fraud Statute
- Racketeer Influenced and Corrupt Organizations Act (RICO)
- Securities and Exchange Act
Learn more about the potential charges and penalties that can result from IRS audits and criminal tax law investigations.
Speak With a Boston Tax Audit and Investigations Lawyer in Confidence
Have you been contacted by IRS auditors or the IRS Criminal Investigation Division? If so, it is important that you speak with an attorney immediately. To request an appointment with Kevin E. Thorn, Managing Partner at Thorn Law Group, call 617-692-2989 or contact us online now.