How To Handle A Tax Investigation For Your Business

In this article, you can discover…

• Reasons your business could face a tax investigation.
• The differences between an IRS tax investigation and an audit.
• How an attorney can help protect your interests during an IRS investigation.

What Can Cause My Business To Face A Tax Investigation?

Many of the reasons why your business may face a tax investigation are similar to why you would face an audit. Namely, either your business has made too much money, or you have failed to properly report your taxable income.

Some companies do not always receive 1099s or other forms of documentation to submit to the IRS, so they do not report their income on their tax return. Failing to fulfill your obligation to report your taxable income is one of the most common reasons for tax investigation.

Another reason you may find yourself in the midst of a tax investigation is due to large deductions raising red flags to the IRS. If your deductions for particular items fall within what the IRS deems an excessive amount, you could be subject to an investigation.

What Is The Difference Between An IRS Tax Investigation And An Audit?

While an audit can potentially lead to criminal prosecution, this litigation is typically reserved for the criminal tax investigations conducted by the IRS. It is far more likely that you will receive criminal charges based on a tax investigation rather than an audit.

I recently provided counsel for a man from St. Louis who had no documentation for his business expenses. His tax preparer had said that he simply based his tax documents off of what the man told him, equaling hundreds of thousands of dollars. Happily, we were able to keep him from being criminally prosecuted, but it did turn into a collection case with a significant tax fraud penalty.

Attorney Lance Drury is a seasoned lawyer based in Missouri, who has helped countless clients just like you navigate the intricacies of tax investigation law. With over 20 years of experience, he is prepared to assist you in navigating a tax investigation so that you can focus on maintaining your business.

Still have questions? Ready to get started? Contact The Law Office of Lance R. Drury today to schedule an initial consultation.

What Can I Expect During A Tax Investigation?

Generally, your revenue agent will sit down with you to collect documents and work through your audit with you. If you enter into a criminal investigation, the agent will typically go after your accountant, as they failed to provide the IRS with the proper information. In other words, it is not uncommon to see accountants as the subject of a criminal tax investigation.

What will generally happen is that, once you are targeted for a criminal tax investigation, you will be asked to provide a list of documents for certain categories of expenses or business deductions. The IRS may want to know why you didn’t report particular forms of income, so it is essentially a process of providing documentation for particular company profits and losses.

What Penalties Can I Expect If I Am Found Non-Compliant?

The IRS will often tack on a substantial fraud penalty for non-compliance. However, these penalties can usually be negotiated. I had a case several years ago where a woman was married to a dentist and failed to properly report her family’s earnings, leading to a fraud penalty.

However, we were able to negotiate with the IRS not to extend the penalty, which saved her a great deal of money. Essentially, you can be penalized for delinquency in your reports to the IRS, but these penalties can be negotiated.

How Will A Tax Attorney Help My Business With A Tax Investigation?

Attorneys can generally assist you in two ways, primarily by guiding you through a process that can otherwise be very confusing. Often, people will approach me and say that they’re not exactly sure what the IRS is even looking for in their investigation. In these cases, your attorney will help you in taking the necessary steps to navigate your case.

Another important aspect of working with a tax attorney is having an intermediary to communicate with the IRS on your behalf. Much like when you talk to the police, anything you say can and will be used against you while talking to the IRS. To avoid any questionable or incriminating statements, your lawyer will spearhead interactions with the IRS so that you do not have to walk on eggshells.

Can Financial Misunderstandings Lead To Investigations? How Would You Resolve It?

Yes. If financial misunderstandings result in a tax investigation, your attorney can step in and discuss the matter with the IRS to prevent a criminal investigation. There are several steps involved in the process before a criminal case is opened, and it is often possible to resolve a case with an IRS criminal agent before the scope of an audit is expanded.

Still Have Questions? Ready To Get Started?

For more information on Business Tax Investigations, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling 573-883-3056 today.