The Internal Revenue Service (IRS) largely depends on taxpayers to report their own income accurately. People are generally expected to report their income to the IRS, make accurate personal statements regarding their family circumstances and pay what they believe they owe based on their personal financial situation as reflected by the expectations of the Tax Code.
However, the IRS does not automatically assume that every taxpayer filing a return tells the whole truth. Instead, the IRS compares the information reported by individual taxpayers with information reported by other individuals and businesses. When the IRS notices some kind of discrepancy between the income an individual seems to have made and what they reported, the IRS may begin looking into the situation.
During an investigation, the IRS may send letters to the subject of the inquiry and their employers or clients. It may also request records from accountants and other financial professionals. What should someone who recently learned that they are the subject of an IRS investigation do to protect themselves?
Avoid reactionary mistakes
One of the most common mistakes that people facing the IRS investigation make is to reach out to or confront the professionals looking into their circumstances. What people say during those emotional conversations could end up influencing the outcome of their case later. Instead of trying to make contact with the IRS, those subject to an investigation will need to reach out to a completely different professional party.
Obtain legal support
Any significant issue with the IRS could result in massive financial consequences and possibly criminal prosecution. An investigation could lead to prison time and fines that someone may spend years paying off in full. An attorney familiar with tax controversies and prosecution will be able to help someone handle their communication with the IRS. They can also help someone begin planning a defense strategy, possibly based on an analysis of their financial records and business dealings.
Although people sometimes think that they can handle the early stages of an investigation on their own, the mistakes that they make in those first weeks could not only delay the development of an effective defense strategy but we might put them at significantly increased risk of prosecution. A defense attorney can handle all communication with authorities and ensure that someone remains technically compliant with the investigation process without exposing themselves unnecessarily. As a final note, those that have already retained a lawyer during a tax investigation will be in a better position to learn about their rights and what steps to take should they end up arrested or indicted.
Understanding how to respond appropriately to an IRS investigation may help someone minimize any negative consequences that the investigation could inspire.