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Cheat On Your Taxes, Get IRS Penalties; Obstruct IRS, Get Jail

No one likes paying taxes, and no one likes being audited. If you are audited, you should hire someone to represent you as there are risks in handling it yourself. For one thing, most criminal IRS cases come out of regular old civil audits and even simple interactions can go south. A good example of how to land yourself in hot water is if you engage in deceptive or obstructionist behavior with the IRS. Some people think they can outsmart the IRS and cover something up. The coverup can be worse than the crime.

Time and again, in serious tax cases, a person may think that preparing false invoices, fake receipts, and made-up expenses can get them out of trouble. Usually, the reverse is true. It is one reason why talking to the IRS in an audit or investigation can be dangerous.

What if you misspeak? Curiously, claiming Fifth Amendment protection in tax cases can be a mistake. One of the biggest issues involves books and records. You must keep them in order to fulfill your tax filing obligations. If those records are incriminating, can you refuse to hand them over? You can, but it may not help. Even if you claim the Fifth Amendment protection against self-incrimination, the IRS can hand you an “information document request” to produce your records.

You can refuse, but the IRS will then issue a summons. If you refuse to answer that, the IRS will take you to court, and the court will probably order you to comply. But doesn’t your constitutional right to take the Fifth trump the IRS? Not always. Ironically, you can refuse to talk, but you may not be able to refuse to produce documents. Your own private papers are personal records, and if they might incriminate you, they are protected by the Fifth Amendment. But the Required Records doctrine says you must still hand over documents no matter how incriminating. The government requires you to keep certain records, and the government has a right to inspect them.

In most cases, a tax audit is civil and there is little risk that it will become otherwise. Yet most criminal tax cases come directly out of civil tax audits. The IRS civil auditors ‘refer’ a case to the IRS Criminal Investigation Division. The IRS civil auditor will not tell you this is occurring, so the first time you hear about it, your case may have gone from bad to worse.