Most taxpayers try to minimize what they pay in federal taxes, but some people cross the line. Tax evasion occurs when people intentionally attempt to avoid responsibility for income tax obligations. Tax evasion could involve understating personal income, taking inappropriate credits or failing to disclose offshore assets.
The Internal Revenue Service (IRS) can investigate any scenario in which there are signs of potential tax fraud or evasion. Such investigations often begin with an audit. The taxpayer must submit financial records and may need to attend an in-person meeting.
At an audit meeting, those under investigation may have to answer questions about their financial activity. The IRS scrutinize everything from personal property and income to exemptions and credits claimed. If there are major issues, the IRS may refer the case to the Department of Justice for prosecution.
How many years of financial records are subject to review and analysis when people find themselves facing an income tax controversy?
Every audit scenario is unique
The nature of the tax issue influences how the IRS handles an income tax controversy. Typically, only recent financial records are subject to review. Most audits only look at two or three years of financial records.
In the majority of cases, the IRS focuses on the most recent income tax returns filed. An audit at most goes back over six years of financial records. Typically, a six-year review is only an option in cases where the taxpayer has misrepresented their income by more than 25%. Most people only face audits looking at three years of financial records.
Still, gathering three years of financial documents can be a challenge. Those preparing for an audit often need help collecting the records, learning about what to expect and preparing to attend the interview with the IRS.
People have the right to assistance during the audit process. They can also have someone handle communications with the IRS and the Department of Justice during a criminal investigation or after they formally face income tax charges.
Taxpayers often have a better chance of avoiding tax-related criminal charges if they have legal support throughout the audit and investigation process. Obtaining assistance early in the financial review and audit process can make a major difference for those who receive audit notices and other concerning correspondence from the IRS.
