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How to Get a Copy of Your IRS Transcript

Getting a copy of your IRS transcript is easy and can be done entirely via the IRS.gov website. Follow these simple steps to retrieve your tax transcript.

Keep in mind that only transcripts for filed taxes are available. For example, if you did not file in 2003, there won’t be a tax transcript for that year. Also, if the IRS has not finished with your taxes, the transcript will not be available until they have completed those taxes.

What is an IRS Transcript used for?

IRS transcripts are typically used to validate past income and to prove income to lenders. They are often used to determine status for mortgage, student, and small business loan applications and help with tax preparation.

What information is on an IRS Transcript?

An IRS transcript includes most line items from your tax return, including all accompanying forms and schedules, as it was originally filed. Any changes made after the original filing will not be reflected.  Key information listed on transcripts include marital status, AGI, taxable income, payment methods, and W-2 information.

How to get your IRS Transcript Online

You can request tax transcripts online for the current tax year and the three prior tax years. To request older transcripts, you’ll need to submit Form 4506-T. To request a transcript online:

  1. Visit the IRS website at IRS.gov.
  2. Look under the Tools tab that is part way down the web page. Click: Get transcript for your tax records.
  3. Once you reach the transcript page, you can request to get them by mail or continue getting them online by clicking on the box to the left, Get transcript online.
  4. If you have gotten transcripts before, you can sign in. If not, you will need to click on the right side to create an account: Sign up.
  5. Complete the sign up process and log in.
  6. The next page will show a drop-down menu and ask why you need the transcript. Choose the answer that best fits your needs and continue. They ask you what you need it for so they can help you pick the right transcript.
  7. The next page lists all your transcripts, in four different categories for all the years you filed. These include Tax Return Transcript, Record of Account Transcript, Account Transcript, and Wage and Income Transcript.
  8. Select the transcript you need for the right year.
  9. The site will automatically generate a PDF file of your transcript. Print it and save it.
  10. Log out completely or close the browser when you are finished.

Make sure your pop-up blocker is off for the IRS site. It can cause errors when trying to retrieve your transcripts. If you chose mail, allow 5 to 10 business days for them to arrive before requesting another.

If you have problems navigating the website, you can contact the IRS for further assistance at 1-800-829-1040. For further assistance or help with a different tax issue, contact Optima Tax Relief. Optima Tax Relief offers a comprehensive range of tax relief services. Schedule a consultation with one of our professionals today.

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Do You Need a Tax Relief Lawyer?

The IRS is always prepared, shouldn’t you be as well? Do you need a tax relief lawyer?

Yes, absolutely.

This is a blog for a tax relief company with a small army of tax lawyers, so that’s what we’re paid to say, right? Well, yes, but it doesn’t make it any less true.

Benefits of Using a Tax Relief Lawyer: True Stories

A tax relief lawyer is a wise decision. In January, 2014, Forbes reported that Beanie Beans founder Ty Werner was convicted of evading $5.5 million dollars in taxes owed on the $27 million in interest accrued from millions of dollars stashed away in a Swiss bank account. The sentence? Two years on probation and some hefty fines, which were small change for a billionaire like Werner.

Unrelated, and a couple of months earlier, Daniel Thody, a defense contractor was found guilty to five counts of tax evasion for failing to report $15,000 and $50,000 in taxes from $1.8 million earned as a contractor for the Department of Defense. He faces up to 25 years in prison, 5 years for each count.

Which one do you think hired a tax relief lawyer and which one thought representing himself would be the smarter option? The old adage that he who represents himself has a fool for a client may be a cliché, but that doesn’t make it any less true either.

We’ve already shared the 10 benefits of working with a tax relief firm, but here are a few good reasons you should lawyer up when dealing with the IRS.

What Can a Tax Attorney Do For You?

A tax attorney will ensure that you are treated better. It’s unfair, even illegal, but it’s also human nature. IRS agents are flesh and blood and if they can get away with bullying someone into their interpretation of the law, they probably will. A tax lawyer can ensure the IRS is playing by the rules and treating you fairly. IRS investigators are much more careful about asking inappropriate questions or wasting your time with unnecessary requirements if they know they are dealing with a tax attorney.

That was the finding of an investigation into nine groups in Ohio and Kentucky that sought nonprofit status. Organizations that didn’t have legal representation were more likely to have their applications stalled and receive inappropriate or unnecessary questions from the IRS.

You don’t have to worry about an IRS agent getting upset with you for hiring a tax relief lawyer either. The good ones prefer dealing with tax professionals because they don’t have to waste their time and patience explaining to you the ABCs of a tax audit or the basic IRS guidelines for a criminal investigation. In fact, hiring an experienced tax relief lawyer is generally seen as a sign of good faith to resolve your tax issues.

A few bad eggs may resent you hiring a lawyer and try to dissuade from doing so, but that’s when you really need a lawyer in your corner. The IRS’s own Declaration of Taxpayer Rights clearly states that “If you are in an interview and ask to consult such a person [a lawyer, agent or accountant], then we must stop and reschedule the interview in most cases.” Be suspicious if an IRS agent prefers not to deal with a tax professional.

Can the IRS See My Foreign Bank Account?

The IRS is a behemoth of an agency, one of the most powerful organizations on the planet. From 2008 through to 2014, over 50 bankers from Switzerland, India, Israel and other countries have been indicted for helping rich Americans squirrel billions of dollars into offshore accounts.

In 2013, the IRS also cracked the code of silence of Swiss financial institutions and got UBS, the largest Swiss Bank, to divulge confidential information on American tax evaders, and pay a $780 million penalty.

Even the IRS Thinks You Need a Tax Lawyer

The Taxpayer Advocate Service is an independent organization within the IRS which has the job of ensuring that you are treated fairly and helping you resolve problems with the IRS. Although it’s unlikely a Taxpayer Advocate Service lawyer will protect your interests quite as aggressively as a regular tax attorney, they are better than nothing, if you can’t afford to pay one.

If money is an issue, there is another option: Low Income Taxpayer Clinics. Although these clinics are partially funded by the IRS, they are completely independent and are operated by nonprofit organizations and academic institutions.

Only a Tax Attorney Can Represent You in a Criminal Investigation

Certified Public Accountants are great. When it comes to tax planning, business budgeting and asset management, a CPA is – all things being equal – more useful than a tax attorney is. But when you have a dispute with the IRS, especially if you’re accused of tax fraud or tax evasion, a tax relief lawyer is the only intelligent choice. Tax attorneys are the only ones who can represent you in a court of law and provide you the legal advice and analysis you need.

If that is not reason enough, I have two and a half words for you: attorney-client privilege. Unlike CPAs and accountants, attorneys cannot be subpoenaed to testify against a client in a criminal procedure.

Is it Worth it to Hire a Tax Attorney?

Does this mean you need a tax lawyer every time you get a letter from the IRS? No, of course not. You can probably deal with small mistakes and omissions by yourself or by giving your tax preparer a quick call. However, if there is any chance your case could go sour, you need to call a qualified and experienced tax attorney, and pronto. A good rule of thumb is that if you’re asking yourself whether it’s serious enough to merit calling a lawyer, it probably is.

A quick consultation call with a tax lawyer can save you thousands of dollars in unnecessary legal fees you could have avoided by not procrastinating. Tax lawyers know how IRS attorney think, many tax attorneys worked as IRS attorneys before hanging their own shingle. So, they know what to say, what not to say, and what buttons to push when negotiating your case.

Hiring a lawyer sends the IRS a clear and powerful message. You’re taking the investigation seriously; you’re not going to let IRS agents push you around; and you want to work with the IRS to avoid criminal charges.

The bottom line is that the IRS is scary enough when you have a first-rate lawyer at your side. So hire one already. Need to hire a tax relief lawyer? Our tax professionals at Optima Tax Relief are here to help.

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You Received an IRS Notice, Now What?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

  • The IRS will send a notice regarding the debt as well as the penalties and interest that have also accrued in addition to your balance.
  • Failing to provide all relevant information on your tax return could result in you receiving a certified letter from the IRS notifying you that information was missing.  

For those that have already filed their taxes, they may think that tax season no longer affects them but that may not necessarily be true. Some taxpayers may receive a certified letter in the mail from the IRS after filing their tax return notifying them of a balance due or that some information was missing on their tax return. If you’ve received a notice from the IRS, don’t panic, there are options available to you that the IRS offers.

You owe a tax balance.

If you’ve already filed your taxes and owed a tax balance that you have yet to pay off, the IRS will send a notice regarding the debt as well as the penalties and interest that have accrued in addition to your balance. For those taxpayers who are unable to pay their tax liability in full, the IRS offers installment payments that can be made over a period of time in order to satisfy your debt. The IRS will typically present you with a payment plan based on the income that was provided on your tax return. If your income has changed or you are unable to afford the payment plan that was presented to you, it is recommended that you consult with a tax professional to see what additional options you may have. 

Information is missing on your tax return. 

Failing to provide all relevant information on your tax return could result in you receiving a certified letter from the IRS notifying you that information was missing and they need further assistance from you in order to process your return. Typically this letter is sent to taxpayers who have failed to provide all forms of income on their return and will need to submit additional proof to avoid the IRS looking further into the situation. 

Identity theft has caused your tax return to be rejected.

The IRS will notify a taxpayer if they believe that there may be fraudulent activity occurring on their tax return. The IRS will send a letter to you inquiring about a suspicious tax return that you may have not filed. The IRS will request that you do not e-file your return because of the duplicate social security number that was used. Act quickly should you receive this letter from the IRS to avoid further fraudulent activity with your personal information. 

If you need tax help, contact us for a free consultation.

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What does it mean to get audited?

Back in the day, the word “audit” conjured up widespread fear and loathing. With an astonishing 5.6 percent of all Americans receiving that dreaded audit notice from the Internal Revenue Service in 1963, nearly everyone knew someone who had been subjected to a tax audit. The number of IRS audits has declined sharply since then, with a 23 percent decline in the past twenty years. Nonetheless, the IRS has not completely pulled the plug on audits, although budget cuts has precipitated a shift from all-encompassing in-person audits in favor of less cumbersome, less costly audits that focus on specific tax issues.

Five Reasons for an IRS Audit

So, why would a person or business get audited? Here are some of the reasons you may be audited by the IRS.

  1. Failing to report income
  2. Claiming too much in charitable donations
  3. Claiming too many business expenses
  4. Claiming a loss for a “hobby” activity
  5. Making errors on your return

Tax Return Errors

The vast majority of audits are related to items on tax returns that trigger red flags, such as math errors, inconsistencies between W-2 and 1099 forms.

Unusual Increases or Decreases in Income

Another common red flag is a return that shows a reported income or income far out of line with earnings from previous years.

Associated Transactions

You may also be audited if your tax return reflects transactions with another taxpayer who is being audited.

Above Average Withholding

Automatic red flags such as above average withholding for your income level may also trigger an audit.

Random Audits

A certain number of audits are the result of plain bad luck – returns chosen at random.

How Do You Know If the IRS Is Auditing You? The letter informing you that you are being audited should include a notice number in the right-hand corner. This notice number will indicate the reason for the audit. You should use this notice as a guide to determine which records you should gather. Scams are unfortunately common, so it’s important to understand the process. Learn more about the audit notification process in our blog: How to Know If The IRS Is Auditing You.

The Types of Audits

The audit notification letter you receive should also indicate what type of IRS audit you have been selected for. Depending on the type of audit you are facing, your tax matters could be settled in a matter of days or linger for months. For more involved audits, obtaining the services of a tax professional is highly advisable. Consider the following types of audits to better understand what it means to get audited.

Correspondence Audit

A correspondence audit is conducted by mail. Correspondence audits usually involve tax matters that are relatively easy to resolve. In most instances the IRS is seeking copies of checks, receipts and other documentation to support deductions or credits that you have claimed, or to clarify other items on your tax return.

Office Audit

An office audit is conducted in person at your local IRS office. You should be prepared to report to the office with copies of the requested documentation. You may also have a legal representative or your tax preparer present during the audit.

Field Audit

Like an office audit, a field audit is also conducted in person. Unlike an office audit, a field audit is conducted in your place of business. You should be prepared to present copies of your documentation at the audit, and your legal representative or tax professional should also be present. You are not obliged to allow IRS personnel into your home unless the agency has obtained a court order. If you claim the home office deduction, agents may request to enter your home; if you refuse the request, your deduction will almost certainly be disallowed.

Taxpayer Compliance Measurement Program Audit

The IRS uses Taxpayer Compliance Measurement Program (TCMP) audits to update the data it uses to write it computer scoring program. This is the most extensive type of audit, which examines every aspect of your tax return. If you receive notice of a TCMP audit, you should be prepared to present exhaustive documentation, including birth and marriage certificates.

Can You Go to Jail for an IRS Audit?

While an audit may require significant effort on your part to gather the documentation required, it should not inspire panic. The unofficial threshold set by the IRS for tax fraud is at least $70,000 in unlawfully uncollected taxes and at least three years of fraudulent conduct. Therefore, while the odds are stacked against you in terms of escaping without additional tax obligations, it is extremely unlikely that as an honest taxpayer, you will face criminal charges or jail time as a result of an audit.

Learn more about tax fraud and how it happens with Optima Tax Relief. If you need tax help, contact us for a free consultation.

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Tax Liabilities: The Difference Between a Lien, Levy, and Garnishment

taxes due

The IRS can be problematic to deal with – especially if you don’t have a clue about anything tax-related. For those who owe a liability to the IRS, it is important to understand how the IRS works in addition to any potential action the IRS can take against you. If a tax balance is owed, they can place you into collections, garnish your paychecks, place a lien on your physical assets, or even levy your bank account(s). Here is what you need to know about the IRS taking action against you, and how to prevent yourself from tax liabilities.

3 Different Tax Liabilities

Tax Liens

A tax lien is something that the IRS can place against you if you owe any tax liabilities. The IRS has the ability to place liens on physical assets such as a home or vehicle in order to ensure they receive the max amount of money if a taxpayer intends on selling their assets; they will take a portion of the profit of the sold asset and apply it to the balance owed to them. You can avoid having a lien placed against you by paying your balance owed in full and on time or, if you cannot afford to pay your balance off, you can contact the IRS to see what type of payment plan options you can be placed on. 

Tax Levies

The IRS would send several collection notices warning a taxpayer of their intent to levy if the balance owed has yet to be paid in full. A tax levy occurs once the IRS considers you a delinquent taxpayer and they will go after your bank accounts, wages, or property in order to settle the debt that is owed. In some cases, the IRS will only seize a small sum of money from a taxpayer. Other times, they will take a taxpayer’s entire savings and apply it to their tax balance. To stop an IRS tax levy, you can contact them directly and request they release the levy if you can prove that you are currently in a hardship. They will also release their levy if you can pay the amount owed in full, the collection period to collect the tax liability on your balance has ended, or the value of your property is more compared to the amount owed to the IRS. 

Tax Garnishments of Wages

The IRS can also garnish your wages if you have an unpaid balance. The IRS can legally seize your income and apply it to the balance owed to them and garnish your paychecks, commissions, or any bonuses. There are a couple of ways to stop the IRS from garnishing you, you can either pay your balance in full or contact the IRS to set up a payment plan or hardship agreement if you qualify. 

The IRS will act against those who fail to pay their tax balance and they can and potentially will attempt to garnish, levy, or place a lien against you should you ever owe tax liabilities. It is expected that all taxpayers remain compliant with the IRS and adhere to the most current tax laws in order to stay out of collections. 

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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IRS Tax Audit Penalties & What You Should Know

If you have been summoned for an audit by the IRS, you should know that the odds of escaping without owing additional taxes are slim. In general, the IRS does not spend resources on conducting tax audits unless there’s a good chance for significant revenue to be gained.

What you may not be aware of is that, if you owe more, along with extra taxes, you will likely be assessed tax penalties of some type. The amount and severity of the tax penalties are directly related to the type of deficiency the audit uncovered. But you also have the opportunity to soften the blow or perhaps even qualify for a penalty abatement.

Accuracy Related Tax Penalties

If an IRS audit finds that you filed a substantially inaccurate return, you could be facing accuracy related tax penalties of 20% of the amount you underpaid. In extreme cases, the penalty charged could be doubled to a whopping 40% of your total tax underpayment. The following list indicates the types of accuracy related tax penalties that may result from an IRS tax audit. (About Money)

  • Negligence or Disregard of Regulations. Failure to make a reasonable attempt to adhere to Federal tax code rules, such as failing to file a tax return at all
  • Disregarding IRS Rules or Regulations. Positions taken on tax returns that are substantively inconsistent with IRS regulations
  • Substantially Understating Your Taxes. Understating your income by $5,000 or 10%, whichever is greater.
  • Substantially Misstating the Value of Property. Overvaluing of donated property or undervaluing of depreciating property by 200% carries a 20% penalty. Overvaluing donated property or undervaluing depreciating property by 400% carries a 40% penalty
  • Substantially Overstating Pension Liabilities. Overstatement of pension liabilities by at least 200% carries a 20% penalty; overstatement of pension liabilities by 400% carries a 40% penalty. No penalty will be applied if the overstatement is $1,000 or less
  • Substantially Understating a Gift or Estate. Erroneously stating the value of property claimed on a gift tax or estate tax return at 65% or less of its actual market value carries a 20% penalty. Erroneously stating the value of property claimed on a gift tax or estate tax return at 40% or less of its actual market value carries a 40% penalty. No penalty will result if the understatement results in a tax underpayment of $5,000 or less.
  • Understatements Related to Reportable Transactions. There’s a 20% penalty for understating tax liabilities due to a tax shelter or tax avoidance transaction that are disclosed. Inadequately disclosed tax shelters or tax avoidance shelters carry a 30% penalty.

Penalties for Failure to File Returns and Pay Taxes

If you are late in filing your tax return or paying your taxes, the penalty is 5% of the unpaid tax, charged each month, up to a maximum of 25%. A minimum penalty of $135 can be charged for returns filed more than 60 days late. Filing your return on time but paying late carries a lighter penalty of 0.5% of the tax you owe each month up to 25%. If you are charged for both tax penalties for the same month, the penalty for failure to file is reduced to 4.5%. (IRS.gov)

If you fail to pay up on taxes owed after an audit, the IRS will assess a penalty of 0.5% for each month the tax is not paid. The clock starts ticking 21 days after the IRS issues the notice. If you pay the amount owed in full within 21 days, you will not be charged an additional penalty.

To add insult to injury, if an audit results in accuracy related penalties, fraudulent failure to file a tax return or civil fraud, the IRS adds interest of 3% annually to the amount of your penalty. If the penalty is $100,000 or less, you have 21 days to pay in full before interest is added. If the penalty is more than $100,000, you only have 10 days to pay up before the IRS begins adding interest.

Civil Fraud Penalty

If an IRS audit results in a charge of civil fraud, you won’t wind up in jail. But the IRS slaps a hefty 75% penalty on any tax underpayment that resulted from fraudulent activity.

There is one sliver of a silver lining to this financially dark cloud — accuracy related penalties cannot be applied to taxes owed as a result of civil fraud. In other words, you can’t be penalized on top of a penalty.

Fraudulent Failure to File a Tax Return

If you mistakenly believe that you were not obliged to file a tax return and the IRS catches up with you through an audit, you’ll be hit with tax penalties for failure to file and failure to pay, but you won’t be charged with fraudulent failure to file a tax return.

Instead, fraudulent failure to file a tax return refers to a deliberate failure to file a return and can be either a civil or misdemeanor criminal offense, although civil charges are much more common. If criminal charges are filed, you could be sentenced to up to a year in jail plus $25,000 in fines for each year that you fail to file. The statute of limitations for criminal charges is six years; there is no statute of limitation for civil charges.

Willful Failure to Pay Estimated Taxes or Keep Records

Willful failure to pay estimated taxes or maintain tax records is considered to be a misdemeanor by the IRS. Just as with fraudulent failure to file a tax return, civil rather than criminal penalties are applied most often for this type of infraction. If the IRS brings criminal charges against you, as the result of an audit or criminal investigation, you could face up to a year in jail and $25,000 in fines for each year for which you are charged.

Filing a Fraudulent Return

Many tax protesters, including actor Wesley Snipes and singer Lauryn Hill, have found themselves on the wrong side of the law because they filed frivolous returns based on claims that income taxes are unconstitutional. Filing a fraudulent tax return is considered a felony, but less serious than tax evasion. If you are convicted of filing a fraudulent return as a result of an audit or as a result of IRS investigation, you could face up to 3 years in prison and up to $100,000 in fines. (IRS.gov)

Tax Evasion

Tax evasion has snared some of the most notorious figures in history, including Chicago crime syndicate boss Al Capone. The IRS defines tax evasion as the willful concealment or misrepresentation of financial resources and assets to avoid paying taxes. If an IRS audit or criminal investigation results in a tax evasion conviction, you could be facing up to 5 years in prison and up to $100,000 in fines.

Audit Reconsideration

If worse comes to worse and you are nailed with more taxes and penalties as the result of an audit, but you disagree with the result, you can request an audit reconsideration. You must request it before you pay any taxes, penalties, or interest that you intend to dispute, not after. If you have already paid the taxes, penalty, and interest, you must request a refund. Submit the following documentation to the same office that conducted your audit. (Journal of Accountancy)

  • Statement explaining your reasons for requesting an audit reconsideration
  • Form 1099, cancelled checks, bank statements, and similar new documentation
  • Copies of previously supplied materials
  • Copies of correspondence from the IRS

The IRS is not obligated to grant your request. But if you can demonstrate any of the following circumstances, your request for audit reconsideration should be approved.

  • You did not appear for the audit
  • You moved and did not receive proper notice for the audit
  • You submitted documentation that the IRS refused to consider that would reduce or eliminate the taxes, penalties, or interest you owe
  • You have new documentation to support your case
  • You file a return that shows the correct tax to replace a return created by the IRS because you previously failed to file a return
  • The IRS committed math or processing errors in calculating the tax you owe

The IRS should respond to your request for an audit reconsideration within 30 days, although the wait could be longer. Bear in mind that tax penalties and interest continue to accumulate during that time. If you are suffering financial hardship due to delays in processing your audit return, you can ask for your request to be expedited.

Offer in Compromise and Penalty Abatement

If your request for audit reconsideration is denied, you may still be able to ease your burden. If you cannot pay the full amount of tax that you owe, you may request an Offer in Compromise, which settles your tax obligation for a fraction of what you actually owe. Be forewarned that the IRS accepts only a small percentage of Offers in Compromise. Obtaining expert advice from the experts at Optima Tax Relief will improve your odds.

Under certain circumstances you may request a penalty abatement, which results in some or all the penalties you have been charged being waived. The IRS generally approves requests for penalty abatement based on reasonable cause or administrative waivers. To request a penalty abatement, file IRS Form 843 along with copies of any documentation you may have to support your request.

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When Does the IRS Pursue Criminal Charges?

Statistically, your chances of being charged with criminal tax fraud or tax evasion by the IRS are minimal. The IRS initiates criminal investigations against fewer than 2% of all American taxpayers. Of that number, only about 20% face criminal tax charges or fines.

Related Article: The IRS Criminal Investigation Process

Unofficially, the minimum amount of unpaid taxes required to trigger an IRS criminal investigation is $70,000. And since the majority of Americans don’t even earn that much money, it’s easy to see why ordinary taxpayers need never worry about facing tax evasion or tax fraud charges.

While honest mistakes or even negligence generally won’t trigger a tax investigation, perpetrating fraud very well might. IRS agents are trained to recognize signs of criminal tax fraud and evasion. Exhibiting behaviors the IRS calls “affirmative acts” could eventually result in that fateful knock on the door from the IRS.

Negligence versus Tax Fraud

Back in the day, it seemed like the IRS was lying in wait, prepared to strike unsuspecting taxpayers at the slightest sign of tax error. These days the IRS is more tolerant of mistakes made by honest taxpayers.

When the circumstances are not clear cut, the IRS frequently errs on the side of giving the taxpayer the benefit of the doubt. Miscalculating the amount of your Earned Income Tax Credit is a mistake that could cost you a significant sum of money, but it isn’t usually considered to be tax fraud. Artificially concealing $800,000 of income by keeping two sets of books? Tax fraud. (Nolo)

Evidence of Tax Fraud

Four so-called elements of tax fraud are recognized by the IRS: deception, misrepresenting material facts, submitting false or deliberately altered documents and failing to submit critical documents, such as tax returns. Several elements of fraud must occur together to trigger IRS tax fraud charges. But a single element that occurs in an especially blatant fashion may generate IRS tax fraud charges.

For instance, failure to submit a tax return for a single year is not usually considered to be an element of tax fraud. On the other hand, unless your income is extremely low, failing to file any tax returns ever could very well cause the IRS to initiate a criminal investigation against you.

Badges of Tax Fraud

The list below, taken from the IRS.gov website, represents several “badges of fraud” the IRS looks for when determining whether to file criminal charges.

Badges of tax fraud fall into four general categories: improper reporting of income, unjustified deductions or tax credits, inadequate record keeping and outright illegal behavior. As with elements of fraud, IRS agents are inclined to give taxpayers the benefit of the doubt. They’ll impose penalties for taxpayers in arrears rather than bringing criminal charges against them.

  • Understatement or omission of substantial sums of money
  • Fictitious deductions
  • Maintaining “shadow” sets of accounting records
  • Deliberate destruction of records
  • Evidence of consistent underreporting of income
  • Obviously nonsensical explanations for behavior
  • Refusing to cooperate with an auditor or examiner·
  • Deliberately concealing assets, as in overseas tax shelters
  • Illegal activities
  • Dealing exclusively in cash
  • Maintaining obviously inadequate records
  • Indicators of Fraud

The IRS categorizes indicators of tax fraud into six broad categories: income, expenses and deductions, books and records, income allocation, methods of concealment and taxpayer conduct.

Just as with elements of tax fraud and badges of tax fraud, the difference between negligence and criminal conduct is often a matter of extent.

Indicators of fraud usually include an element of deliberate conduct as well. An extensive list of actions that constitute indicators of fraud are available on the IRS website, but the examples below should provide a general idea of how the IRS views indicators of fraud.

Example #1:

Forgetting to include income from a W-2 form is not considered an indicator of income fraud. Insisting on being paid cash wages for a job and refusing to list any income from that job on your federal income tax return would be considered to be an indicator of income fraud.

Example #2:

Miscalculating the percentage of business versus personal use for your computer is not considered an indicator of fraud for expenses and deductions. Attempting to deduct the entire cost of your vacation to the Bahamas because you answered a single work-related email from your hotel room WOULD be.

Don’t Be Evasive

In general, if you suspect that a particular type of conduct is disallowed by the IRS, you shouldn’t do it. If you go ahead and do it anyway, you run the risk of being cited for tax evasion or tax fraud. And if you do receive that dreaded knock on the door from the IRS, you should not be surprised.

Additional Tax Tips:What to do during an IRS Audit
How to survive an IRS tax audit

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How to Know if the IRS Is Auditing You

You may be under the impression that if you’re being audited, you’ll find out by a strong knock at your front door. Unless you’re in serious trouble, this won’t be the case.

How will you know if you’re being audited?
Short Answer: The IRS will let you know directly.

The only way you’ll know for certain if the IRS is auditing you is if the IRS tells you – either by phone or mail. If your initial contact is by email, it’s likely a scam and you should report it.

Who is most likely to be audited?
According to Bloomberg News, only 1% of all tax returns each year are audited. But there are factors that increase your chances of being targeted for an IRS audit.

  • Being rich. 12.5% of all tax returns for those who make over a million dollars a year.
  • Mistakes on your tax return. This could be anything from not reporting all of your income, your numbers not matching with your employer-provided W2s, or even math errors on your tax return. Don’t round your numbers.
  • Self-employed. The IRS will look at your deductions to see if they are the typical amount for someone in your industry. Travel/entertainment and automobile deductions are watched especially closely. While a home office is no longer an immediate reason to suspect an audit, taking the deduction needs to be backed up with detailed records.
  • Large charitable donations. If you only make $20,000 a year and yet donated a substantial amount of money, watch out.
  • Your associates. If your business partner in a firm or a close relative is being audited, you could be too.

Types of IRS Audits
There are three types of IRS audits, depending on the complexity of your return, the number of questions the IRS has and the dollar amount involved.

  • Correspondence Audit – An IRS tax audit conducted entirely by mail. The IRS likely has a short checklist of questions to ask you about your income, expenses, or itemized deductions.
  • Field Audit – The IRS will send an agent to visit you in person in your home or business. They will want to inspect the records you’ve kept.
  • Office Audit – You are requested to meet with an agent at their nearest office and bring your paperwork with you to the meeting.

If you are audited there are four things to remember:

  • Respond to their letters within the deadline given on the notice. If you need more time, you’re far more likely to get an extension if you ask for it before the deadline’s passed.
  • Gather all the documentation you need to answer their questions and provide copies to the IRS. (Never give them your original documents, they aren’t responsible if anything is lost.)
  • Bring the right representation. Not your Uncle Bill but a CPA or tax attorney. This is not the time for amateur help or to go it alone.
  • Be polite and respectful. But don’t volunteer anything. If the agent wants to expand the audit, you are entitled to more time to answer any new questions that may arise.

An IRS tax audit can be a painful experience but you will get through it with thorough preparation, and if needed, expert help from Optima Tax Relief.

Additional Tax Tips:

The IRS Criminal Investigation Process
What to do during an IRS Audit
What does the IRS look for in an audit?
IRS penalty and interest rates

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What Is The IRS Criminal Investigation Process?

Most of the woes associated with the IRS involve money. If you are audited, the most probable outcome is that you will owe more money to the IRS. In the worst case scenarios, an audit results in your owing a lot more money. But you almost never face criminal charges.

An IRS criminal investigation is an entirely different ball of wax. The IRS pursues about 3,000 prosecutions each year for tax fraud and tax evasion. If the IRS launches a criminal investigation against you, you not only face a potentially substantial tax bill, but also possible jail time. One of your first moves should be to obtain the services of a skilled, experienced attorney who specializes in tax law.

The Knock at the Door

Your first encounter with the criminal investigation unit of the IRS may involve a knock on your door, followed by an intimidating encounter with two or more agents dressed much like K and J from the Men in Black movies. By the time this encounter takes place, the IRS has completed several steps of its investigation process and is convinced that the case against you is solid. Your best move under these circumstances is to say absolutely nothing.

Areas of Potential Criminal Prosecution

The IRS website lists the following areas of possible criminal prosecution. Some areas of criminal prosecution such as abusive tax schemes and nonfiler enforcement are more likely to apply to individuals. Others, such as money laundering and employment tax evasion, are more likely to be committed by corporations and criminal operations.

  • Abusive Return Preparers
  • Abusive Tax Schemes
  • Bankruptcy Fraud
  • Corporate Fraud
  • Employment Tax Evasion
  • Financial Institution Fraud
  • Gaming Related Fraud
  • General Tax Fraud
  • Healthcare Fraud
  • Insurance Fraud
  • Money Laundering
  • Mortgage and Real Estate Fraud
  • Narcotics Related Financial Fraud
  • Nonfiler Enforcement
  • Public Corruption
  • Questionable Tax Refunds

How Criminal Investigations Are Initiated

Those stories you read about neighbors ratting each other out to the IRS? That actually does happen. The IRS is happy to accept tips about possible tax fraud or tax evasion from family members and associates. A revenue agent or revenue collection officer may also initiate a criminal tax investigation if something about your return seems fishy. A U.S. Attorney or even your local law enforcement department may also provide tips to the IRS about possible fraudulent or criminal tax activity. Social media is also another resource.

Primary Investigation

Of course, the IRS isn’t supposed to go off half-cocked based on an accusation made by someone with a long-standing grudge. Instead, any tips or information is subject to what the IRS calls a primary investigation. The agent makes an initial judgment on whether to proceed with further investigation. If the decision is in favor of pursing criminal charges, the tax agent’s supervisor has the opportunity to sign off on the investigation or stop it in its tracks. If the supervisor gives the go-ahead, then the case is brought to the special agent in charge – the head of the office.  That person makes the determination of whether to go ahead with a “subject criminal investigation” based on one or more of the categories listed above.

Criminal Investigation

Once the IRS has obtained the go-ahead, the actual criminal investigation proceeds much like you think it would. The IRS gathers documents and affidavits from third parties, including your family, friends and professional associates to support its case. Other forms of investigation include search warrants, subpoenas of bank records and other financial data and covert surveillance.

Recommendations for Prosecution

After the investigation phase of the process is complete, the IRS special agent and his or her supervisor review the evidence that has been gathered. A determination is made whether to “discontinue” the case or proceed with prosecution. If the decision is made to prosecute, the special agent prepares a report which is reviewed by each of the following four IRS officers, in order:

  1. The supervisory special agent, aka the front line supervisor for the special agent
  2. Centralized Case Review – a criminal investigation review team
  3. The Criminal Investigation (CI) assistant special agent in charge
  4. The CI special agent in charge

If the CI special agent in charge gives the go-ahead to prosecute, the recommendation is forwarded to either of two final levels of review. Just as with any of the earlier stages of investigation, the IRS may decide that there is insufficient evidence to proceed with an actual prosecution. But once an investigation clears one of the two stages listed below, you are destined to receive that ominous knock on your door.

  1. The Department of Justice, Tax Division (for tax investigations)
  2. The United States Attorney (for all other criminal financial investigations)

Guilty or Not Guilty

You might have gathered by now that the IRS is meticulous about pursuing criminal cases against alleged tax cheats, and you would be right. But that does not mean that mistakes never happen or that actual prosecution is inevitable. You have the right to seek a conference with IRS agents at each stage of the process — if you are actually aware that the IRS is pursuing prosecution against you. You also have the right to request dismissal of the case either before or after a grand jury indictment, or to appeal a conviction.

If the IRS Has You in Its Sights

If you know that the IRS will find tax fraud or tax evasion, your best bet is to come clean. If you do so before a prosecution is underway, you can often avoid the criminal process altogether. The IRS allows taxpayers to make voluntary disclosures of unreported income or other tax obligations. The procedures vary according to whether your unlawful tax conduct involves domestic or international maneuvers. Your attorney can provide the best advice on whether – and how to make a voluntary disclosure. 

Additional Tax Topics:

IRS Penalty and Interest Rates
What to do during an IRS Audit

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Donald Rumsfeld Thinks Taxes Are Complicated: Declares War

Former Secretary of Defense Donald Rumsfeld thinks that completing your federal income tax returns should be a lot simpler than it is. And you will never guess who agrees with him – liberal publication ProPublica, left-leaning policy wonk Ezra Klein, tax expert Austan Goolsbee and presidents Ronald Reagan and Barack Obama. What is it they say about strange bedfellows?

Taxes are Complicated

Rumsfeld voiced his frustration with the federal income tax code in a letter penned to the IRS with links to the letter posted on his Twitter feed. In the letter, Rumsfeld claimed that he and other Americans have “absolutely no idea whether our tax returns and our tax payments are accurate.” Rumsfeld also complained about the expense associated with completing his income tax returns each year.

Like 60 percent of the American public, Donald Rumsfeld does not complete his own federal income tax returns. Instead, he outsources the task of dealing with the IRS to a paid accountant. Ordinary folks with fewer financial means take a similar approach, except that their tax returns are frequently handled by firms like H&R Block or Jackson Hewitt. Many people who DO prepare their own tax returns do so with the guidance of software from TurboTax or TaxAct.

Taxes are complicated. According to the Tax Foundation, the most recent version of the federal tax code is a hefty 2,652 pages thick and includes more than 1 million words. The so-called “long form” 1040 lives up to its name, having swelled from 30 lines on a single page to 87 lines and more than 200 pages of instructions. The U.S. Tax code is so complex that the Tax Policy Center released a 100-page annotated version of Form 1040 which includes factoids for every line of the document.

The No-Return Tax Return Proposal

There is little doubt that an affluent taxpayer like Donald Rumsfeld has tax issues that require the services of a certified public accountant. But the truth is that most people in the United States have neither the income nor the circumstances to warrant the need to designate the task of completing an income tax return. This truth is the guiding principle behind a proposal to allow the IRS to complete tax returns itself, and send completed returns to taxpayers for their approval. Taxpayers who wished to make changes in the IRS-completed returns would be able to do so, but the requirement to file income tax returns would no longer exist.

The proposal, which Goolsbee and ProPublicacall the Simple Return, would supposedly save 225 million preparation hours and$2 billion in fees paid to tax preparers. According to a 2006 white paper written by Goolsbee and published by liberal think tank the Brookings Institution, adopting the Simple Return as a general federal tax filing policy would translate to the equivalent of $44 billion in tax savings for the American public over the next 10 years. The IRS would also save $36 million through a reduction of tax errors committed by taxpayers – and the need to conduct fewer audits. Several European countries, including Denmark and Spain have adopted variations of the Simple Return as standard operating procedure.

The plan has actually been tested in the United States. In 2004, the Franchise Board of California launched a pilot program called ReadyReturn, Approximately 50,000 single taxpayers with no dependents and income only from wages received pre-filled state income tax forms in the mail with the option to accept or decline the returns. More than 11,000 taxpayers accepted the ReadyReturns,equaling 27 percent of taxpayers who had not previously filed their California state tax returns.

Among taxpayers who declined the ReadyReturns, 22 percent stated that they had already filed their state income tax returns. Satisfaction among taxpayers selected for the ReadyReturn program was high: 90 percent stated that they saved time by filing their state returns through the ReadyReturn program. A hefty 98 percent claimed to be “satisfied”or “very satisfied” and 97 percent stated that they would use the ReadyReturnto file their state income taxes the following year.

The Astro turf Push back Campaign

Of course, the Simple Return proposal has not gone without a push back effort. Representatives from the Jewish community, the NAACP and mayors from small-town America have written op-eds and letters to the editor protesting against the Simple Tax proposal, according to ProPublica director of research Liz Day. The letters and op-eds, each containing similar language, claim that the Simple Tax proposal would potentially result in a higher tax burden for low-income Americans.

One possible reason for the similar language of the letters and op-eds may be that they were at least in part influenced by JCI Worldwide, a public relations and lobbying firm with connections to Intuit, which markets the tax software program TurboTax, according to ProPublica. In one instance, Rabbi Elliot Dorff,who wrote an op-ed in the Jewish Journal criticizing the Simple Return, stated that he was inspired to write the piece after being approached by a former student, Emily Pflaster, who sent him derogatory information about the plan. But Pflaster neglected to mention that she worked for JCI Worldwide in her appeal, the rabbi told ProPublica.

Ezra Klein, formerly of the Washington Post, posted an animated infogram on his recently launched website Vox explaining the principles behind Simple Return. According to Klein, another opponent of the Simple Return plan is anti-tax activist Grover Nordquist. According to Klein, Nordquist fears that if filing tax returns were easier, people would be less opposed to the IRS and the notion of paying taxes.

But Can We Really Trust the IRS?

There is no doubt that the tax preparation industry stands to lose millions if a policy like the Simple Return were put into action. And any connection to a tax-preparation software package is potentially damming to any protest efforts against the initiative. Nonetheless, there is merit to adopting at least some caution to adopting a plan like Simple Return.

Would taxpayers leave potential tax savings on the table by simply accepting pre-filled tax returns rather than making the effort to check them out for possible errors? In addition, the vast majority of Americans are entitled to file their federal income taxes electronically for no charge under the FreeFile program; many states allow taxpayers to file free tax returns as well. Nonetheless, with proper safeguards in place to ensure that taxpayers receive the maximum tax credits and deductions to which they are legitimately entitled, the Simple Return or something like it could be a welcome change from an increasingly labyrinth-like tax code.

Photo by Mark Wilson/Getty Images

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