5 Things You Need to Know Immediately if the IRS Reveals that Your Business is Being Investigated.

Elena Velikova

June 12, 2017

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Discovering that your business is under investigation by the IRS is not just alarming — it can be flat out terrifying; especially since you may not have learned about this through a letter. For example, you may have been informed because:

An IRS special agent called and asked you to attend an in-person interview (either at your business, where your financial records are located, or at an IRS office).
Your bank, brokerage firm, or other financial institution was contacted by the IRS, the U.S. Attorney’s Office, or the Department of Justice’s Tax Division.
Your accountant, bookkeeper or other tax preparer was subpoenaed to a Federal Grand Jury and gave testimony of your alleged wrongdoing (or alleged wrongdoing with your instructions or knowledge).
The IRS raided your office.
The IRS questioned your employees or other business contacts, or your family members and friends.

Regardless of how you learned that you are on the IRS’s radar screen, according to experienced tax attorney Jeffrey Kahn, who is certified to appear before the U.S. Federal tax court, there are five things you need to know right now:

1. The situation is extremely serious.

This is not a “let’s wait and see where this goes” situation, and any belief that IRS employees are incompetent bureaucrats is entirely false. They are highly trained and experienced investigators — particularly special agents, who work in the Criminal Investigation Division and are authorized to carry firearms. The longer you wait before taking intelligent action, the worse things will get.

2. You have been under investigation for at least months, and perhaps years.

The IRS plays things close to the vest during the investigation process, since they know that taxpayers (business or personal) who catch wind of an investigation may take steps to obfuscate or thwart it. In other words: once you learn that you’re being investigated, don’t assume that the IRS is just starting the process. Be assured that they’re well underway, and have been scrutinizing you and your business returns and dealings for months, and perhaps years.

3. Your civil tax investigation can become a criminal tax case.

Because the IRS — like many government departments — is dealing with declining budgets and increasing workloads, some taxpayers believe that the possibility of a civil matter becoming a criminal case is an empty scare tactic. This isn’t true. In addition to mammoth civil penalties that can reach $500,000 for corporations, conviction of felony tax evasion — which can and does happen on a regular basis — is punishable by up to five years in prison.

4. Voluntary disclosure might be a smart move — or a terrible one.

To qualify for voluntary disclosure, you must make the IRS aware of events before it is likely to discover them through other means (the operative word there is “likely” — i.e. the IRS doesn’t necessarily have to have the information in front of them at the time of disclosure, but merely has to prove that obtaining it would have been inevitable given the direction of their investigation). What’s more, the IRS’s voluntary disclosure policy doesn’t guarantee amnesty or immunity from prosecution.

5. Retaining experienced counsel is a must.

Retaining an experienced tax attorney will not make you look guilty in the eyes of the IRS. On the contrary, the IRS typically prefers that taxpayers have qualified representation, since it makes their job more efficient and straightforward. What’s more, the IRS is fully authorized and mandated to use a broad range of investigative tactics, including outright lying, or making seemingly comforting statements have no standing (e.g. “if you cooperate fully, there’s a good chance we can come to some kind of settlement deal”). Understand that this is not the IRS being unethical or deceitful. This is what they are legally mandated to do. They represent the government — not you. Never forget this pivotal fact, because you can be assured that the IRS won’t!