Your Small Business IRS Examination Might Take a Criminal Turn by JONATHAN KALINSKI
If you or your client are under examination by the IRS Small Business/Self-Employed (“SB/SE”) division, changes are your case will not be referred criminally. Currently, criminal fraud referrals from the IRS civil divisions are only approximately 7% of IRS Criminal Investigations Division’s (“CI”) inventory. Things, however, are changing, and taxpayers and their representatives should take note.
The IRS recently promoted Eric Hylton to SBSE Commissioner. Prior to his promotion, Mr. Hylton was the deputy chief of CI. Having a former CI executive in charge of SBSE is historic in many ways. IRS Commissioner Charles Rettig has made enforcement a priority for the IRS and given the division heads marching orders to increase referrals. After years of hiring freezes and retirements, the IRS is staffing up across all divisions, including SBSE and CI.
This increased focus on enforcement and especially the desire to increase criminal referrals means tax representatives need to be alert and recognize signs that your case might take a criminal turn. SBSE audits individuals and business with assets of under $10 million.
Seasoned tax practitioners will tell you there is no such thing as a random audit. Most IRS audits include a review of the taxpayer’s gross receipts. Be proactive and know whether your client has a serious unreported income problem that is often the hallmark of a criminal referral.
Cooperate with the Revenue Agent and timely respond to requests. Giving a Revenue Agent the runaround and failing to cooperate will annoy the Revenue Agent and increase scrutiny towards your client and can be viewed as a badge of fraud. If you are going to let your client speak to the IRS he or she MUST tell the truth. Lying only puts your client deeper in the hole. This might seem obvious, but I can’t tell you how many times taxpayers think the IRS will never find out the truth. The IRS has a wealth of data, and is growing its use of data analytics. Again, there is no such thing as a random audit. There is a reason you or your client are under examination and the IRS knows it.
Commissioner Rettig and Mr. Hylton are both featured speakers at the upcoming 35th Annual UCLA Tax Controversy Institute on October 22 at the Beverly Hills Hotel. To sign up for the conference click the link below.
Jonathan Kalinski is a principal at Hochman Salkin Toscher Perez, P.C. and specializes in both civil and criminal tax controversies as well as sensitive tax matters including disclosures of previously undeclared interests in foreign financial accounts and assets and provides tax advice to taxpayers and their advisors throughout the world. He handles both Federal and state tax matters involving individuals, corporations, partnerships, limited liability companies, and trusts and estates.
Mr. Kalinski has considerable experience handling complex civil tax examinations, administrative appeals, and tax collection matters. Prior to joining the firm, he served as a trial attorney with the IRS Office of Chief Counsel litigating Tax Court cases and advising Revenue Agents and Revenue Officers on a variety of complex tax matters. Jonathan Kalinski also previously served as an Attorney-Adviser to the Honorable Juan F. Vasquez of the United States Tax Court.