Tax Fraud


Before diving into this very interesting newsletter, I want to make it absolutely clear that we don’t go anywhere near the dreaded grey areas that can be interpreted as tax fraud, or even attract an audit. We stay right smack dab in the middle of the tax code. We utilize only approaches that have already been litigated and given the seal of approval by the courts and the IRS.

Everything we do is completely legal. We probably have the lowest audit rate in the country, and we have never had a bad outcome on audit, or “lost” an audit. The first thing we consider in preparing a return, is the likelihood of audit. Nearly every one of the returns we file are doing nothing to attract an audit. If you were, we would talk to you about it.

I am not sending you this newsletter to frighten you, or for any particular purpose besides your enlightenment & entertainment.


The Importance of Evidence

An IRS agent’s decision to request an indictment for tax fraud is virtually never determined by negotiations between your lawyer or tax professional and the IRS, the Department of Justice or the United States Attorney’s office. The decision is seldom influenced by your perceived cooperation during the investigation or whether you have been a “good guy.” The decision is almost always based upon evidence and the strength of the case. In other words, whether they think they can win. The Tax Division of the Department of Justice frowns upon losing any criminal tax trial. A loss by the government does not promote their objective of voluntary compliance nationwide. So the IRS only brings cases to court that they expect to win.

Too many lawyers and accountants try to “cooperate” and treat a criminal investigation as they would a civil tax audit. The results are far too often tragic. By the time they realize their mistake, it is too late. When the IRS informs you they are opening an criminal case, pull out all your guns, close down all cooperation and go to war. It’s too late to talk. Cooperating will just be used against you in court.

Here’s another problem. Incompetent lawyers.

It is estimated that 90% of all criminal lawyers have never won a criminal tax jury case for the defense. For this purpose “win” means the jury found the taxpayer NOT GUILTY on ALL COUNTS. Many lawyers claim they have won cases but, when you look closely at the cases they cite you will find that they won a few counts but lost the remaining counts in the indictment. Often their clients were sentenced to serve substantial amounts of time in jail. This is hardly a victory for the taxpayer client. A true win for the taxpayer only occurs when all counts are either dropped by the government, dismissed by the Court, or result in not guilty jury verdicts.

IRS Conviction Statistics

The IRS published statistics reveal that approximately 80% of criminal tax investigations result in an indictment. More than 90% of indictments against taxpayers result in a conviction. Investigations are conducted by highly trained criminal division special agents.

During the past 18 years (1999 through 2016) only a modest number of taxpayers won their criminal tax trial and were found NOT GUILTY on all counts. The number of taxpayers acquitted during the past 18 years is as follows:

56 in the Northern Region

62 in the Western Region:

81 in the Southern Region:

Another consideration is this: sometimes your lawyer or tax professional helps you cheat. Sometimes your lawyer or tax professional even comes to you with a tax scam.

For instance.

Another article to read.

A Big 4 firm fell into that trap a few years ago. They actually marketed something that turned out to be illegal. Several partners went to prison. Just remember this, if it sounds too good to be true, it probably is.

There are two ways to select a tax professional: by relationship or by results. Most businesses select tax professional according to relationship because tax firms that regularly deliver better results don’t grow on trees. That is where we try to operate, in the rarefied air of easily measured concrete results.

Robert Ellis
Ellis CPA Firm PC
970.241.5040 voice
970.241.5040 text
970.242.1980 fax

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