Tax fraud proceedings can be either civil or criminal and there will be different burdens of proof will apply in either proceeding. In criminal proceedings, the IRS must prove guilt beyond a reasonable doubt, whereas in civil proceedings the IRS need only prove fraud by clear and convincing evidence (that the action to be proved is highly probable or reasonably certain).
Regardless of whether the proceeding is civil or criminal, fraud can be tough to prove due to the typical dearth of direct evidence of a defendant’s fraudulent intent. The Internal Revenue Service (IRS) has noted that, generally speaking, circumstantial evidence together with “reasonable inferences” can be relied upon to mount a successful tax fraud case, usually involving deception, misrepresentation of material facts, false or altered documents, or some sort of evasion (i.e. diversion or omission). See Internal Revenue Manual 126.96.36.199.
Courts also tend to find an “intent to evade” taxes, or an intent to defraud the IRS, when certain factors are present. These include understatement of income (omissions or failures to report substantial amounts of income); dubious deductions; accounting improprieties; taxpayer actions evidencing intent to evade (e.g. destruction of records, transfer of asserts); consistent underreporting of taxable income; inexplicable or suspicious behavior; failure to cooperate with the IRS; concealment of assets; illegal activity; inadequate records; dealing largely in cash; failure to file tax returns; education and experience. While this is a non-exhaustive list, it is likely that one of these “badges” of fraud will be present in a tax fraud case.
Such evidence of tax fraud can also apply to tax planner fraud, i.e. situations in which a tax planner is the individual responsible for defrauding the IRS by employing any one of a number of techniques intended to illegally reduce tax liability. In addition to the abovementioned indicators, assertions by a tax planner that he or she can obtain larger refunds than other planners, or documents indicating a fee based upon a percentage of the amount refunded may be used as evidence of tax planner fraud.
The filer is ultimately responsible for the information contained in his or her tax return, so pointing fingers at the tax attorney after the fact will not relieve you of your obligation to disclose accurate information to the IRS. Thus, it is up to you to properly screen for the right tax specialist, and to avoid being lured in by a tax planner promising above average tax savings.
If you are a target of an IRS criminal investigation, receive notice of a third party summons, or have other reason to suspect that you may be under investigation, it is important that you seek the advice of a criminal tax attorney immediately. Time is of the essence; please contact a San Diego tax fraud lawyer for assistance as soon as possible.