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Before you respond to a letter from the IRS …

The Internal Revenue Service has issued a list of helpful tips for taxpayers who receive letters in the mail. Their “don’t panic” reassurances are hardly reassuring. Some of the advice is conflicting.

And one piece of advice is conspicuously missing from “Seven Things To Do When An IRS Letter Arrives.” The list does not suggest that you talk to an attorney. That could be a huge mistake if it turns out the IRS is probing you or your business associates for possible tax fraud.

IRS fraud investigations often start with a letter

To prepare for the upcoming tax filing season, the IRS offered a list of suggestions in the event that taxpayers get a letter in the mail. “Don’t panic” is sound advice. But that doesn’t mean “Don’t worry.”

What the letter says is important. What is the general subject? What is the tone? Is it asking for additional information or an explanation? While you should be honest in any response, don’t volunteer additional information or over-explain. As the saying goes, anything you say can and will be used against you. You should consult your tax professional if not a lawyer.

What the letter doesn’t say can also be important. It may seem minor or mundane, when in fact IRS agents are actively digging through your tax and financial records and building a case against you. The phrase “preliminary investigation” is a red flag that you should contact an attorney. But in many cases, the innocuous-sounding letter is just the tip of the iceberg of an investigation occurring without your knowledge.

Once the IRS opens an official criminal investigation for suspected tax evasion or tax fraud, agents may interview third parties, subpoena bank records, obtain search warrants or put the individual or business under surveillance. Eventually, the special agent assigned to the case will (a) decide that there is smoke but no fire and close the investigation, or (b) recommend that the case be prosecuted. At that point, the investigation is referred to the Department of Justice Tax Division.

The Eighth Thing You Should Do

The IRS list of Seven Things seems to contradict itself. On the one hand, it says to “respond timely” to an IRS letter. But it also advises “only reply if necessary” and “don’t call” the IRS to make an appointment. It can be confusing to know what to do. You don’t want to invite an audit or appear that you are stalling or impeding an investigation.

Correspondence from the IRS may be straightforward and no big deal. Or it could indicate that your personal income tax returns are under investigation, or that the IRS is looking into corporate income tax or employee withholding of a business or professional practice. The safe course of action is to discuss your letter with an attorney who handles tax fraud defense and related criminal charges. If nothing else, the consultation may provide peace of mind that you have no reason to panic.

Source:  How Criminal Investigations Are Initiated (



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