If you know of something in your tax records that would, rightly or wrongly, get the attention of the IRS, you should start thinking about your defense tactics. Ask any Orange County tax fraud defense attorney, and they'll tell you it's better to make a plan and take some action before an investigation by the IRS even begins.
If you failed to file tax returns or failed to include all taxable income in returns filed in past years, you may want to come forward with this information while no investigation is taking place, and thus avoid the investigation completely.
If you are facing an investigation, you really want to be represented by an experienced Orange County tax attorney, rather than an accountant. I'm not saying that because I am a tax attorney. I'm saying it because there is no accountant-client privilege, and there is an attorney-client privilege.
A few more things to think about:
Before any fraud investigation goes to court, the IRS conducts its own investigation, using its own procedures. It is going to be important to pay attention to those IRS procedures and rules - just as important as paying attention to the law and the court's rules in a court case.
An example: the IRS is more likely to terminate an investigation if successful prosecution looks unlikely to them. If proof of fraud exists for several years, the IRS can use this to help prove willfulness on the part of the taxpayer. If they can be convinced that the suspicious activity is limited to one year, criminal prosecution becomes more difficult, and they are more likely to forego prosecution.
Cooperation vs. Evidence: An important thing to remember if you are under investigation for tax fraud, is that if the IRS has enough evidence to prosecute you, they will recommend prosecution whether or not you have been cooperative. If they can't gather the necessary evidence, they will not recommend prosecution, even if you were not cooperative. Cooperation may be the way to go, but not if you are doing it to "win points" that will save you from prosecution. The IRS doesn't work that way.
- Source: Saltzman and Book, IRS Practice and Procedure "Defense Techniques in Fraud Investigations" 2009 ed.