The tax law is terribly complex, and mistakes are common. But what can cause your tax audit to get vastly more serious? There is no single answer. Most criminal tax cases come out of plain old civil audits, and that fact alone is frightening. If an IRS auditor discovers something suspicious in a civil audit, theÂ auditor can notify the IRSâ€™s Criminal Investigation Division. Notably, the IRS is not obligated to tell you that this criminal referral is occurring. In fact, normally, the civil auditors will suspend the audit without explanation. You might be pleased, thinking that the audit is over, or at least mercifully stalled so that it might not ever resume.
Meanwhile, theÂ IRS can be quietly building a criminal case against you. Some of the pressure points are obvious. For example, one big mistake is omitting income. Whether you receive a Form 1099, W-2, K-1, or no reports at all, include all your income. Discrepancies can trigger audits, and if omissions of income are significant and do not look to be unintentional, watch out. Excess or aggressive deductions are less likely to be viewed as seriously, but some of this is a question of degree. This is especially true with items you try to write off that are clearly personal. In that sense, you mayÂ be better off if you can separate your tax life into business and personal. Many big, messy and expensive tax disputesÂ comeÂ down to trying toÂ morph personal into business to get a write-off.
False statements to auditors are a huge mistake. Conduct during the audit itself can be pivotal, and is one reason to hire professionals to handle it. Of course, some of what goes on at the IRS is computer matchingâ€“the endless correlation of taxpayer identification numbers and payments. Even small mismatches can be caught. Keeping good records is important, and you should keep themÂ for sixÂ years after you file.Â Keep copies of your tax returns themselves forever. Moreover, you may need basis records for decades. If you buy a house and improve it over a 10 year period, 20 years later when you sell it, you’ll need those receipts.