Tax Problem Attorney Blog

Articles Posted in Tax Fraud


While many people think that a criminal tax situation is something that cannot happen to them unless they had the intent to defraud the government, the truth is that criminal tax charges can be triggered by even a slight misstep. Mistakes on your taxes that are perceived as willful misstatements by an IRS agent, and accountant or tax preparer malpractice are but a couple of the common ways that well-meaning taxpayers find themselves facing serious criminal penalties including a federal prison sentence.

In short, the things an average person does not know about tax law or tax crimes can hurt them when faced with an IRS audit or criminal investigation. A tax lawyer can help a taxpayer by providing context for any actions or inactions that might be misinterpreted by the agent, and negotiate a more favorable outcome.

Indicators of Tax Fraud
IRM 25.1.2 provides guidance for IRS agents in investigative techniques to be used in identifying tax fraud. One of the methods utilized by agents is to look for and identify indicators, or “badges” of fraud. The IRS has developed lists of these badges of fraud regarding a taxpayer’s income, expenses and deductions, financial books and records kept, income allocations, the taxpayer’s conduct, and the methods of concealment utilized. In brief, the listed indicators of fraud for each category include:

  • Income – Signs of fraud include entire sources of income being omitted, unexplained increases in net worth, expenditures substantially exceed income, no explanation for the source of certain bank deposits, concealing accounts or assets, excessive dealing in cash, and cashing checks considered income at check cashing services.
  • Expenses or Deductions – Claiming dependency status for independent, deceased, or non-existent individuals, claiming false deductions, and claiming business deductions that are actually personal expenses are all considered badges of fraud.
  • Books & Records – Keeping multiple sets of books, irregularly numbering invoices, making false entries in the records, failing to keep records, providing false receipts, and engaging in nonstandard accounting practices can all lead to tax problems.
  • Allocations of Income – If income or profits are distributed to fictitious individuals, the IRS will consider this a sign of fraud.
  • Taxpayer Conduct – Rude or abusive behavior toward the agent, making false statements, incomplete disclosures, failure to follow the advice of an accountant, backdated documents, submission of a false W-4 and other similar acts are all considered badges of fraud.
  • Methods of Concealment – Placing assets in the names of others, transferring property in anticipation of tax bills, secret transactions, transactions outside the typical course of business, and reservation of rights or interests in purportedly transferred property are all considered to be as badges of fraud.

The foregoing is not a comprehensive list of all items considered badges of fraud by the IRS, but it does indicate the types of issues they are looking for.

What actions by the IRS agent may reveal a pending investigation?
If you are already in contact with an IRS agent, certain actions may tip you off that an investigation may soon follow. While it is good practice to contact a tax attorney immediately upon contact with an IRS agent, you should do so immediately if one of the following scenarios occurs:

  • You have been selected for a random audit and you know that the relevant tax years contain false statements or understatements of income.
  • An agent contacts you seeming particularly concerned about your goals for a transaction and what you hoped to accomplish rather than the form of the transaction itself.
  • You have been audited and in regular contact with an IRS agent. The agent then disappears for weeks at a time and will not return your calls.
  • You have been pursued by an IRS agent requesting that you satisfy a tax debt. You call the agent and he or she will not return your calls.
  • Your accountant, bank or financial institution informs you that your records have been subpoenaed.

While these scenarios do not cover every scenario that should raise an alarm, they do give a good sense of the types of events and scenarios that should trigger concern by a taxpayer. If you find yourself in one of the above situations or in similar circumstances, contact the Brager Tax Law Group immediately. Our tax professionals will work to protect you. Contact us by calling (800) TAX LITIGATOR or contact us online.

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US citizens, legal permanent residents, and other covered individuals have an obligation to file and pay taxes on all sources of worldwide income. If an individual does not satisfy his or her filing and payment obligations, he or she may be subject to penalties for a failure to pay taxes, the failure to file taxes, or both.

While the following article will address a number of the penalties which can apply for non-filed taxes or nonpayment of taxes, this article does not address when civil or criminal fraud penalties could apply. Furthermore, if the failure to file or pay includes the failure to report sources of foreign income or foreign accounts, additional problems are likely to arise. The experienced tax attorneys of the Brager Tax Law Group can discuss your concerns, identify legal problems and work to develop effective solutions to your tax compliance issues.

What are the consequences for failure to file taxes?

A failure to file has occurred if, by the tax return’s due date, you have neither submitted a return nor made a request to the IRS for an extension of time. An individual or business entity’s failure to file is addressed by an array of statutes, including:

  • IRC 6651: Addresses the failure to file a tax return or to pay required taxes. IRC 6651 (a)(1) addresses the failure to file, while IRC 6651 (a)(2) addresses the failure to pay.
  • IRC 6654: Addresses the failure to pay an estimated tax onbligation. This law typically requires four estimated yearly payments with each payment comprising roughly 25% of the estimated tax liability. The amount of penalty is calculated as per IRC 6621.
  • IRC 6698: Addresses the failure to file a return for a partnership. Partnership returns are made mandatory by IRC 6031.
  • IRC 6011(e)(2): Addresses the failure to provide a required electronic return for partnerships with greater than 100 partners. The penalty is assessed for each partner beyond the 100 partner threshold.
  • IRC 6699: Addresses the failure to file for an S Corporation.

The failure to file penalty is typically greater than a failure to pay penalty. In most circumstances, the failure to file penalty is assessed at 5% of the unpaid taxes. This penalty is assessed for each and every month or part of a month where the tax is late. That is, if your filing deadline was April 15 and you do not file until June 2 of the same year, a penalty would be assessed for three months: May and the partial months of June and April. However, this penalty is capped at 25% of the amount of unpaid taxes. In contrast, if your return is filed more than 60 days late, a minimum penalty of the lesser of 100% of the unpaid tax or $135 will be imposed.

What are the penalties for failure to pay my full tax obligation?

The failure to pay penalty is assessed at half of 1% of the unpaid tax liability for each month or part of a month where the unpaid tax is overdue. Thus, as discussed above, the failure to pay taxes for even a single day in a month can result in the imposition of the full penalty. The failure to pay penalties can apply to income, gifts, estates, and certain excise tax returns.

However, it is important to note that a strategic request for an extension can reduce or eliminate potential tax penalties. That is, if a taxpayer requests a filing extension prior to the original deadline and pays a minimum of 90% of the actual tax owed by the original due date, then no failure-to-pay penalty will be assessed provided that the balance is covered by the extended payment date.

What if both the failure to pay and the failure to file penalty apply?

When both a failure-to-pay and a failure-to-file penalty can be imposed in any month, the penalty will be computed by subtracting the failure to pay penalty from the failure to file penalty. However, as discussed above, if your return is filed more than 60 days late, the IRS can impose a minimum penalty of the lesser of $135 or 100% of the unpaid tax.

The penalties that can be imposed due to a failure to file or pay taxes in a timely manner can, generally, only be eliminated if a taxpayer can show reasonable cause or otherwise prove that the failure was not due to willful neglect. The Brager Tax Law Group can work with US taxpayers to develop a legal strategy to correct tax compliance issues. To schedule a confidential consultation with an experienced tax lawyer call 800-380-TAX LITIGATOR, or contact our law offices online.


Conversations between a CPA and his or her clients may or may not be shielded from disclosure to third parties. Whether the accountant-client privilege exists is a fact-specific inquiry where the fact that your disclosures may not have been confidential may not emerge until it is already too late. This is chiefly because federal law does not recognize a generalized privilege between accountants and their clients.

While a selection of states including Colorado, Missouri and Florida do recognize the privilege, the privilege will only apply in state courts or in federal courts that are applying state law. In federal courts applying federal law, only a limited statutory protection applies to accountant-client communications. In contrast, the attorney-client privilege is recognized by all 50 states and in the federal courts. Furthermore, additional confidentiality may be provided through the work-product doctrine.

What is the purpose of confidentially privileges?
The intent of the attorney-client privilege and the accountant-client privilege is to foster an environment that is conducive to the client being able to offer all relevant information without fear of subsequent disclosure. These privileges are created to encourage people to seek, respectively, legal or financial advice. Such rules can encourage individuals to seek advice and proactively resolve their problems rather than conceal issues until they become insurmountable. Without an expectation of confidentiality, it is foreseeable that individuals would forego professional advice or withhold essential information. However, before making a disclosure it is essential to understand that the accountant-client privilege can be extremely limited.

The accountant-client privilege is subject to many exceptions
When it exists, the accountant-client privilege prohibits the disclosure of confidential information that has been provided to an accountant by a client. The statutory basis for the limited federal protections, 26 U.S.C. § 7525(a)(1), reads, “With respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney.” In other words, in situations where the privilege is permitted to be asserted, the privilege would be equivalent to that provided by an attorney-client relationship.

Unfortunately, the broad sense of protection created by the previous provision is largely illusory. This is because the following section of the statute limits the application of the privilege to noncriminal tax matters before the IRS and noncriminal tax proceedings in the federal courts. 26 U.S.C § 7525(a)(2). Furthermore, any written communications relating to or regarding the promotion of the indirect or direct use of a tax shelter, as defined by 26 U.S.C § 6662 (d)(2)(C)(ii), are not protected by the privilege.

Furthermore, if a client was to pursue a malpractice action against his or her CPA, previously privileged communications may be admissible into evidence if they are relevant. Although similar problems can occur when suing an attorney for malpractice attorneys generally have higher duties of confidentiality than accountants. Considering that the taxpayer is ultimately responsible for the information he or she submits to the IRS, the possibility of malpractice can put an individual in a difficult quandary where they must choose between seeking accountability and disclosing their own tax problems.

Understanding the attorney-client privilege as applied to tax concerns
Many types of tax advice and legal guidance provided by a tax attorney may be protected by the attorney-client privilege, provided that the relevant requirements are met. This privilege is generally much more robust than the account-client privilege, although it cannot extend to the actual preparation of a tax return because such work is not generally considered to be legal advice.

However, a federal court recognized in US v. Deloitte, LLP that when at least some aspect of the material is prepared as part of an independent audit it can be protected by work-product if it is determined that the relevant portion of the material was prepared because of anticipated litigation. Furthermore, an individual who first retains an attorney and the attorney then engages with an accountant through a Kovel letter may be able to extend the confidentiality protections to cover the CPA as well. The use of an attorney merely as an intermediary would be insufficient to establish the privilege, but if the accountant is working under the direction of the attorney, the privilege would be likely to cover the accountant provided that the Kovel letter itself met legal requirements.

Put our legal experience resolving tax problems to work for you
The tax attorneys at the Brager Tax Law Group are dedicated to correcting taxes problems for our clients. To discuss your concerns confidentially, contact the Brager Tax Law Group online or call 800-380-TAX LITIGATOR to discuss your options.

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Tax scams have likely been around for as long as taxes have been collected. In light of the significant penalties, fines, prison sentences and other consequences that can be imposed for tax non-compliance issues, taxpayers have good reason to be apprehensive or nervous if they are contacted by someone claiming to represent the Internal Revenue Service (IRS). Thus, if you are contacted by an IRS agent, it is always prudent to verify their identity, the fact that they are employed by IRS, and request a callback number at the IRS where the agent can be reached. Furthermore, if you are contacted by an individual claiming to represent the IRS or the US government, an experienced tax professional can often more readily recognize the signs of a tax scam.

At the Brager Tax Law Group we recognize that well-meaning taxpayers can face serious consequences if they are taken in by a tax scam. This post will identify and discuss a number of the more common tax scams and their consequences as identified by the IRS.

Tax preparer fraud can result in new tax problems

When selecting a tax professional, it is important that you work with an individual who is established, reputable and honest. While the IRS has taken measures to close down registered tax return preparers, others still exist. In many cases the hook utilized by a tax preparer is that they promise large, sometimes outlandish, refunds. Once ensnared, the dishonest preparer may unlawfully retain a portion of the tax refund without the individual’s knowledge or consent, misdirect funds that were intended to cover a tax obligation, or request excessive fees after obtaining your financial information.

The IRS now requires all for-profit tax preparers to obtain a preparer tax identification number (PTIN) which can be used as one aspect of your inquiry into the legitimacy of a tax preparer. However, you are ultimately responsible for the information contained within your tax returns. If you believe you have fallen victim to a tax scam, hiring an attorney to resolve your emerging problems and to protect you from allegations that may be levied by the IRS can result in a more favorable resolution.

An unanticipated phone call from someone claiming to represent the IRS may indicate fraud

If you receive a call from someone demanding a tax payment or requesting an urgent return call without first receiving written notice from the IRS, the caller is likely perpetrating a scam. These schemes can be sophisticated. They may spoof a caller ID to appear as if they are calling from the IRS. They may also know at least some information about you and your finances. Aside from the first indication of a lack of written notice, other tell-tale signs that the caller is actually a tax scammer include:

  • Threats to call the police to have you arrested for a failure to pay.
  • Requesting you to provide a credit card or debit card for payment over the phone.
  • A lack of respect for your rights as a taxpayer, including a lack of regard for the appeal process to which you are entitled.
  • Requiring you to pay in a certain form, often by prepaid debit card.

Understanding how a tax scammer operates can save you from the headaches, hassles and financial losses that can often accompany falling victim to a tax scam.

The IRS Announced FATCA Scammers are now Targeting Financial Institutions

While scammers have long leveraged the fears and anxieties felt by individual taxpayers, the aggressive moves by the IRS and the US government to detect American taxpayers with undisclosed overseas accounts has created similar compliance fears within the financial industry. According to a press release published by the IRS, scammers have recognized the new climate created by Foreign Account Tax Compliance Act (FATCA) and are attempting to exploit the fears of foreign and domestic banks to obtain confidential personal information.

For holders of foreign accounts and investments, this news provides yet another reason that an experienced tax lawyer can be extremely valuable. Even if you are unaffected by the scam, the Bank Secrecy Act creates an obligation to disclose foreign accounts where the aggregate value has exceeded $10,000 at any time during that tax year. Failure to comply can create huge liabilities.

Put our experience resolving tax problems to work for you

The tax attorneys of the Brager Tax Law Group work strategically and meticulously to help correct tax problems created by tax scams or noncompliance. To discuss your concerns confidentially, contact the Brager Tax Law Group online or call 800-380-TAX LITIGATOR to discuss your options.


Las Vegas criminal defense attorney Paul Wommer, was convicted of tax evasion based on his failure to pay approximately $13,000 of interest and penalties imposed on the principal of his delinquent taxes. In a somewhat novel appeal to the 9th Circuit he argued he hadn’t committed “tax evasion” under Internal Revenue Code § 7201 because he had paid all of his tax debt, just not the penalties and interest. The court disagreed and instead took a more broad approach to the definition of taxes. Citing Internal Revenue Code § 6665(a)(2), which states that a tax shall also refer to the “additions to the tax, additional amounts, and penalties provided by this chapter,” the court found that the penalties would be considered taxes for tax evasion purposes. The Court also pointed to IRC Sections 6601(e) and 6671(a). IRC Section 6601(e) provides:

Interest prescribed under this section on any tax shall be paid notice and demand, and shall be assessed, collected, and paid in the same manner as taxes. Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.

IRC Section 6671(a) provides:

Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.

Thus, as the 9th Circuit saw it, tax evasion includes evading the payment of interest and tax penalties. Still its striking that the IRS would choose to pursue a criminal tax case based upon such a small amount of unpaid interest and penalties. Clients often do not view their conduct as being criminal, or they believe that because they are “small fish,” that the IRS will not bring a criminal tax case. While that may be true a lot of the time as Mr. Wommer found out with the wrong set of facts even small tax debts can morph into big tax problems.

Wommer’s case illustrates an increasing use of the evasion of payment prong of the criminal tax evasion statute. Internal Revenue Code Section 7201 makes it a crime not only to evade tax (as in filing a fraudulent tax return), but also willfully evading the payment of tax. Thus someone who willfully fails to pay their tax debt can be convicted of tax fraud even though their original tax return was perfectly proper. Of course not all non-payment of tax debt is considered tax evasion. However, Wommer stepped over the line when he started depositing money into the account of another individual in order to prevent the IRS from issuing a tax levy.

Call our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.


Congressman Michael Grimm faces a 20-count indictment in federal court for allegedly committing tax fraud, and evading taxes by concealing more than $1million in sales and understating wages. He is charged with five counts of mail fraud, five counts of wire fraud, three counts of aiding and assisting in the preparation of false federal tax returns, one count of conspiring to defraud the United States, one count of impeding the IRS, one count of health care fraud, one count of engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, two counts of perjury, and one count of obstructing an official proceeding.

If convicted, Grimm faces up to 20 years for each mail and wire fraud charge and for the obstruction charge, up to 10 years of imprisonment for the health care fraud charge, and up to five years of imprisonment for the charge of conspiring to defraud the U.S. and for each perjury charge. Furthermore, he faces a term of imprisonment of up to three years for each charge of aiding and assisting in the preparation of false and fraudulent tax returns and for the charge of obstructing and impeding the due administration of the tax laws. Finally, he faces up to six months of imprisonment for engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, as well as forfeiture, restitution, and fines.

It is ironic that Congressman Grimm would be involved in such actions given that as a former FBI agent he was investigating fraud. The former Marine, FBI agent, accountant, attorney, and small business owner might now be able to add tax evasion and fraud to his otherwise impressive and distinguished resume.

According to the indictment, Grimm was one of the owners and managing member of “Healthalicious,” a fast food restaurant located in Manhattan. From 2007 through 2010, Grimm oversaw the day-to-day operations of the restaurant and also managed the restaurant’s payroll. Allegedly, he fraudulently under-reported wages he paid his workers and under-reported the true amount of money the restaurant earned to both federal and New York State tax and insurance authorities. Because many of his workers did not have legal status to work in the United States, he paid a large portion of payroll in cash, which in turn, lowered the company’s payroll tax expense. Moreover, a lower payroll reported to the New York State Insurance Fund (NYSIF) allowed him to receive lower monthly worker’s compensation premiums. He also lowered his income tax liability to the federal and state governments by under-reporting the amount of gross receipts the company earned.

To make matters worse, when confronted in a deposition about his duties as owner and manager of the company, he attempted to conceal his illegal actions. He allegedly lied about several material matters in connection with the lawsuit such as: (1) whether he paid his employees in cash; (2) whether he had interacted with the payroll processing companies; (3) whether he corresponded regarding Healthalicious business through e-mail; and (4) whether he still had access to such an email account.

Contact our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.