Tax Problem Attorney Blog

Articles Posted in Tax Litigation and Tax Controversy


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.


If you were to ask people about the things that they should do every single year, they are likely to mention visiting the doctor for a physical, taking their car in for preventative maintenance, and maybe even a tradition that the person spearheads every year. It is unlikely, however, the individual will mention their yearly duty to file and pay taxes. While taxes are due each and every year, they are typically something that we prefer not to dwell on, unless forced to. In fact, many people will not even consider taxes until days before the due date when the media is saturated with messages about tax filing. As tax attorneys we work to provide strategies that mitigate the risk or consequences of civil or criminal tax exposure. The simplest one is to file your tax return on time!

Nearly all citizens and green card holders have an obligation to file taxes
Nearly all US citizens or legal permanent residents, have an obligation to file taxes due to their level of income or for other reasons. For instance for the 2014 tax year, an individual under age 65 who is filing as single would have an obligation to file taxes if he or she makes $10,150 or more. The same would apply to a married couple filing jointly if they earn more than $20,300 a year. In some cases even smaller amounts of income can require the filing of a tax return. In short, the income thresholds to trigger a tax reporting obligation are not high and apply to almost all US citizens and green card holders.

Failure to file can mean open-ended liability
The failure to file taxes extends the statute of limitations in perpetuity. In most tax situations not involving willful conduct if a tax return was filed, the IRS has 3 years to assess any additional the tax and another ten years to take any enforcement action. However, if you fail to file taxes, this time period is open-ended. While it is unlikely that the IRS would pursue very remote tax years, such a strategy is unnecessarily risky and is never advisable. Furthermore, failing to file taxes when a reporting obligation exists can result in harsh tax penalties.

The penalties for a failure to file are more severe than a failure to pay
While there are penalties that can be imposed for both the failure to file taxes and for the failure to pay taxes, the penalties for a failure to file are typically worse. A failure to file penalty can be punished by a 5% penalty on the unpaid amounts for each month it was due and owing, up to a maximum of 25%. Because the IRS counts a partial month – even a single day – the same as a month where the tax was owed the entire time, the total penalty for failure to file often exceeds the amount expected by the taxpayer. For instance, if a tax return was to be filed by April 15th, but the return is not filed until June 2nd then the failure to file penalty would apply to 3 months – the entire month of May and the partial months of April and June. If the return is filed more than 60 days late, a minimum penalty of 100% of the unpaid tax or $135 can apply.

Filing taxes can prevent the problems caused by tax scams
Electronic filing of taxes is extremely convenient as it allows taxpayers to receive a more timely notification that their return has been accepted by the IRS. However, there is a dark side to the electronic filing system. Unscrupulous individuals who steal your Social Security number and other personally identifying information can file taxes in your name. This filing will typically understate earnings or otherwise fraudulently maximize the refund issued. The scammer then steals the overstated refund. However, filing your taxes as soon as possible can prevent this scam and the serious consequences that can follow.

Filing a return is the only way to claim a refund
Even if you do not make enough to trigger the tax filing requirement, filing taxes can still be essential as it is the only way to claim any tax refund that you may be owed. If you fail to file taxes, you may be handing over your hard-earned money to the government unnecessarily. Unfortunately, many Americans are not diligent about filing to receive their tax refund. In March 2014 the IRS announced that there was still three-quarters of a billion dollars in unclaimed tax refunds available. For most people, the refunds from the 2010 tax year is no longer available because the law generally doesn’t allow for refunds on tax returns filed more than three years late.
However, refunds from the 2011 and later tax years are still available. The experienced tax professionals of the Brager Tax Law Group can discuss any unfiled tax returns, and develop a strategy for moving forward. To schedule a tax consultation call 800-380-TAX LITIGATOR.

form 1040

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.