When an audit occurs parallel to civil and criminal investigations, it's referred to as a reverse eggshell audit. In these cases, a criminal tax investigation is disguised as a civil audit, and taxpayers may not be immediately aware that their audit is part of a criminal investigation. 

When Does a Reverse Eggshell Audit Occur? 

These audits often begin with a referral from a revenue agent to fraud referral specialists. These specialists' sole responsibility is to build a case before handing it over to a special agent in the criminal investigation (CI) division. In some circumstances, CI may also request that a civil auditor be assigned to an ongoing criminal investigation. 

Why a Reverse Eggshell Audit is Different 

Most audits don't begin with an IRS agent on notice that a taxpayer has potentially committed a tax crime. Audits, in fact, rarely end in any criminal charges for taxpayers. These matters are generally handled entirely through civil law. 

The twist for reverse eggshell audits is that while an IRS agent knows of the potential for criminal charges, the IRS doesn't inform the taxpayer or their representative, if any, of the investigation into potential criminal conduct.  

What makes these audits tricky for taxpayers is that the IRS generally doesn't disclose all of the information they have on the taxpayer, meaning taxpayers may reply differently than if they were fully informed. Opponents of this practice argue that these audits deprive taxpayers of their due process rights and their right not to self-incriminate. 

Warning Signs of a Reverse Eggshell Audit 

First, taxpayers should be aware that failure to report any income more than $10,000 in a tax year will result in an automatic referral to a technical fraud advisor. This advisor will decide whether the case should be referred to CI. 

Generally, audits that seem to focus on more than the tax liability, have multiple IRS agents attending meetings, or require excessive documentation are potential indicators of a reverse eggshell audit. Questions that focus on a taxpayer's intent can also be a sign of a criminal investigation. 

If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.