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What are some warning signs an audit may be headed toward criminal referral?
PostedNovember 17, 2025
UpdatedNovember 17, 2025
ByKlemens Raab
Repeated questions about a transaction, excessive copying of documents, third-party interviews, intent-related questions, indirect income methods, or the auditor suddenly going silent.
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IRS Audits
- Why do clients get so nervous about an IRS audit?
- What are the main reasons a tax return might be selected for audit?
- What are the three main types of IRS audits?
- How should you prepare a client for an audit?
- How should you handle the relationship with the auditor?
- Why is preparation so important in an audit?
- What ethical rules should tax professionals keep in mind during an audit?
- What is a "conflict of interest" in an audit setting?
- Can the IRS request any document it wants?
- Can the IRS examine older returns beyond the three year ASED?
- What mistakes should you avoid during an audit?
- What is the first notice a taxpayer receives when the IRS starts an exam?
- What is an Information Document Request (IDR)?
- Should you only give the IRS exactly what they ask for in the IDR?
- What happens after the IRS reviews all the documents?
- How should you respond if you disagree with the IRS's proposed changes?
- What is a Notice of Deficiency, and when is it issued?
- What happens after filing a petition in U.S. Tax Court?
- What if the taxpayer misses the 90-day deadline to file in Tax Court?
- When should you use a doubt as to liability offer instead of audit reconsideration?
- How long can audit reconsideration take, and does it stop collection?
- What is the best overall strategy for preparing for an IRS exam?
- What is an IDR and why is it important?
- What is the fastest way to shut down an audit?
- When should you hold back documents from the IRS?
- Why is a retainer important before starting an exam?
- How should you fill out a Power of Attorney (Form 2848) for an audit?
- Why should you review multiple years of returns before an audit?
- What is the number one thing clients must do after hiring you for an audit?
- How can social media hurt an audit case?
- Why should you visit the client's office or home office before the audit?
- What is the issue with the QuickBooks file request?
- Should the taxpayer be interviewed by the IRS?
- Why pull a Wage and Income Transcript before the audit?
- Why is quick client cooperation critical during the audit?
- What is the key to getting a good result in an audit?
- What is the first step if a client's records are incomplete or disorganized?
- What should you do if a client claims they "have nothing" for records?
- Is paying for business expenses in cash a problem?
- What is the Cohan Rule?
- What types of expenses can't be estimated under the Cohan Rule?
- How does the Cohan Rule work in practice?
- Why is it important to separate business and personal purchases?
- What are some IRS methods for reconstructing income?
- What is the specific item method?
- How can a forensic accountant help in these situations?
- What is Form 433-A and how can it help reconstruct income?
- How was Form 433-A used in the example from the transcript?
- What if the taxpayer had a "cash hoard"?
- What is the main takeaway when client records are lacking?
- What is a correspondence audit?
- How common are correspondence audits?
- Why does the IRS use correspondence audits so often?
- What is the main drawback for taxpayers in correspondence audits?
- How much time does the IRS usually give to respond in a correspondence audit?
- What is the best first step when you receive a correspondence audit letter?
- How should you organize your response to the IRS?
- What is a "combo letter" (Letter 525)?
- What is a "pre-refund" correspondence audit?
- What common problem occurs when submitting documents in a correspondence audit?
- Can you request that a correspondence audit be transferred to a local IRS office?
- What usually happens at the end of a correspondence audit?
- Why do many taxpayers lose correspondence audit cases?
- If you lose a correspondence audit, what are your options to reopen the case?
- What is the key to improving your chances in a correspondence audit?
- What is IRS Fast Track Mediation?
- When can Fast Track Mediation be used?
- Who participates in Fast Track Mediation?
- How long does a Fast Track Mediation session last?
- Can the mediator impose a decision?
- When is Fast Track Mediation a good idea?
- What is an example of a case that worked well for Fast Track Mediation?
- When is Fast Track Mediation NOT worth pursuing?
- How can it be used in an Offer in Compromise case?
- What are the benefits of Fast Track Mediation?
- Does using Fast Track Mediation give up appeal rights?
- What form is used to request Fast Track Mediation?
- How does the process end if both sides agree?
- How quickly can it resolve a large dispute?
- What is the key to success in Fast Track Mediation?
- What is a cash-intensive business?
- Why are cash-intensive businesses audited differently?
- What are the first records an auditor will compare?
- What should you check before an audit starts?
- What is the "tax gap"?
- What are common ways owners skim cash from a business?
- What is a "zapper" program?
- How does the IRS identify unreported income in cash businesses?
- What are examples of cash-intensive businesses the IRS still targets?
- What indirect methods might the IRS use in these audits?
- What is a cash T (minimum income) analysis?
- Can the IRS summon records from third parties?
- How does the IRS use industry standards in audits?
- How should you handle an auditor who claims a business is cash-intensive when it isn't?
- What is the most important preparation tip for these audits?
- What major change happened in 2018 regarding partnership audits?
- How were partnerships audited before 2018 under TEFRA?
- Under the new BBA rules, who is responsible for paying audit underpayments?
- Why might a partnership want to opt out of the centralized audit regime?
- How can a partnership opt out of the centralized audit regime?
- Who is considered an "eligible partner" for opting out?
- What is the role of the Partnership Representative under the BBA?
- Why can the Partnership Representative role be frustrating for some partners?
- In the new regime, when is the tax underpayment assessed?
- If a partnership expects partner changes, what should they consider when filing their return?
- What is a "hobby loss" under IRS rules?
- When does the IRS conduct a hobby loss exam?
- Do hobby loss rules apply to all business types?
- Why is taxpayer intent important in a hobby loss exam?
- What is the "3 out of 5 years" rule?
- Can you still win a hobby loss case if you don't meet the profit-year presumption?
- What are the 9 factors the IRS looks at when determining of the activity is for profit or a hobby?
- What is an example of a non-business-like manner?
- What is the second factor the IRS looks at?
- How does time and effort play into the IRS's decision?
- Why does the expectation of asset appreciation matter?
- Does a taxpayer's prior success or failure in similar activities matter?
- How does a history of income or losses affect the case?
- Does the amount of occasional profit matter?
- How does financial status affect the determination?
- Does personal enjoyment of the activity mean It is a hobby?
- How many of the nine factors must be in your favor to win?
- How should a preparer handle a client with ongoing losses?
- Is a preparer required to audit their client under Circular 230?
- Why should preparers document their inquiries?
- What kind of evidence can help prove a profit motive?
- Can advertising be minimal and still count?
- What should you do before filing a return for a loss-making activity?
- What is the ultimate goal in a hobby loss exam?
- What is an "eggshell audit"?
- Why is it called an "eggshell" audit?
- What is the primary goal in an eggshell audit?
- Does the accountant-client privilege protect in criminal cases?
- What should a CPA or EA do if they suspect fraud?
- What is a Kovel accountant?
- Why shouldn't the original tax preparer be the Kovel accountant?
- What is a "dummy accountant" in this context?
- What is an "affirmative act" of fraud?
- What are some warning signs an audit may be headed toward criminal referral?
- Why is excessive copying a red flag?
- Why might an agent go silent during an audit?
- What is the U.S. v. Tweel case about?
- How has the IRS adapted to avoid another Tweel situation?
- What happens after a criminal tax conviction?
- What two code sections can penalize practitioners for wrongdoing in audits?
- Why is destroying client records a bad idea?
- How should practitioners protect themselves in an eggshell audit?
- What happens if you disagree with the results of an IRS audit?
- What is a Notice of Deficiency?
- Why might someone wait for the 90-day Notice of Deficiency before appealing?
- How fast can you get an Appeals hearing through Tax Court?
- What is IRS Appeals?
- How is an Appeals conference different from court?
- What is key to success in Appeals?
- Can you raise penalty abatement in Appeals?
- Why might you appeal issues you know you'll lose?
- When can you make a Qualified Offer?
- What happens if the IRS accepts your Qualified Offer?
- What is the main benefit of a Qualified Offer?
- What is the filing fee for U.S. Tax Court?
- How do you file in Tax Court?
- Who responds to your Tax Court petition?
- What happens if the case hasn't been to Appeals before Tax Court?
- How often do Tax Court cases actually go to trial?
- What is a stipulated decision?
- Why is settling often better than going to trial?
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