1. The First Review Separates a Tax Adjustment from a Fraud Allegation
A disputed return does not establish fraudulent intent. The initial task is to identify the agency, the taxpayer, and the exact entry being challenged, then determine whether the matter involves an ordinary assessment, a civil fraud penalty, or a criminal inquiry.
Identify the Notice and Its Legal Effect
An IRS examination letter may request receipts or an explanation for a deduction. It is not a criminal charge. Contact from IRS Criminal Investigation (IRS-CI), a grand jury subpoena, or a search warrant calls for different decisions about interviews and document production. The tax audits and adjustments process explains routine federal examinations; suspected intentional misreporting requires an additional review of legal exposure.
Match the Filing to the Correct Taxpayer
Obtain the filed return, schedules, notices, and any amended versions. Confirm the tax year, entity, disputed amount, and signature. A corporation's filing does not automatically make its owner personally guilty of a crime. For a joint federal return, the civil fraud penalty under 26 U.S.C. §6663 applies to a spouse only if fraud is established as to that spouse. These distinctions affect whose knowledge and conduct must be examined.
2. Source Records Reveal What the Taxpayer Knew at Filing
The central factual question is not simply whether a number was wrong. The records must explain where it came from, how it reached the return, and whether the taxpayer understood it was false when signing.
Reconcile Returns against Original Transactions
Compare income and deductions with invoices, bank deposits, general ledgers, payment records, and supporting contracts. A deposit may be business revenue, a loan, or a transfer between accounts; classification depends on its source and supporting documents. An attorney can identify unexplained gaps without treating every discrepancy as concealment. Preserve electronic records and earlier versions rather than replacing them with a reconstructed ledger.
Trace Advice, Approval, and Corrections
Email exchanges, preparer questionnaires, draft returns, and approval records may show whether the taxpayer disclosed an issue or withheld material information. Advice from an accountant can bear on good faith, but hiring a preparer is not an automatic defense to knowingly false statements. A correction made before filing can have a different significance from one made after investigators ask questions. The chronology matters more than a general assertion that someone else handled the taxes.
Apply Different Elements to Different Federal Charges
Under 26 U.S.C. §7201, prosecutors generally must prove tax due and owing, a willful violation of a known legal duty, and an affirmative attempt to evade assessment or payment. Section 7206(1) instead concerns willfully signing a return under penalty of perjury that the signer did not believe was true as to a material matter; it does not require proof of a tax deficiency. A separate wire fraud allegation has different elements. An electronic transfer alone does not establish wire fraud.
3. Civil Fraud Penalties Require Proof and a Timely Challenge
Civil assessments and criminal charges serve different purposes. An agency can dispute the amount of tax without proving a crime, but a fraud penalty demands proof of intentional evasion under the applicable statute.
Compare Federal and California Fraud Penalties
For federal returns, 26 U.S.C. §6663 generally imposes a penalty of 75% of the underpayment attributable to fraud. The IRS bears the burden of proving fraud by clear and convincing evidence. If any part is fraudulent, §6663(b) generally treats the remaining underpayment as fraudulent unless the taxpayer establishes otherwise. California Revenue and Taxation Code §19164 provides a comparable civil fraud penalty for taxes administered by the Franchise Tax Board (FTB). A disallowed deduction alone does not establish fraudulent intent.
Use the Deadline on the Actual Notice
IRS, FTB, California Department of Tax and Fee Administration (CDTFA), and city notices follow different deadlines. For typical notices, the review paths differ:
| Document | Usual Response Period | Review Path |
|---|---|---|
| IRS statutory Notice of Deficiency | 90 days from notice date | U.S. Tax Court petition |
| FTB Notice of Proposed Assessment | 60 days from notice date | FTB protest |
| FTB Notice of Action | 30 days from notice date | Office of Tax Appeals appeal |
| CDTFA Notice of Determination | Generally 30 days | Petition for redetermination |
| LA city business-tax assessment | Generally 45 days from service | Written assessment hearing request |
IRS statutory Notice of Deficiency
- Usual Response Period90 days from notice date
- Review PathU.S. Tax Court petition
FTB Notice of Proposed Assessment
- Usual Response Period60 days from notice date
- Review PathFTB protest
FTB Notice of Action
- Usual Response Period30 days from notice date
- Review PathOffice of Tax Appeals appeal
CDTFA Notice of Determination
- Usual Response PeriodGenerally 30 days
- Review PathPetition for redetermination
LA city business-tax assessment
- Usual Response PeriodGenerally 45 days from service
- Review PathWritten assessment hearing request
The IRS petition period may be 150 days for qualifying taxpayers outside the United States. Certain CDTFA notices have shorter periods. City review concerns applicable municipal business taxes, not federal income tax. Confirm the notice and service details before acting. The separate tax controversy process addresses broader federal administrative disputes.
4. Criminal Allegations Change the Defense Work and Forum
A suspected offense requires an elements-based review before the taxpayer responds to investigators. Federal and state authorities may examine related filings, but their statutes, charging decisions, and court procedures must be assessed separately.
Distinguish Federal and California Offenses
Federal tax evasion and false-return charges arise under different provisions of Title 26. California Revenue and Taxation Code §19705(a)(1) addresses willfully signing a materially false return under penalty of perjury. Section 19706 addresses specified willful failures or false filings made with intent to evade tax. A federal prosecution may be heard in the U.S. District Court for the Central District of California when venue is proper; a state prosecution may proceed in Los Angeles County Superior Court. Residence alone does not establish venue.
Review Disclosure Options before Submitting New Filings
The IRS Criminal Investigation Voluntary Disclosure Practice may be relevant to eligible taxpayers who disclose willful noncompliance before the IRS starts an examination or investigation or receives disqualifying information. A disclosure does not guarantee immunity. Eligibility depends on the procedures in effect when disclosure is made. For a non-willful error, an amended return may be more appropriate, but filing one does not automatically erase prior exposure. Preserve original records and assess privilege before supplying a narrative.
Define Representation by the Actual Dispute
A lawyer may review returns and notices, organize supporting documents, contest a proposed fraud penalty, prepare administrative submissions, or respond to a compulsory request. Court representation becomes a separate task if charges are filed. Where withheld employment taxes are at issue, payroll tax fraud defense requires its own examination of reporting duties, control over payments, and intent. A service agreement should identify which stages are included.
10 Nov, 2026
