Kostelanetz partner Megan L. Brackney wrote an article for Bloomberg Tax titled “Learn to Self-Correct Fraud Before the IRS Knocks on Your Door.”
In the article, Megan warns that the IRS’s revival of its Office of Fraud Enforcement (OFE) could ensnare more taxpayers who may have committed tax fraud. Megan explains what tax fraud is and how taxpayers can self-correct before the IRS targets them.
As Megan writes, “Taxpayers who have committed fraud and want to reduce risk should first stop the fraudulent conduct. This might seem like a no-brainer, but many taxpayers are afraid that if they start filing accurate returns, it will tip off the IRS that previous returns were false.”
She notes, for example, that if a taxpayer fails to report a foreign bank account, they may fear that reporting it on their next tax filing may alert the IRS to their fraud. She acknowledges that including previously unreported foreign accounts may draw the IRS’s scrutiny but argues, “It’s much better for a taxpayer to argue that as soon as they realized their mistake, they started filing accurately rather than continuing to commit tax crimes, year after year.”
Megan provides an overview of the various indicators of tax fraud. Civil tax fraud is defined as "an intentional wrongdoing designed to evade tax believed to be owing," while criminal tax fraud has an element of willfulness: an intentional violation of a known legal duty.
Common indicators of tax fraud that could invite IRS investigation and penalties include inadequate recordkeeping, backdated or falsified records, and concealing income and assets through complex structuring agreements or offshoring. Transacting solely in cash, especially in business activities where this is not the norm, also tends to alert the IRS.
The IRS Criminal Investigation Unit's 2025 Annual Report divulged that the agency conducted 1,380 investigations into tax crimes. In over half of these cases, prosecution was recommended, and 589 defendants were sentenced. While this represents a tiny portion of the nearly 163 million individual tax returns filed annually, a majority of sentenced individuals must serve prison time in addition to owing onerous civil and/or criminal tax penalties.
Megan recommends that taxpayers who have engaged in tax fraud may benefit from voluntary disclosure programs if they are not already under investigation.
You can learn more about civil and criminal tax enforcement by reading the complete article here.
About Megan
Megan is a tax controversy attorney with a distinguished track record of delivering exceptional results for clients facing complicated and difficult tax issues. Megan is the Chair of the American Bar Association Section of Taxation. She is also a frequent speaker and contributor to local and national conferences on taxation, ethics in tax practice, IRS penalties, and civil tax controversy.
