White collar tax defense in Baltimore

Questions about your taxes from an IRS special agent or a Comptroller of Maryland investigator can end in criminal charges. At Whiteford, white collar tax defense in Baltimore starts at that first contact and runs through any talks with prosecutors and, if needed, a trial. Michael March, who co-chairs the firm's Tax Section, leads this work from the Baltimore office.

A tax matter turns criminal when the government believes you acted willfully, not by mistake. For a tax crime, willfulness means you knew about a legal duty and broke it on purpose. Most IRS inquiries are civil. They end with back taxes and interest, not criminal charges. Once IRS Criminal Investigation or the Comptroller suspects that kind of intent, you could face fines, restitution and prison.

The same facts can take on a new meaning once a file moves from an auditor's desk to a criminal investigator. So talk to a lawyer before you give a statement or hand over records.

How a Baltimore tax case moves through federal court

IRS Criminal Investigation's special agents gather the evidence in a federal tax case. The charges come from the U.S. Attorney's Office for the District of Maryland. Its main office is at 36 South Charles Street in Baltimore. In some tax cases, the Justice Department's criminal tax prosecutors work alongside it.

For a felony such as tax evasion, prosecutors generally need an indictment: a formal charge voted by a grand jury. A grand jury sitting in Baltimore has 16 to 23 members, drawn from voter rolls in Baltimore City and the 18 counties served from Baltimore. At least 12 must agree to indict. Before that vote, prosecutors may send a target letter, which means they see you as a likely defendant.

At trial, a case from Baltimore City or a nearby county usually goes to the Garmatz federal courthouse at 101 West Lombard Street. Cases from Montgomery, Prince George's and the three Southern Maryland counties go to Greenbelt instead. The U.S. Court of Appeals for the Fourth Circuit, in Richmond, hears appeals from both courthouses.

When the Comptroller of Maryland has a case too

The IRS may share return information with the Comptroller of Maryland to enforce Maryland tax law. Maryland income tax also starts from your federal adjusted gross income. So income left off a federal return is usually missing from the state return as well.

The state can also bring its own criminal case. When a Comptroller investigation reaches the criminal level, the Comptroller may refer it to the Maryland Attorney General's Office for possible prosecution. Civil rules apply too. A false state return filed to evade tax draws a penalty of up to 100 percent of the tax due. And the Comptroller can assess that year's income tax at any time.

Because Whiteford's tax lawyers are admitted in Maryland, one team can handle both cases and plan each statement with both in mind.

How an audit turns into a criminal case

A criminal tax case often starts as an ordinary audit. If the auditor finds numbers that do not add up, you and your lawyer may be able to explain or correct them, which can keep the matter civil. If the explanations do not hold up, the auditor can refer the file to IRS Criminal Investigation. An audit with that risk is known as an eggshell audit.

You may not be told that your file has moved. These signs suggest it may have:

• the auditor stops returning calls, or closes the audit without a report
• new document requests that seem unusual or keep repeating
• your spouse or a business associate says a special agent has contacted them
• a federal agent comes to your home or office in person

If you see any of these signs, keep every letter from the IRS and speak with a lawyer before you reply. There is no benefit to talking with a special agent alone: their job is to build a criminal case. Our page on how IRS special agents work explains what to do if one calls.

Charges we defend, and what they require

The federal government and the State of Maryland both investigate tax crimes. A conviction can hurt your finances, your business and your record for years. On the federal side, the charges we defend include:

• Tax evasion: willfully using fraud to avoid a tax you owe, which is different from lawful tax planning
• Tax fraud: lying to the IRS, or giving it false records, on a return or during an audit
• Failure to file a required return, or to pay an assessed tax, where the conduct goes beyond a good-faith dispute
• Conspiracy: two or more people agreeing to conceal income or file false returns, with at least one overt act, meaning a step taken to carry out the plan
• Misusing Paycheck Protection Program loans or pandemic-era tax credits

For evasion, the government must prove three things beyond a reasonable doubt. You owed the tax. You intended to evade it. And you took a willful, affirmative act to do so. Willfulness is usually the deciding question. An honest mistake, a miscalculation, or reasonable reliance on a tax professional cannot support a conviction.

A defense may also show that you did not underpay any tax, or that investigators gathered evidence improperly. In a conspiracy case, the government must also show that you knowingly joined the scheme. Our tax evasion defense page explains each element and the usual defenses. Our overview of federal tax charges and defenses covers the rest.

What a conviction can cost

Under 26 U.S.C. Section 7201, willful tax evasion is a felony. Each count can bring up to five years in prison, plus fines that can reach hundreds of thousands of dollars, along with restitution.

Civil penalties can come on top. Under 26 U.S.C. Section 6663, the civil fraud penalty is up to 75 percent of the underpayment. For negligence, an accuracy-related penalty of up to 20 percent can apply.

A related Notice of Deficiency gives you only 90 days to petition the U.S. Tax Court. If you miss that deadline, the IRS assesses the tax and can start to collect it. Our Baltimore office can handle that filing alongside the criminal case.