The Difference Between an Eggshell Audit, Criminal Investigation, and Criminal Prosecution


Most people dread IRS audits even when they are not guilty of a tax offense. After all, the IRS would rarely audit you if there is no suspicion of foul play when filing taxes. For those being audited by the IRS, it is prudent to get a IRS tax audit attorney or a qualified CPA. Before this, however, it is also crucial for you to understand the different types of audits and the reasons behind them. You may or may not have come across those three statements (eggshell audit, criminal investigation, and criminal prosecution) as a taxpayer. Either way the purpose of this article is enlighten you further on their differences as well as their correlation to each other.

So, what is an Eggshell Audit?

An eggshell audit is a civil examination conducted by the IRS in situations where the taxpayer’s returns contain information that show sufficient indications of fraud. These issues include; an understatement on the record information pertaining to a taxpayer’s income, or an overstatement of the taxpayer’s credits or deductions which he or she was otherwise not entitled to. Both of these situations, though unique to each other, all conclude to a tax liability recorded by the taxpayer that is less than what is actually owed to the IRS. This would be against the fundamental requirement by the IRS to file accurate and correct returns.

The function of an eggshell audit is to determine whether there are any such issues which may be deduced to be either negligence or a criminal intent to evade taxes. If the eggshell auditors of the IRS therefore determine the former, then the tax payer will be required to incur a 20% negligence penalty. If the latter is, however, determined the eggshell examination will be considered to have criminal issues which will therefore lead to the following part of this article. Also, representation during an eggshell audit is restricted to tax controversy attorneys and CPAs within the Kovel agreement still with the aid of controversy.

Criminal Investigation

A criminal investigation is a process that entails the collection and gathering of evidence pertaining to a particular crime. In the event that an eggshell audit determines that the taxpayer willfully recorded false records of their tax liability, the issue becomes a criminal tax case. A criminal investigation is then launched to determine the possibility of a crime.  A criminal investigator assigned to your case will seek clues and evidence to prove whether the taxpayer intentionally recorded false tax liabilities. If the criminal investigator finds criminal intent with the aid of substantial evidence, the arrest of the perpetrator ensues followed by court proceedings.

Criminal Prosecution

If the criminal investigator establishes criminal intent on a taxpayer’s false tax liability records, the accused taxpayer will be arrested and taken to trial. In this event, a criminal prosecution comes into play. The purpose of a criminal prosecution is to establish if the accused is guilty or not. How does this pan out eventually? The accused will be set free if found to be innocent or might face the relevant consequences of their crime if found guilty. In this case, guilty tax violators may get a 3 to 5 year jail sentence or a 75% fraud penalty.

Contact an Attorney

If you are facing an IRS audit you should not face it alone.  Hire a competent IRS audit attorney or, if facing a criminal investigation, a criminal tax lawyer to stand in your corner. Contact Ayar Law at 248.262.3400 for free no-obligation tax advice

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.