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What is an eggshell audit?

Paying taxes may not be enjoyable or glamorous. However, it is something that individuals in New York and elsewhere must do. While filing tax returns seems like a routine process, mistakes can be made. These mistakes can look like intentional actions to evade paying taxes or to pay less than what one might owe. When the IRS is under the impression that a taxpayer is not in compliance with a tax law, an audit could ensue. This could evolve into a tax controversy.

What is an eggshell audit? While many are aware of an audit and what this process generally entails, most are unaware of what an eggshell audit is. This audit occurs when an auditor is unaware the there is potential evidence to show civil tax fraud or a criminal tax violation but the taxpayer presumably filed a fraudulent return a prior year.

When is a tax return considered fraudulent? This occurs in various situations such as when there are additional taxes owed, paying taxes was intentionally evaded or false statements or documents were intentionally and willfully submitted in connection with a tax return. The term eggshell audit corresponds to the care one must take during such an audit. A taxpayer is walking on eggshells so as to prevent any auditor suspicions of illegal behavior or submissions.

Eggshell audits do have associated risks. There could be a tax deficiency assessment, resulting in the taxpayer owing not only the amount they failed to pay but also the penalties and interest on that amount. In some cases, this could result in the auditor referring the case to the criminal investigation division of the IRS. Because of this, it is important to take these audits seriously, learning from the process and obtaining legal guidance on how to proceed.

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White Plains Office
81 Main Street
Suite 307
White Plains, New York 10601

Phone: 914-686-7171
Fax: 914-686-0168
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East Hampton Office
17 Beverly Road
Post Office Box 2888
East Hampton, New York 11937

Phone: 631-329-7171
Fax: 631-604-6140
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Chappaqua Office
726 King Street
Post Office Box 488
Chappaqua, New York 10514

Phone: 914-238-7171
Fax: 914-238-4353
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