Music: The IRS primarily identifies most of its tax evasion cases through two types of audits: income tax audits and payroll tax audits. - The revenue agent conducting the audit examines whether there is significant understated income or significantly overstated deductions, specifically focusing on any instances of cash payments to employees. - If the IRS uncovers evidence of tax evasion, they will request to interview you and pose a series of "why" questions, attempting to understand the motivations behind your actions. However, it is generally advisable to avoid answering these questions, as they may indicate specific intent to commit fraud. - The IRS revenue agent strives to identify "badges of fraud," which are indicators of fraudulent activities. A comprehensive list of these badges of fraud can be found on my website, but some common examples include underreporting income, overstating deductions, paying employees in cash, falsifying entries in books, maintaining two sets of books, and using foreign bank accounts to conceal assets or income. - The most significant badge of fraud is making false statements or providing false information. If a revenue agent can prove inconsistencies between your statements and your books and records, it may be considered a false statement. - It is important to note that any conversations between us are protected by attorney-client privilege, and any documents shared between us are safeguarded under attorney work product privileges.