Many taxpayers believe an IRS audit is just a civil matter. But in some cases, by the time the audit begins, damaging information is already in the hands of the government. That’s what makes a reverse eggshell audit far more dangerous than it appears on the surface.
What Is an Eggshell Audit, and What Makes It “Reverse?”
When a civil tax audit has underlying problems, such as an understated income or overstated deductions, it’s referred to as an eggshell audit.
A reverse eggshell audit is when IRS examiners already possess damaging information that you don’t know about. The audit appears to be civil, but the IRS is actually using it to probe for information that could lead to a criminal referral.
The Risks of a Reverse Eggshell Audit
Reverse eggshell audits are risky because you’re essentially operating with blind spots.
- If you deny or fail to mention something the IRS already knows, that denial itself can become part of the evidence of fraud.
- Providing information or documents without proper counsel can mean waiving rights or unintentionally allowing the government to use your statements in a criminal case.
- What starts as an audit can lead to involvement of criminal investigators once “badges of fraud” are uncovered.
What to Do If You Think You’re in a Reverse Eggshell Audit
If you believe you might be subject to a reverse eggshell audit, you don’t want to be caught unprepared:
- Don’t volunteer extra information beyond what is asked.
- Keep copies of all notices, communications, requests, interviews, and your responses.
- Assess whether to disclose errors or omissions proactively, especially if the government likely already has the information.
- Monitor for “badges of fraud”—indicators that the IRS might already suspect wrongdoing (omissions, large transactions, conflicting documents, etc.).
The most important step you can take when dealing with a reverse eggshell audit is contacting a tax attorney who’s well-versed in tax controversy.
At Gabaie & Associates, LLC, we can advise you on what your rights are, the privileges you may have, and how to respond in a way that minimizes risk. We help taxpayers in Baltimore, Columbia, Frederick, Rockville, and throughout Maryland deal with complex IRS problems, and we’re ready to assist you, too. Call (410) 358-1500 or fill out our consultation form to get started.
