Unreported income and unpaid payroll taxes can trigger an audit, penalties, interest and, in serious cases, a criminal investigation. If you know a tax return is incomplete or inaccurate, obtain legal advice and and address it before the IRS begins an audit or criminal investigation.

What the IRS Tax Enforcement Surge Means

The IRS tax enforcement surge announced by the Department of Justice on October 14, 2026, involved 76 defendants and more than $490 million in alleged or proven tax fraud. Thirty-five U.S. Attorneys’ Offices participated. New Jersey cases were included, including a prosecution involving alleged employment-tax violations and approximately $4.9 million in unpaid taxes.

The announcement does not mean every tax mistake will become a criminal case. Criminal investigations generally involve evidence of intentional conduct, such as hiding income, submitting false documents, using sham trusts or deliberately failing to turn over payroll taxes. Newly charged cases remain allegations, and each defendant is presumed innocent unless proven guilty.

A problem does not have to be criminal to become expensive. An audit can produce additional tax, penalties and interest that continues to accrue until the balance is paid. The IRS states that the accuracy-related penalty is generally 20% of the portion of an underpayment attributable to negligence, disregard of the rules or a substantial understatement.

Warning Signs That Require Attention

• Unfiled personal, business or payroll-tax returns
• Payroll taxes that were withheld but not deposited
• Cash receipts that were not fully reported
• Refunds based on unfamiliar tax credits
• Business deductions that cannot be documented
• Trust or tax-elimination strategies promoted as too good to be true
• IRS or New Jersey tax notices that have gone unanswered

Waiting usually reduces the available options. It can also turn an accounting problem into evidence that the taxpayer deliberately avoided compliance.

An Example of How the Balance Can Grow

Pete is a pseudonym used to protect confidentiality. Over four years, his business failed to report approximately $100,000 a year in cash receipts. What may have seemed like a series of smaller omissions became roughly $400,000 in unreported gross receipts. The additional tax, a proposed 20% accuracy-related penalty and years of interest caused the exposure to grow far beyond what he expected.

The lesson is not that every $100,000 discrepancy becomes a criminal case. It is that repeated omissions create a pattern, and the civil cost can become substantial even when no criminal charge is filed. Past results do not predict the outcome of another matter.

When a Tax Preparer Filed the Return

A taxpayer may still owe the underlying tax and interest even when a preparer created an improper deduction, credit or business loss. Penalty relief may be available in appropriate cases, particularly when the taxpayer supplied accurate information and reasonably relied on a qualified professional, but relief is not automatic.

Obtain a complete copy of what was filed and compare it with the information actually provided to the preparer. Do not rely only on the preparer’s description of the return.

Payroll Tax Problems Can Become Personal Problems

Closing a business does not necessarily eliminate unpaid payroll taxes. The IRS can assess the Trust Fund Recovery Penalty against a responsible person who willfully failed to collect or pay qualifying trust-fund taxes. Potentially responsible people can include owners, officers and others with authority over company funds.

Using withheld payroll taxes to pay rent, suppliers or other operating expenses can place the individuals who controlled those payments at risk. The IRS may pursue personal assets after assessing the penalty.

New Jersey Tax Consequences

Correcting a federal return may also require an amended New Jersey return. For businesses, unreported cash can affect federal and state income taxes, sales tax and payroll-tax obligations. Each exposure should be reviewed separately.

Fix the Problem Before the IRS Finds It

The best time to address a tax problem is before an audit, summons or contact from a criminal investigator. Depending on the facts, corrective steps may include filing missing returns, amending inaccurate returns, reconstructing financial records, arranging payment or evaluating an appropriate voluntary-disclosure strategy.

Once a taxpayer recognizes a problem, the taxpayer should not backdate documents, move money to conceal it, destroy records or submit an explanation without understanding the legal consequences.

Taxpayers concerned about intentional conduct should speak with a tax attorney before contacting the IRS or relying on the preparer who created the questionable return. Attorney-client privilege may be especially important when the distinction between a mistake and willful conduct is unclear.

Correcting a return does not guarantee that penalties or an investigation will be avoided. Obtaining advice before the government makes contact generally preserves more options.

Documents to Gather for an Attorney

• The returns that were actually filed
• IRS account and wage-and-income transcripts
• Bank and credit-card statements
• Payroll reports and Forms 941
• Point-of-sale and merchant-processing records
• Communications from the tax preparer
• Every IRS or New Jersey tax notice received

Let Tomes Law Firm Help You Correct the Problem

If you believe income was omitted, payroll taxes were not paid or your preparer claimed deductions or credits you cannot explain, do not wait for another IRS notice.

Tomes Law Firm can review your returns and account records, identify the immediate risks and help you take appropriate corrective action before the problem becomes more difficult and expensive. Call the tax resolution attorneys and accountants at Tomes Law Firm at 732-333-0681 or 833-4IRS-TAX to schedule a free confidential consultation.

We Solve Tax Problems. You Get Peace of Mind.

Sources

Department of Justice National Tax Enforcement Surge  |  IRS Accuracy Related Penalty  |  IRS Trust Fund Recovery Penalty