The IRS has probably been investigating you or your business for months or maybe even years before you are even aware that you are under criminal investigation. In fact, you may not find out you are under criminal investigation until agents knock on your door with a search warrant.
How does a criminal tax investigation start and who is involved?
IRS Criminal Investigation Process
The Internal Revenue Service Criminal Investigation Division investigates alleged violations of:
- The Internal Revenue Code
- Tax evasion or fraud
- Filing a false tax return
- Failing to file a tax return
- The Bank Secrecy Act
- Money Laundering Statutes
A Special Agent conducts a “primary investigation” to determine if a criminal tax fraud may have occurred. If a Special Agent determines there is enough evidence, the case will be reviewed by supervisors and managers before a criminal investigation is initiated.
Common Triggers for Starting a Criminal Investigation
A criminal investigation by the IRS can be initiated for a variety of reasons the most common of which are:
- Civil Audits – Revenue Agents look for indicia of fraud
- Omissions of entire sources of income
- Keeping two sets of books
- Failure to make full disclosure of relevant facts to the accountant
- Bank deposits from unexplained sources substantially exceeding reported income
- Concealment of bank accounts, brokerage accounts, and other property
- Substantial amounts of personal expenditures deducted as business expenses
- Referrals from other law enforcement agencies such as the FBI, and Homeland Security
- Records from international banks or financial institutions
- Current or former employees
- Tax return preparers
- Court records
- Newspaper Articles
- Undercover Activities
The Criminal Tax Investigation
Criminal investigations are thorough and intensive taking a year or more to complete. During the investigation, the IRS Special Agent may:
- Interview third party witnesses like your accountant, employees or employer, your neighbors
- Execute search warrants on your home or office
- Summons bank records, phone records or credit card bills
- Conduct surveillance
You will typically be the last person contacted by the Special Agent. When you are contacted, it is best not to answer any questions until you have consulted a criminal tax attorney.
After the investigation is complete, the Special Agent will either discontinue the investigation or recommend the case to the Department of Justice Tax Division or the United States Attorney for criminal prosecution. In some instances, the IRS will refer the case to the Department of Justice Tax Division requesting approval to initiate a grand jury investigation to develop additional evidence with the assistance of the United States Attorney’s Office.
In Fiscal year 2013, the IRS Criminal Investigation Division initiated 5,314 cases and recommended 4,364 cases for prosecution (source).
The IRS and Department of Justice typically do not bring charges against an individual or business unless the evidence supports a prima facie case and there is a reasonable probability of conviction. Tax prosecutions must also be approved by the Department of Justice Tax Division before charges are sought. The government receives a criminal conviction in 80% of the cases they bring against taxpayers. The typical amount of tax owed is over $70,000.
What to do if You Receive a Knock on Your Door
If you are under criminal investigation or criminally charged in a tax case, you should take these charges very seriously. Contact a criminal tax attorney immediately. Be sure your attorney has criminal tax experience. Your attorney should be experienced in both the criminal process, the investigative techniques utilized by the IRS and the methods of proof used to prove criminal tax cases.
An experience criminal tax attorney will work with you to ensure the government has properly assessed your tax situation and help you prepare the best defense whether that involves heading off an indictment, trying the case in court or making a plea bargain with the government.