While unintentional tax mistakes can lead to interest and penalties, allegations of intentional tax fraud can lead to criminal charges. Criminal tax fraud investigations are conducted by the Internal Revenue Service’s Criminal Investigations division (IRS CI), and they can have severe consequences for taxpayers who do not defend themselves effectively. If you have been contacted by special agents from IRS CI, here is an overview of what you need to know.
The 5 Stages of a Criminal Tax Fraud Case
Broadly speaking, there are five stages to a criminal tax fraud case under federal law. Within each of these stages, there are several intermediate steps involved, and there are opportunities to assert strategic defenses throughout the investigative process:
1. IRS CI Receives Information about Possible Criminal Activity
There are several ways that IRS CI can learn about possible tax crimes and other tax-related offenses. In addition to information obtained by IRS auditors and collection officers, this includes information obtained from private citizens (i.e. employees or business partners) as well as from other federal law enforcement agencies that are in the process of investigating other forms of suspected criminal activity.
2. IRS CI Conducts a Preliminary Analysis
Once IRS CI obtains information about a possible tax crime or other tax-related offense, special agents will conduct a preliminary analysis in order to determine whether a full-scale investigation is warranted. If these special agents receive approval to move forward with a “subject criminal investigation,” this means that, “at least two layers of CI management have reviewed the ‘primary investigation’ material and determined there is sufficient evidence to initiate a subject criminal investigation.”
3. IRS CI Launches a Subject Criminal Investigation
During a subject criminal investigation, IRS CI special agents utilize various investigative tools and methods to gather evidence of criminal conduct. These include, but are not limited to, witness interviews, search warrants, subpoenas, surveillance and reviewing the subject’s financial data.
4. IRS CI Recommends Criminal Prosecution
If the subject criminal investigation generates sufficient evidence to indicate that a crime has been committed, then IRS CI will recommend that the U.S. Department of Justice (DOJ) or the U.S. Attorney’s Office move forward with criminal prosecution.
5. The DOJ or U.S. Attorney’s Office Pursues Criminal Charges in Federal District Court
If the DOJ or U.S. Attorney’s Office accepts IRS CI’s recommendation, then it will conduct its own investigation to gather any additional evidence in order to seek an indictment in federal district court. Once charges are filed, the case will proceed to trial unless the subject (now the “defendant”) is able to secure a dismissal or negotiate a plea deal with the representation of legal counsel.
Are You Under Investigation By the IRS?
If you are under investigation for federal tax fraud or any other tax-related criminal offense, it is important that you engage experienced defense counsel right away. Depending on the specifics of your case, you may be able to beat the charges and avoid jail time and/or costly fines.