The IRS Criminal Investigation Proces: Am I Being Charged?

Are You Under IRS Criminal Investigation (What You Should Know)

IRS Criminal Investigation

Each year, the Internal Revenue Service targets thousands of taxpayers for criminal investigation. While the majority of tax violations are civil in nature — which means penalties are generally limited to monetary fines — criminal tax violations can be much worse. In addition to the stigma of being indicted and prosecuted for a tax crime, taxpayers may be subject to incarceration if they are convicted of a tax crime. The IRS uses many different tactics and techniques to investigate taxpayers that they believe are guilty of a tax crime. This may include speaking with third parties, making contact with financial institutions utilized by the taxpayer — and other electronic communication analyses. Here are five different investigative techniques used by the Internal Revenue Service during a criminal tax investigation.

A Civil Tax Audit is Abruptly Terminated

If a taxpayer is involved in a civil tax audit and the Agent believes that the taxpayer may have committed a tax crime, the Agent is unable to pursue further questioning about the tax crime at the time of the civil audit — and the agent will terminate the audit and cease all communications with the taxpayer (which may also give the taxpayer a false sense of security that the matter has been resolved). The agent then refers the matter to their supervisor — and it may ultimately be assigned to the IRS Special Agents. The IRS Special Agents are then tasked with conducting a criminal investigation of the taxpayer.

Contacting The Taxpayer’s Financial Institution

If the Internal Revenue Service believes that a taxpayer may have committed a financial crime, they may make contact with Financial Institutions utilized by the taxpayer in order to ascertain information about the accounts and movement of the money. Depending on whether or not they are pursuing a formal or informal investigation can impact the lengths they go to try to obtain the information. It could result in the US government seeking a formal request to obtain financial information they believe is necessary to work the case — and the taxpayer is usually unaware that the IRS has initiated these requests. Other times, the IRS visits the Financial Institution knowing that the taxpayer has a close relationship with the Bank Manager — and intending for the Manager to inform the taxpayer, so then the IRS can track the taxpayer’s movements.

Showing up at the Taxpayer’s Home 

Depending on what type of tactic the IRS wants to use, they may show up at the taxpayer’s home to question them about the purported violation. Taxpayers should never speak with an IRS Special Agent or any government agent at this time. Instead, they should ask for identification and let the agent know that they will reach back out to them through their attorney (even if they do not have an attorney yet). Some taxpayers (unfortunately) believe they can talk themselves out of the situation, but 99% of the time they just dig themselves into a deeper hole.

Showing up at the Taxpayer’s Place of Business

When the US government wants to apply more pressure, they may show up at a taxpayer’s place of business to interview third parties. In general, third parties are not required to speak with the agents. And, it is very important for employees at employment organizations to know their rights as well — and be aware that just because an IRS Special Agent wants to talk to them about another person does not mean they have to talk to them. 

Unscheduled Interactions When A Taxpayer Least Expects it

In order to rattle the taxpayer even further, the IRS Agents will appear at locations that the Taxpayer will least expect. This may be at dinner with a business colleague or friend, a health club, or another establishment that the taxpayer frequents. The purpose of this is to intimidate the taxpayer and let them know that they are under surveillance. The Special Agents then track how the taxpayer responds to being under investigation by the IRS, such as who they go visit — and more importantly, do they begin transferring money or other assets.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

If a potential criminal violation involves foreign money, you may be considering the IRS Streamlined Procedures. If you are willful, you do not qualify for the Streamlined Procedures. In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. But, if they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. If a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties. 

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.