The Internal Revenue Service Criminal Investigation Procedure

IRS Criminal Investigation

IRS Criminal Investigation

IRS Criminal Investigation: When it comes to dealing with Internal Revenue Service tax violations, Taxpayers are (understandably) most concerned with whether or not their tax violation was criminal. Unlike civil tax violations, which are limited to financial types of penalties — when a person commits a criminal tax violation, they may also be subject to incarceration — depending on the facts and circumstances of the case — along with the type of crime they are convicted of.  This is especially important in matters involving offshore or foreign accounts, assets, investments, and income — due to the sheer magnitude of willful penalties. The Internal Revenue Service has neither the time nor resources to pursue each and every tax violation that may amount to a crime. There is a process that the Internal Revenue Service follows in order to move a potential investigation into criminal territory. Any potential IRS criminal investigation must be taken very seriously, for the simple reason that it is a criminal investigation — and that anything the taxpayer says later in the process (read: speak with a Board-Certified Tax Law Specialist before speaking with an IRS agent in a criminal matter). Let’s go through the basics of how the Internal Revenue Service Criminal Investigation process works by identifying excerpts from the Internal Revenue Service website — along with a brief summary of what it means:

Sources of Criminal Investigations for IRS Special Agents

• • • Criminal Investigations can be initiated from information obtained from within the IRS when a revenue agent (auditor) or revenue officer (collection) detects possible fraud. Information is also routinely received from the public as well as from ongoing investigations underway by other law enforcement agencies or by United States Attorneys offices across the country.

What does this Mean?

This means that there is no one particular way for the Internal Revenue Service to obtain information regarding potential criminal violations. It may be the result of an audit or examination — or a third party such as a whistleblower — or another person who may have submitted to a voluntary disclosure before you had a chance to get into IRS compliance voluntarily.

Preliminary Analysis and Investigation Approvals

• • • Special agents analyze information to determine if criminal tax fraud or some other financial crime may have occurred. Relevant information is evaluated. This preliminary process is called a “primary investigation.”

    • The special agent’s front line supervisor reviews the preliminary information and makes the determination to approve or decline the further development of the information.

    • If the supervisor approves, approval is obtained from the head of the office, the special agent in charge, to initiate a “subject criminal investigation.” At this point, 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.

What does this Mean?

Not every potential criminal investigation will make its way to becoming a potential indictment or a criminal complaint being filed. Rather, Special Agents are first tasked with evaluating the information and conducting a primary investigation. The Special Agents assess the different facts and circumstances and then make a recommendation to the Supervisor — who will then either approve or reject an investigation.

Conducting Internal Revenue Service Criminal Investigations

• • • Once an investigation is opened, the special agent obtains the facts and evidence needed to establish the elements of criminal activity. Various investigative techniques are used to obtain evidence, including interviews of third party witnesses, conducting surveillance, executing search warrants, subpoenaing bank records, and reviewing financial data.

    • The special agent works closely with IRS Chief Counsel Criminal Tax Attorneys during the course of the criminal investigation. This process ensures all legal aspects of the investigation and prosecution recommendation are correctly addressed.

What does this Mean?

In order to conduct a criminal investigation, the Special Agents of the Internal Revenue Service will investigate the different facts and circumstances to determine the various required elements of different tax crimes that are met. As with any criminal investigation, the Internal Revenue Service agents have many tools at their disposal to conduct a detailed and thorough investigation.

Prosecution Recommendations by the Special Agent

After all the evidence is gathered and analyzed, the special agent and his or her supervisor either make the determination that evidence does not substantiate criminal activity, in which case the investigation is ‘discontinued,’ or the evidence is sufficient to support the recommendation of the prosecution, in which case the agent proceeds with the preparation of a written report detailing the findings of a violation of the law and recommending prosecution. This report is called a “special agent report” and it is reviewed by numerous officials, including:

1. 1. 1. The agent’s front line supervisor, called the supervisory special agent;

      2. A criminal a quality review team, Centralized Case Review;

      3. CI assistant special agent in charge;

      4. CI special agent in charge.

If CI determines the investigation should be criminally prosecuted, a prosecution recommendation is forwarded to:

1. 1. 1. The Department of Justice, Tax Division, (if it is a tax investigation) or

      2. The United States Attorney for all other investigations.

Each level of review may determine that evidence does not substantiate criminal charges and the investigation should not be prosecuted.

What does this Mean?

After a comprehensive criminal investigation is handled by the Special Agents, they will gather and evaluate the information to determine whether or not they recommend that a criminal prosecution should be pursued. They will compile this information into what is referred to as a Special Agent Report. If the agents believe that investigation should be pursued, then the report is forwarded to numerous officials who would then make a final recommendation regarding referring the matter for prosecution.

Prosecution Recommendation from an Internal Revenue Service Criminal Investigation

• • • If the Department of Justice or the United States Attorney accepts the investigation for prosecution, the IRS special agent will be asked by the prosecutors to assist in preparation for trial. However, once a special agent report is referred to for prosecution, the investigation is managed by the prosecutors.

What does this Mean?

This means that the criminal investigation department recommended prosecution to either the Department of Justice Tax Division or US state attorney (usually for non-tax matters) we’ll pursue prosecution.

Conviction

The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction – either by a guilty verdict or plea. Approximately 3,000 criminal prosecutions per year provide a deterrent effect and signals to our compliant taxpayers that fraud will not be tolerated.

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