When an IRS Tax Violation Turns Criminal (7 Important Facts)

IRS Criminal Investigation Division of Tax Enforcement (6 Facts)

IRS Criminal Investigation Division of Tax Enforcement

When a taxpayer violates the Internal Revenue Code, it is usually due to a civil tax violation and not a criminal tax violation. But, sometimes a tax violation may turn criminal. When a criminal tax violation occurs, a taxpayer may become subject to more than just monetary penalties. They may become subject to an IRS Special Agent investigation, which could lead to criminal prosecution — and if the government is successful, it can potentially result in incarceration. It is also important to note that not all criminal investigations result in prosecution — and just because a person is indicted does not mean they will be convicted. Let’s look at seven key facts about an IRS criminal investigation.

The Purpose of an IRS Criminal Investigation

The goal of the Criminal Investigation Division of the IRS is to protect the integrity of the US tax system — and deter people from committing tax crimes. When people know that if they are convicted of a tax crime, they could lose their freedom — it tends to dissuade people from committing these crimes. It is also important to take note that most tax violations do not result in a criminal investigation — and just because you may have made some mistakes with your tax filings does not mean you committed a criminal tax violation.

How Does a Criminal Tax Investigation Begin?

While there are many ways a criminal tax investigation may commence, oftentimes the catalyst for a CI investigation is a civil tax audit. In this type of scenario, the Taxpayer is under civil examination by an IRS Agent for a tax violation. During the examination — and based on the Taxpayer’s responses (or lack thereof) — the agent believes that the taxpayer may have committed a crime. When this occurs, the agent cannot pursue the criminal investigation. Rather, the Agent reports back to their Supervisor and/or Manager to determine whether the matter should be referred to the Special Agents, who are then tasked with pursuing a criminal investigation of the Taxpayer.

Types of Cases Pursued by IRS Special Agent

There are many different types of tax violations that the criminal investigation unit of the IRS may pursue if they believe a crime has been committed. Some of the more common types of criminal investigations include corporate fraud; financial institution fraud; international investigations; money laundering, and general fraud investigations.

How an Investigation May Work

There are many twists and turns that a criminal tax investigation may take, depending on the facts and circumstances of the situation. In general, once the matter has been referred to the IRS Special Agents, they will conduct a significant amount of investigation to determine whether they believe a criminal prosecution should be recommended. This may include interviewing third parties, evaluating bank and other financial (and non-financial records) — and conducting in-person interviews. Noting, if you are confronted by an IRS Special Agent, you should not speak directly with the Agents outside of counsel — and immediately retain an attorney so as to not potentially incriminate yourself.

What if Prosecution is Recommended?

If the Special Agents recommend prosecution, the person is put at a serious disadvantage. That is because the Government tends to only pursue the criminal tax cases it fully believes it can win. That is not to say that the US Government wins all of its cases, but they have a very high success rate. Thus, once the government makes the determination that they are going to pursue a criminal prosecution against the taxpayer, chances are they believe they have a sufficient amount of evidence to win a conviction. 

Be Careful Speaking to the IRS without Counsel

This point should be reiterated again since it is very important. You should not speak with an IRS Special Agent outside the presence of counsel. While your knee-jerk reaction is to want to defend yourself and try to explain away the situation, this will usually make the matter much worse. That is because you would not yet know what kind of information the agents have (or do not have) and what the focus of their investigation might be. Aside from possibly incriminating yourself, you may be providing a significant amount of information to the investigators that they would not otherwise have – or even be able to obtain — until you spilled the beans.

IRS Voluntary Disclosure Program (VDP) Option

If a person believes they have committed a criminal (or civil willful) tax violation — and have not yet been contacted by the IRS — they will want to consider the IRS Voluntary Disclosure Program (VDP). Taxpayers considering this option should consult with a Board-Certified Tax Law Specialist before making any contact with the IRS.

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