How IRS Special Agents Build Criminal Tax Investigations

IRS Special Agents have a tough job. They are responsible for investigating potential criminal violations of the tax code and related financial crimes. It’s not always an easy task, but with the right skills and know-how, IRS agents can successfully build strong criminal tax cases.

The Role of an IRS Special Agent

Special Agents work for the Criminal Investigation (CI) division of the IRS. They are duly sworn federal law enforcement officers who are authorized to carry firearms, execute search warrants, make arrests, and conduct undercover operations [5]. As financial investigators, they have a unique role in the federal law enforcement community. While other agencies like the FBI or DEA also investigate financial crimes, IRS-CI is the only one with jurisdiction over tax code violations [1].

How Investigations Get Started

IRS Special Agents don’t go out looking for cases on their own. Instead, allegations of criminal tax violations come to them from a variety of sources:

• Referrals from the IRS’s civil examination and collection divisions when they uncover potential fraud
• Informants/whistleblowers who provide tips
• Undercover operations and confidential informants used by IRS-CI
• Other law enforcement agencies like the FBI or DEA

When a special agent receives an allegation, they first have to evaluate it and determine if it merits a full criminal investigation. Not every lead pans out, so the special agent has to sift through the information carefully [4].

Building a Criminal Tax Case

If the initial findings show potential criminal activity, the special agent will open an official investigation. This allows them to use the full range of investigative tools at their disposal.

A criminal tax investigation involves painstaking document review and analysis. The special agent examines financial records, bank statements, tax returns, business documents, emails, and more. They look for evidence of tax evasion, false reporting, identity theft, embezzlement, or other financial crimes.

Special agents also conduct interviews. They question subjects, victims, witnesses, informants, and other parties who may have information. Interviews are a key part of unraveling the case facts.

Surveillance is another technique used to gather evidence. Agents may conduct physical surveillance on a suspect’s activities. They also utilize high-tech tools for electronic surveillance, like wiretaps on phones or computers.

Undercover operations are sometimes used as well. An agent may pose as a money launderer or other criminal to directly engage with the suspect. This can elicit incriminating evidence but is only done in limited circumstances.

As the investigation proceeds, IRS-CI works closely with prosecutors from the Department of Justice. The agents collaborate with the attorneys to make sure they are building a solid case that will hold up in court.

Common Tax Crimes Investigated

IRS Special Agents investigate a wide array of financial schemes and tax code violations. Some of the most common crimes they pursue include:

• Tax Evasion – Willfully underreporting income, overstating deductions, hiding money offshore, etc.
• Employment Tax Fraud – Business owners who intentionally fail to pay payroll taxes.
• Identity Theft – Using a stolen Social Security number to file a fraudulent return and claim a refund.
• Refund Fraud – Filing fake returns using fabricated income, expenses, etc.
• Abusive Tax Schemes – Promoting/using an illegal method to avoid paying taxes.
• Public Corruption – Bribery, extortion, kickbacks involving IRS or other government employees.

Special agents must adhere to the tax code and procedures to ensure any criminal case holds up. But they also need flexibility, communication skills, and street smarts. Building a successful investigation requires tenacity, attention to detail, and resourcefulness.