How Long Does an IRS Criminal Tax Investigation Take? Timeline

How Long Does an IRS Criminal Tax Investigation Take? Timeline

Dealing with the IRS can be stressful under even the best of circumstances. But when you become the target of a criminal tax investigation, the stakes get much higher. Criminal tax charges can lead to massive fines and even jail time, so it’s important to understand how these complex investigations unfold.

What Prompts a Criminal Tax Investigation?

The IRS typically initiates a criminal probe when they believe a taxpayer has intentionally committed tax fraud or evasion. This includes:

• Filing false or fraudulent returns
• Hiding income
• Claiming false deductions or credits
• Not filing returns or paying taxes owed

The IRS Criminal Investigation division (IRS-CI) handles these cases. Their agents have law enforcement authority to investigate financial crimes related to tax administration. According to the IRS website, criminal tax probes often begin through one of these channels:

• Referrals from civil side of the IRS
• Information from informants
• Results of audits or civil examinations
• Data mining and analytic review of tax returns

In other words, something on your tax return triggers a red flag that prompts the IRS to take a closer look. Or they get a tip from someone alleging tax fraud. Either way, once IRS-CI opens an investigation, they’ll start gathering evidence to build a criminal tax case.

The Investigation Phase

Once an investigation begins, IRS special agents take over. They have an average of 4-6 years of experience in accounting, law enforcement, or a related field. Their goal is to collect enough evidence to establish probable cause of criminal activity. According to IRS guidelines, this investigative phase may involve:

• Interviewing witnesses, targets, informants
• Issuing summons for records
• Reviewing tax returns and financial documents
• Surveillance operations
• Undercover operations
• Search warrants

IRS special agents have broad authority to compel testimony and obtain records during their probe. This includes summoning banks, employers, or anyone else who may have information relevant to the investigation. According to tax defense attorneys, the investigation phase typically lasts around 6-18 months. But complex cases involving multiple subjects can drag on much longer.

Building the Criminal Case

To successfully prosecute criminal tax charges, IRS-CI must prove two key elements beyond reasonable doubt:

1. A tax deficiency existed – the taxpayer owed more tax than was reported
2. The taxpayer intentionally committed fraud or evasion

This requires agents to reconstruct the taxpayer’s financial records and build a detailed picture of their activities. According to the IRS Tax Crimes Handbook, common sources of evidence in criminal tax cases include:

• Books and records seized
• Interviews with targets, witnesses, informants
• Undercover operations
• Search warrants
• Surveillance data
• Analyzing bank deposits and cash expenditures

IRS special agents are trained to develop evidence that proves intent and willful violation of tax laws. This may involve reconstructing the taxpayer’s net worth over several years to show unreported income. Or reviewing business records that reveal fraudulent deductions. The more complex the alleged scheme, the longer it takes to unravel.

Criminal Charges and Arrest

After completing the investigation, IRS-CI presents the evidence to the Department of Justice (DOJ). Prosecutors then independently review the case and decide whether to pursue criminal prosecution. If approved, the DOJ will obtain an indictment from a federal grand jury outlining the charges.

Common criminal tax violations referred for prosecution include:

• Tax evasion (26 U.S.C. § 7201)
• Filing false returns (26 U.S.C. § 7206)
• Failure to file return (26 U.S.C. § 7203)
• Obstructing the IRS (26 U.S.C. § 7212)

If indicted, the taxpayer will be arrested and read their rights. Initial court appearances usually occur within 1-2 days after arrest. According to IRS data, their criminal conviction rate has historically exceeded 90%. So the stakes are high if prosecutors move forward with charges.

The Trial or Plea Bargain

After criminal tax charges are filed, the case heads to trial unless a plea bargain is reached. The timeline varies dramatically depending on the complexity of the case and the court’s docket. Trials for tax crimes can take anywhere from 1-3 years to get to court after indictment.

Many defendants choose to plead guilty rather than face trial. The DOJ may offer a “global resolution” allowing the taxpayer to resolve civil and criminal tax liabilities together. This provides incentive to settle criminal charges in exchange for reduced penalties. But the decision to plead guilty or go to trial is a complex one with major consequences either way.

Sentencing and Penalties

If found guilty, the penalties for criminal tax fraud are severe. The IRS emphasizes jail time over fines, especially for willful evasion. Possible sentences include:

• Fines – Fines up to $100,000 for individuals and $500,000 for corporations.
• Imprisonment – Up to 5 years in prison for tax evasion under 26 U.S.C. § 7201. Up to 3 years in prison for filing false returns under 26 U.S.C. § 7206.
• Probation – Courts may impose probation up to 5 years as an alternative to imprisonment.
• Restitution – The taxpayer must repay taxes owed plus interest and penalties.
• Forfeiture – Taxpayers may have to forfeit property obtained through tax evasion schemes.
• Loss of rights – Loss of certain rights and privileges like voting, serving on a jury, or possessing firearms after a felony conviction.

Judges have wide discretion in sentencing for tax crimes based on the unique facts of each case. The most severe punishments are generally reserved for willful and brazen acts of tax evasion or fraud involving large sums of money. Most taxpayers who cooperate with the IRS and plead guilty receive lighter sentences.

In addition to criminal penalties, the IRS will assess civil fines and attempt to collect any back taxes owed. Though rare, some tax evasion cases can result in multi-year prison sentences, especially when they involve deceit, concealment of assets, or other aggravating factors.