The IRS Criminal Investigation Process From Start to Finish

The IRS Criminal Investigation Process From Start to Finish

Dealing with an IRS criminal investigation can be a scary and confusing process. This article aims to explain the typical steps involved in an IRS criminal investigation, from start to finish, in a simple and easy-to-understand way.

How Investigations Get Started

There are a few main ways an IRS criminal investigation can begin:

• An IRS civil audit uncovers potential criminal issues
• Informants or whistleblowers report suspected tax crimes
• IRS computers flag returns with anomalies
• Other law enforcement agencies share information with the IRS

In most cases, the investigation starts when the IRS Criminal Investigation (CI) division receives information suggesting willful tax violations. The CI unit will review the allegations and decide whether to pursue a full criminal investigation [1].

The Primary Investigation

If CI opens an investigation, a special agent is assigned to the case. The special agent will gather additional evidence through interviews, summons, surveillance, etc. This is called the “primary investigation” [2].

Some key steps in the primary investigation include:

• Researching the target’s personal and financial background
• Interviewing witnesses, informants, associates, etc.
• Issuing summons for records from banks, employers, etc.
• Surveillance or undercover operations if needed
• Obtaining search warrants and seizing evidence

The special agent will analyze all the evidence to determine if criminal charges are warranted. Their supervisor will review the case before moving forward [1].

The Review Process

If the special agent believes criminal prosecution is justified, the case goes through an extensive review process. This ensures the evidence is solid and the charges appropriate [4].

The key steps in the review process are:

1. The special agent’s group manager examines the case
2. The Fraud Technical Advisor provides guidance on technical issues
3. The Area Counsel reviews the case for legal sufficiency
4. The Chief Counsel’s office approves search warrants and summons
5. The Department of Justice Tax Division authorizes prosecution

At any point in this process, the reviewers can request more evidence or analysis. They can also decline prosecution if the case seems flawed.

The Subject Interview

Once the case is approved for prosecution, the special agent will seek an interview with the investigation’s target. This is the “subject interview.”

The goals of the subject interview are to:

• Allow the subject a chance to explain their side
• Obtain a confession or incriminating statements
• Assess the subject’s truthfulness
• Lock the subject into a story for trial

The subject has the right to decline the interview or have their lawyer present. Lying to the IRS during this interview can itself be a criminal offense.

The Final Report

After finishing the investigation, the special agent writes a final report detailing the findings. This report summarizes the allegations, evidence, interviews, etc. It will recommend prosecution if the agent believes criminal charges are warranted [3].

The report goes through another round of review by the special agent’s managers. If approved, it gets sent to the Department of Justice for prosecution.

The Decision to Prosecute

The Department of Justice has sole authority to prosecute federal tax crimes. They will review the investigation and make the final call on whether to indict.

To move forward with prosecution, DOJ must believe:

• There is substantial evidence of a tax crime
• There is a strong likelihood of conviction at trial
• It is in the public interest to prosecute

If they decline prosecution, the IRS may pursue civil penalties instead.

The Charges

If prosecution is approved, DOJ will work with the IRS to draft a formal indictment. This legal document lists the specific charges and their elements.

Common tax crimes charged include:

• Tax evasion (26 U.S.C. § 7201)
• Filing a false return (26 U.S.C. § 7206)
• Failure to file (26 U.S.C. § 7203)
• Employment tax evasion (26 U.S.C. § 7202)

The indictment may also include non-tax charges like mail/wire fraud, money laundering, etc.

The Arrest and Arraignment

After the grand jury approves the indictment, the next step is arresting the defendant. IRS CI agents will often assist with the arrest. The defendant is fingerprinted, photographed, and processed.

Soon after, the defendant appears in court for arraignment. They are read the charges and asked to enter a plea (“guilty,” “not guilty,” etc.). Most plead “not guilty” initially.

The Trial or Guilty Plea

After arraignment, a tax crime case typically ends in one of two ways:

1. Guilty plea – The defendant admits guilt in exchange for a lesser sentence.
2. Trial – The case proceeds to trial where a jury decides guilt or innocence.

Most tax crime cases (over 90%) end in a guilty plea. Defendants plead out to limit their sentencing exposure.

The Sentencing

If the defendant is found or pleads guilty, the court will impose a sentence. The judge considers factors like:

• Sentencing guidelines for the crimes
• Criminal history of the offender
• Impact of the crimes
• Acceptance of responsibility

Tax crimes often carry stiff punishments, including years in prison and heavy fines. Tax evasion over $100,000, for example, can result in up to 5 years imprisonment [5].

The Appeal Process

After sentencing, the defendant can appeal their conviction or sentence to a higher court. However, appeals rarely succeed in tax crime cases.

If the appeal fails, the defendant must serve their sentence. They may serve time in a minimum security “prison camp” or a higher security facility.

Takeaways

The IRS criminal investigation process involves many players (IRS, DOJ, courts, etc.) and steps. But it starts with the IRS Criminal Investigation division identifying potential tax crimes.

Key phases include the primary investigation, review process, subject interview, final report, and DOJ prosecution decision. The case typically ends in a guilty plea or trial.

Tax crimes are no joke – convictions often mean years in prison and massive fines. Don’t mess with the IRS criminal investigators!

Sources:

[1] https://www.irs.gov/compliance/criminal-investigation/how-criminal-investigations-are-initiated

[2] https://www.goldinglawyers.com/the-process-of-how-irs-criminal-investigations-lead-to-prosecution/

[3] https://www.irs.gov/irm/part9/irm_09-005-008

[4] https://www.irs.gov/compliance/criminal-investigation/about-criminal-investigation

[5] https://www.sambrotman.com/hubfs/Pillar%20PDFs/The%20Ultimate%20Guide%20to%20IRS%20Criminal%20Investigations.pdf