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The IRS Criminal Investigation Process Step-by-Step
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The IRS Criminal Investigation Process Step-by-Step
Dealing with the IRS can be intimidating, but a criminal investigation takes things to a whole new level. If you find yourself the target of a criminal tax investigation, it’s important to understand the process and know your rights. This step-by-step guide breaks down exactly what happens during an IRS criminal investigation.
How Investigations Get Started
There are a few different ways an IRS criminal investigation can begin:
- An audit uncovers potential criminal activity
- Informants provide tips to the IRS Criminal Investigation Division (CID)
- IRS computers flag returns with anomalies
- Other law enforcement agencies share information with the IRS
In each case, the information gets reviewed by the IRS to determine if a full criminal investigation is warranted. This involves looking at the evidence and getting approval from IRS officials. Just because you’re under audit doesn’t mean you’ll face criminal charges – but it does increase the chances if the audit turns up potential tax fraud.
The Investigation Phase
Once the IRS decides to open a criminal case, CID agents swing into action. This is when things start feeling more “criminal” from the taxpayer’s perspective.
Investigators have broad authority to issue subpoenas, review financial records, conduct interviews, and seize evidence. Taxpayers often don’t realize the extent of the investigation until they or their associates get contacted by the IRS.
The goal is to gather enough evidence to conclusively determine whether criminal activity occurred. This may involve reviewing several years of tax returns, bank statements, business records, and other financial documents. Interviews with the taxpayer and third parties (like business partners or accountants) are also common.
CID agents are experienced financial investigators. They know how to dig deep and piece together the big picture from fragments of evidence. Don’t assume you can hide anything from them.
Criminal Charges
After a thorough criminal investigation, the IRS will make a determination about whether to pursue criminal prosecution. Not all investigations lead to criminal charges – but many do.
Common criminal tax charges include:
- Tax evasion
- Filing false returns
- Failure to file returns
- Employment tax evasion
- Obstructing the IRS
Willful, intentional misconduct is generally required for these felony charges – but “willfulness” has a broad definition in tax law. Negligence, recklessness, or conscious avoidance of the facts can meet the threshold.
If the IRS believes it has enough evidence, it will refer the case to the Department of Justice (DOJ). The DOJ will then independently review the case and decide whether to prosecute.
The Prosecution Phase
If the DOJ takes the case, it will be assigned to a federal prosecutor. The prosecutor represents the United States in bringing charges against the taxpayer.
The prosecutor has discretion in deciding exactly what charges to pursue. They can charge multiple tax crimes, or only the most serious. Mail fraud, wire fraud, or other related charges may be included as well.
At this point, a criminal defense lawyer is absolutely vital. An experienced tax attorney can negotiate with the prosecutor to minimize charges and seek a favorable plea agreement.
If no plea deal can be reached, the case will proceed to trial. The prosecutor will aim to prove guilt beyond a reasonable doubt. Criminal trials are complex and high-stakes – not somewhere you want to be without expert legal counsel.
The Penalty Phase
If found guilty at trial, or if a plea deal is reached, the final phase is sentencing. Tax crimes carry stiff penalties under federal law. Some common punishments include:
- Prison time
- Fines up to $100,000 per count
- Probation
- Forfeiture of assets
Judges consider the sentencing guidelines but have wide latitude in determining appropriate penalties. A defense lawyer’s role is to present mitigating factors to seek the most lenient sentence.
In addition to criminal penalties, taxpayers face civil fines and back taxes. The IRS will still pursue payment of all taxes owed, interest, and penalties.
Avoiding Criminal Exposure
The best way to avoid an IRS criminal investigation is to fully comply with tax laws. Always report all income, claim only legitimate deductions, and file accurate returns.
If you’ve made mistakes in past returns, consider amending them or voluntarily disclosing through one of the IRS programs. Don’t wait for the IRS to find the problem first.
If you do find yourself facing a criminal tax investigation, hire an experienced attorney immediately. Invoke your right to remain silent and don’t try to deal with it alone.
While scary, even criminal tax cases can be resolved favorably in many instances. But it takes great caution, legal expertise, and negotiation skills to reach the best outcome.
The Bottom Line
IRS criminal investigations are no joke. If you get that dreaded letter from CID, you need to take it seriously. Understand the process, know your rights, and consult with a lawyer right away. With proper representation and the right strategy, it is possible to mitigate the fallout and move on with your life.
The tax attorneys at [Law Firm Name] have extensive experience representing taxpayers facing IRS criminal investigations and prosecution. If you’re worried about criminal exposure, don’t hesitate to contact us for a free case evaluation.