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15 Sep 23

What to Do When You Receive an IRS Criminal Tax Investigation Letter

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Last Updated on: 15th September 2023, 11:01 pm

What to Do When You Receive an IRS Criminal Tax Investigation Letter

Getting a letter from the IRS saying you are under criminal investigation for tax violations can be intimidating. But it’s important not to panic. There are steps you should take to protect yourself and your rights if you find yourself the target of an IRS criminal tax probe.

What is an IRS Criminal Tax Investigation?

The IRS Criminal Investigation division (IRS CI) handles criminal tax cases like tax evasion, fraud, or money laundering. If IRS CI suspects you violated tax law, they may open a criminal case and start an investigation.

This means IRS agents will begin formally gathering evidence. They may interview witnesses, subpoena records, or convene a grand jury. The goal is to build a case against you to refer for criminal prosecution.

How Do IRS Criminal Tax Investigations Start?

IRS criminal tax probes can start in a few different ways[1]:

  • An audit or civil investigation uncovers potential criminal issues
  • Informants or whistleblowers provide tips alleging tax crimes
  • Law enforcement agencies like the FBI refer cases involving tax charges
  • IRS data mining and analytics flag suspicious tax returns
  • IRS receives reports of financial transactions indicating tax crimes

In most cases, the investigation starts when the IRS civil division, FBI, or other agency refers the case to IRS Criminal Investigation due to the severity of allegations.

What to Do if You Receive a Criminal Tax Investigation Letter

If you get a letter from IRS CI informing you of a criminal tax investigation, here are important steps to take:

  1. Don’t panic. While stressful, getting a letter does not mean you will be criminally charged.
  2. Contact an experienced criminal tax defense attorney immediately.
  3. Politely decline to meet with IRS agents or provide testimony until your lawyer is present.
  4. Gather financial records that may be relevant to the investigation.
  5. Follow your attorney’s advice about responding to the letter and investigation.
  6. Have your lawyer contact IRS CI to discuss the probe and your defenses.

The most critical first step is retaining legal counsel to protect your rights. Do not go through an IRS criminal investigation alone.

Does an Investigation Letter Mean You Will Be Charged?

No, receiving a criminal tax investigation letter from the IRS does not guarantee you will actually be charged with a crime. Some key points:

  • In many cases, no charges are ever filed after an investigation opens.
  • Your attorney can argue against charges or negotiate for a civil resolution.
  • Charges are more likely if serious tax crimes are uncovered.
  • But the outcome depends on the strength of evidence and your specific case.

So while potential charges should be taken very seriously, the letter itself does not mean you will definitely be indicted or convicted.

Why Does the IRS Send Criminal Tax Investigation Letters?

There are several reasons why IRS CI sends letters to taxpayers informing them of a criminal probe[2]:

  • Notify you of the investigation and your rights
  • Inform you of potential charges if violations are proven
  • Prevent destruction of evidence or obstruction
  • Give you a chance to explain your side
  • Pressure you to cooperate as a witness against others
  • Set the stage for summons, subpoenas, or grand jury

Essentially, the letters put taxpayers on notice and allow IRS CI to engage directly as they build a case.

What Are Your Rights in a Criminal Tax Investigation?

If you receive an IRS criminal tax investigation letter, you have important rights, including:

  • The right to decline interviews or providing testimony
  • The right to hire legal counsel to represent you
  • The right to receive notices and updates on the investigation
  • The right to challenge summons and subpoenas
  • The right to review evidence and proceedings against you
  • The presumption of innocence unless charges are proven

Exercising these rights, especially your right to legal counsel, is critical when facing an IRS criminal tax investigation.

What Tactics Does IRS CI Use in Investigations?

IRS Criminal Investigation utilizes a variety of tactics as they build cases against taxpayers suspected of violations. Common examples include:

  • Interviewing targets, witnesses, associates, and third parties
  • Issuing summons for financial records, emails, etc.
  • Executing search warrants on property or electronic devices
  • Surveillance through methods like wiretaps
  • Using informants or undercover agents
  • Tracing funds through accounts or assets
  • Convening a grand jury for testimony and subpoenas

IRS CI has broad authority to investigate using both civil and criminal tools. Your attorney can help respond to these tactics appropriately.

What Could Happen After the Investigation?

After an IRS criminal tax investigation, a few potential outcomes include:

    • No charges – If evidence is weak or you have strong defenses, no charges may be filed.
    • Civil settlement – The IRS may offer a civil settlement instead of criminal prosecution. This could involve paying taxes owed, interest, and civil penalties.
    • Criminal prosecution – If strong evidence of tax crimes exists, IRS CI may refer the case to the Department of Justice for criminal prosecution. This could lead to criminal tax charges.
    • Jail time – If convicted on criminal tax charges, penalties can include substantial prison sentences depending on the violation.
    • Fines & penalties – In addition to repaying back taxes and interest, civil fines and criminal penalties can be imposed.

Your attorney can negotiate with IRS CI agents and prosecutors to seek the most favorable outcome given your specific circumstances.

Can You Get Penalty Relief in an IRS Investigation?

Possibly. If IRS CI asserts accuracy or fraud penalties against you, your lawyer may be able to argue for penalty relief if you meet reasonable cause criteria[3]. For example:

      • You made a good faith effort to comply with tax rules.
      • You had reasonable basis for positions taken on your return.
      • Circumstances beyond your control caused the error.

The key is showing you acted responsibly and had no intent to commit fraud or evade taxes. Your lawyer can present evidence to IRS CI supporting reasonable cause for penalty relief.

Can You Settle for Less than You Owe the IRS?

In some cases, yes. If the IRS determines you owe a significant amount in back taxes, interest, and penalties, your attorney may be able to negotiate a reduced settlement via an Offer in Compromise[4]. This allows you to settle your tax debt for less than the full amount under certain circumstances, such as:

      • You have insufficient income and assets to pay what you owe.
      • Collection of the full debt would create economic hardship.
      • There is doubt you actually owe the assessed amount.

Your lawyer can negotiate the most favorable settlement possible based on your financial situation and other factors.

Takeaways for IRS Criminal Tax Investigation Letters

If you receive a letter from IRS CI informing you of a criminal tax investigation, key takeaways include:

      • Consult a criminal tax defense attorney immediately.
      • Politely decline interviews until your lawyer is present.
      • Exercise your rights and let your lawyer engage with IRS CI.
      • Charges may not ultimately be filed depending on the evidence and your case.
      • Your lawyer may be able to negotiate a civil settlement or penalty relief.

Navigating an IRS criminal tax investigation is complex. But the right legal representation can protect your rights and interests throughout the process.

References

[1] https://www.irs.gov/pub/irs-pdf/p17.pdf

[2] https://www.irs.gov/pub/irs-pdf/p4345.pdf

[3] https://www.irs.gov/payments/penalty-relief-for-reasonable-cause

[4] https://www.irs.gov/payments/offer-in-compromise