Federal Target Letters for Tax Evasion, Tax Fraud and IRS Investigations

Dealing with a Federal Target Letter for Tax Issues – What You Need to Know

Getting a letter from the IRS or FBI can be scary. Believe me, I know. I’m a tax lawyer and have helped lots of folks deal with target letters over the years. This article will walk you through what target letters are, what they mean, and most importantly- what to do if you get one. I’ll try to keep it simple and conversational, just like we’re having a chat over coffee. Sound good? Let’s dive in.

What is a Federal Target Letter?

A federal target letter is a letter you might get from an investigative agency like the IRS Criminal Investigation Division or the FBI letting you know you’re the target of an investigation. Basically, they think you may have broken some tax laws or committed financial crimes¹.

These letters don’t mean you’re definitely guilty or will be charged with anything. They just mean the feds have some evidence they want to ask you about. The letter will usually say what agency is investigating (IRS vs FBI for example), what specific laws you may have broken, and ask you to provide more information or meet with investigators.

What Does it Mean if I Get a Target Letter?

If you get a target letter, it means the investigating agency has evidence suggesting you may have committed a crime. Could be anything from tax evasion, to filing false returns, money laundering, wire fraud, etc². They think this evidence is strong enough that you’re now a “target” of the investigation.

But don’t panic! Getting a target letter doesn’t mean you’ll definitely be charged or indicted. Plenty of folks get target letters and are never prosecuted. An experienced tax attorney can help evaluate your case and negotiate with the feds on your behalf. There’s almost always room for discussion.

What Should I Do if I Get a Target Letter?

If that scary envelope from the IRS or FBI shows up, here’s my advice on what to do:

• Don’t ignore it! Call a tax attorney right away.
• Be polite to investigators, but say you won’t answer questions without your lawyer present.
• Gather up any relevant records – emails, tax docs, financial statements, etc.
• Review the letter carefully with your attorney to understand what violations they think you committed.
• Respond to the letter through your attorney. Don’t try to handle this yourself!

A solid tax lawyer can help protect your rights, review the evidence, negotiate with the feds, and generally watch your back every step of the way. Don’t go it alone if you get one of these letters. The tax code is notoriously complex, and you need an expert on your side.

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What Are the Next Steps After Getting a Target Letter?

After you lawyer up, the next steps will depend on the specifics of your case. Some things that may happen include:

• You may have to meet with investigators and answer limited questions.
• Your attorney can try negotiating with prosecutors for a plea deal or reduced charges.
• Your case could go in front of a grand jury to consider indictment.
• You may end up charged with tax crimes or financial offenses.
• Your lawyer may be able to get the case dismissed if the evidence is weak.

Every case is different, so work closely with your attorney to understand the options based on your situation. Don’t rush into anything without fully discussing it with your lawyer first.

Can I Avoid Criminal Charges if I Get a Target Letter?

Yes, it’s absolutely possible in some cases to avoid getting criminally charged after receiving a target letter. Your experienced tax attorney will scrutinize the evidence, look for any violations of your rights or issues with the investigation, and negotiate aggressively on your behalf.

If the evidence against you is weak, your lawyer may be able to get the case dismissed entirely. They may also be able to work out a deal where you avoid jail time in exchange for paying back taxes, penalties, etc. Every case has unique circumstances, so fight the charges tooth and nail with a skilled tax lawyer on your team.

What are Some Common Tax Crimes the IRS Investigates?

The IRS Criminal Investigation Division spends a lot of time looking into tax fraud. Some of the most common tax crimes they investigate include³:

• Tax Evasion – Illegally avoiding paying taxes you owe, like by hiding income or lying on your return.
• Employment Tax Evasion – Business owners not paying payroll taxes for employees.
• Fraud – Lying on a tax return or other document submitted to the IRS.
• Identity Theft – Using someone else’s identity to file a fake return and collect a refund.

They also investigate crimes like money laundering that are connected to tax law violations. A skilled tax defense lawyer can advise if you’re being accused of any of these offenses.

Should I Voluntarily Speak to IRS Criminal Investigators?

If you receive an IRS target letter, think long and hard before voluntarily speaking to IRS criminal investigators, even if you think you’ve done nothing wrong. Be polite, but say you won’t answer questions without your lawyer present.

IRS investigators are trained to get people to make incriminating statements they can use against them later. Don’t fall into that trap – make the IRS build their case against you. Don’t help them out by talking without a lawyer protecting your rights.

Can I Go to Jail for Tax Evasion or Tax Fraud?

Yes, you can definitely go to jail for tax crimes like evasion or fraud. The IRS takes these violations very seriously. Exactly how much prison time you get depends on the specifics of your case and your state’s sentencing guidelines. But some examples of potential penalties⁴:

• 5+ years in prison for tax evasion of over $100,000 in owed taxes
• 3-5 years for employment tax evasion over $50,000
• Up to 3 years for filing a fraudulent return seeking a large refund

And don’t forget about fines, probation, restitution, and other potential penalties. A conviction for a tax crime is truly life-altering, so fight the charges aggressively starting the moment you get that target letter.

Can My Tax Attorney “Make a Deal” to Avoid Prosecution?

Yes, an experienced tax defense lawyer will often be able to negotiate with prosecutors to minimize charges or even avoid prosecution entirely. This depends on the strength of the government’s evidence and the specifics of your case.

For example, your attorney may be able to get charges reduced from a felony to a misdemeanor in exchange for a guilty plea, or negotiate probation instead of prison time. If the case against you is weak, they may get it dismissed completely with no charges filed.

Having an experienced tax litigation lawyer on your side – one with relationships with federal prosecutors – can make a huge difference. Don’t go it alone if you receive a target letter!

Can I Go to Jail for Not Paying Taxes?

Generally you can’t go to prison just for not paying your taxes. However, you can face criminal prosecution if you willfully evade paying taxes that you owe.

For example, if you lie on your return to hide income so you lower your tax bill, or you hide assets offshore to avoid IRS collection – those willful acts could land you in hot water. An experienced tax litigation attorney can help defend against criminal charges.

If it was just a matter of not having enough money to pay your tax debt, the IRS will usually work out a payment plan or other civil resolution. The key is avoiding any intentional deceit or criminal conduct.

What Should I Do if I Can’t Pay My Taxes?

If you get behind on your taxes, the worst thing you can do is ignore it or try to dodge the IRS. I’ve seen that turn many honest folks into criminal targets when they make misguided attempts to avoid collections.

Instead, be proactive:

• File all tax returns even if you can’t pay the balance due
• Communicate with the IRS about your situation
• Request an installment agreement to pay over time
• Look into offers in compromise or other payment options
• A tax relief firm can help negotiate settlements

When you take reasonable steps to address your tax debt, you avoid interest, penalties, and criminal liability. The IRS wants to collect, not prosecute, so be proactive if you have unpaid taxes.

Do I Need a Lawyer to Handle an IRS Audit or Investigation?

Not always initially, but it’s smart to loop in a tax attorney at the first sign of a criminal investigation by the IRS or FBI. Their job is to build cases against you – you need an expert on your side defending your rights.

For a routine IRS audit, you may be fine with a CPA helping explain documentation. But if it progresses to an IRS criminal probe, or you get that target letter, immediately contact a criminal tax defense attorney. Don’t try to outsmart the feds on your own.

Does Getting a Tax Lawyer Make Me Look Guilty?

Absolutely not! It simply means you are taking the investigation seriously and want an expert protecting your rights. Federal tax issues can get complex fast, with high stakes. An experienced tax litigation lawyer knows all the rules and defenses.

I always tell clients getting a tax attorney doesn’t imply guilt about anything. It just means you want a strong advocate on your side during the audit or criminal probe. Don’t worry about appearances and protect yourself.

Take a Deep Breath, You Have Options

Hopefully this article helped explain federal target letters, why you get them, and what to do if you receive one. I know it’s scary, but don’t panic! With an experienced tax defense lawyer guiding each step, many folks in this situation go on to have no charges filed.

Don’t ignore or fight with the IRS or FBI alone. Hire a seasoned professional to protect your rights every step of the way. They can often negotiate deals or get cases dismissed if the evidence is weak. You have options, so take a deep breath and call an attorney. It’s going to be ok!

About the Author

I’m Jim, a tax attorney with over 15 years experience dealing with IRS and FBI investigations into tax evasion, fraud, and other financial crimes. I’ve successfully defended dozens of clients against criminal tax charges. If you’re facing a scary tax issue, call me for a free consultation and we’ll map out a game plan. I wrote this article to help demystify the process and let you know experienced help is out there!

References

1. Navigating Joint FBI and IRS Criminal Investigations and Target Letters

2. Target