What triggers IRS criminal investigation?

| by Max Soni

Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek – who has many, many, years of experience as a seasoned criminal defense attorney. Our team has over 40 years of combined experience successfully handling hundreds of criminal defense cases. We’re known for handling cases that others say were unwinnable – like representing Anna Delvey in the case that became a Netflix series, the Ghislaine Maxwell juror misconduct case, and defending clients in complex federal investigations across the country.

If you’re reading this article, you’re probably worried the IRS is going to open a criminal investigation against you. That fear is real – because IRS Criminal Investigation doesn’t mess around. They maintain a 90% conviction rate. When they come after you, they’ve already decided you’re worth prosecuting. This article explains what actually triggers an IRS criminal investigation, how the process starts, and what you need to understand right now if you think you might be at risk.

The IRS Criminal Investigation division – known as IRS-CI – is the only federal law enforcement agency with jurisdiction over tax crimes. Special agents don’t investigate civil tax issues. They investigate crimes. Tax evasion, money laundering, cryptocurrency fraud, offshore account schemes. When IRS-CI gets involved, prison time is on the table.

Criminal investigations start from several sources. Sometimes it’s internal – a revenue agent conducting your audit notices something that looks like fraud and refers your case to IRS-CI. Sometimes it’s external. The public tips off the IRS. Other federal agencies like the FBI or DEA share information during their own investigations. U.S. Attorneys’ offices send cases over. According to IRS procedures, once a special agent receives information suggesting criminal activity, they do a preliminary analysis with their supervisor. If there’s enough there, the special agent in charge approves opening a “subject criminal investigation” – and that’s when your life changes.

Unreported income is probably the most common trigger. You didn’t report cash from a side business, you hid earnings in offshore accounts, you failed to disclose cryptocurrency gains. The IRS knows about unreported income from digital assets – in 2025, crypto exchanges are filing detailed 1099 forms directly to the IRS, making it easier than ever to catch people who thought their Bitcoin transactions were invisible. Operation Hidden Treasure is the IRS initiative specifically targeting unreported cryptocurrency. They use blockchain analytics from companies like Chainalysis to trace every transaction you thought was anonymous.

Repeated failure to file is another red flag. You ignored your tax obligations for several years in a row. The IRS sent notices, you threw them away. That’s willful noncompliance – and willfulness is what separates a civil tax problem from a criminal one. The government has to prove you knew you had a duty to file or pay taxes and you intentionally chose not to. One missed tax return because you were disorganized? Probably civil. Five years of ignoring your legal obligation while you’re running a business and spending money? That looks willful.

Large-scale fraud schemes get IRS-CI’s attention fast. Ponzi schemes, PPP loan fraud, Employee Retention Credit scams. In February 2025, a Las Vegas business owner was indicted for running a $24 million cryptocurrency Ponzi scheme with over 400 investors. In March 2025, a cryptocurrency CEO was convicted of wire fraud and money laundering. These aren’t small-time cases – but the IRS also prosecutes smaller frauds when the evidence of willfulness is strong. We’ve defended clients in cases where the dollar amounts weren’t massive but the government believed it could prove intentional fraud.

High-income taxpayers are under more scrutiny in 2025. IRS enforcement priorities for 2025 include individuals with more than $400,000 in unreported income and those with over $250,000 in recognized tax debt. If you’re in that category and you’ve been playing games with your returns, you’re more likely to trigger an investigation. The IRS recently initiated audits of 76 of the largest corporate and partnership taxpayers – and they’re expanding that effort. Pass-through entities like LLCs and partnerships are also priority targets.

International tax compliance is a top enforcement area. You’ve got offshore accounts you never disclosed on your FBAR. You’re using foreign entities to hide income. The IRS has information-sharing agreements with dozens of countries now – so your Swiss bank account or Cayman Islands trust isn’t as secret as you think. Whistleblowers are another problem. In fiscal year 2024, the IRS paid $123.5 million to whistleblowers who helped collect $474.7 million in tax proceeds. That includes cases involving hidden offshore assets. Your business partner, your ex-spouse, your former accountant – any of them can report you, and if the IRS recovers money based on their tip, they get paid.

When does the IRS decide to go criminal instead of civil? There’s no magic dollar threshold. It’s about the evidence. Can they prove willfulness? Can they show you intentionally violated the tax laws? A civil audit means you made mistakes, maybe you were aggressive with deductions, but you didn’t commit a crime. A criminal investigation means they think you’re a tax cheat who deserves prison time. The difference matters – because once IRS-CI takes over your case, your auditor or revenue officer stops all activity. They’re not allowed to tell you why. You just get silence while special agents build a prosecution case against you.

If you realize you’ve failed to report income or file returns, submitting a voluntary disclosure before the IRS contacts you might limit your exposure to criminal prosecution. But there are strict rules. You can’t use voluntary disclosure if your income came from illegal sources – drug trafficking, fraud schemes, things like that. And if the IRS has already started an investigation or is about to contact you, you’ve missed your window. Voluntary disclosure isn’t a get-out-of-jail-free card, but it’s better than waiting for special agents to show up at your door with a search warrant.

IRS-CI uses serious investigative techniques. They interview witnesses, conduct surveillance, execute search warrants, subpoena your bank records, use forensic analysis on your computers and phones. These are federal law enforcement agents with badges and guns – not auditors. They’re building a case for the Department of Justice. Once they finish their investigation, if they believe there’s enough evidence, they send a prosecution recommendation to either the DOJ Tax Division or the local U.S. Attorney. If DOJ agrees to prosecute, you’re facing federal criminal charges.

At Spodek Law Group, we’ve handled federal tax investigations and prosecutions for clients across the country. Unlike other law firms who care more about their relationships with prosecutors, our only loyalty is to you – getting you the best possible outcome. Whether that means negotiating with the government before charges are filed, challenging the evidence at trial, or working out a resolution that minimizes prison time and financial penalties. Tax crimes are serious, but they’re defensible when you have attorneys who understand both the tax code and federal criminal procedure.

The worst thing you can do if you think you might be under investigation is ignore it or lie to investigators. Don’t talk to IRS-CI without a lawyer – because anything you say will be used to prosecute you. Don’t destroy documents or hide assets – that’s obstruction and it makes everything worse. Call us immediately. We’re available 24/7 because we understand that federal investigations don’t operate on a 9-to-5 schedule. The earlier we get involved, the more options we have to protect you.

IRS criminal investigations get triggered when the government has evidence of willful tax violations – unreported income, unfiled returns, fraud schemes, hidden offshore accounts. In 2025, the IRS is focused on high-income taxpayers, cryptocurrency, international compliance, and COVID-related fraud. If you’re in any of those categories and you’ve cut corners on your taxes, you need to take this seriously. The conviction rate is 90% once charges are filed. Your best chance is getting experienced federal defense attorneys involved before the government makes its final decision to prosecute.