How and when do criminal tax investigations begin? Many people have heard of persons being criminally indicted or charged with tax-based claims for failing to pay tax or failing to file tax returns, but how does the government begin or initiate the criminal tax process? The article below has been prepared by a tax attorney to provide additional information regarding these questions and issues. Please remember this article is for informational purposes and you should consult your tax attorney or a criminal attorney with your specific questions.
The Internal Revenue Service has a Criminal Investigation Division that conducts criminal investigations relating to alleged violations of not only the Internal Revenue Code, but also the Bank Secrecy Act (BSA) and certain money laundering statutes. The investigators will then provide their findings to the Department of Justice for recommended prosecution.
The information that will lead to a criminal investigation can be obtained by the Internal Revenue Service in many ways. Perhaps an individual owed tax to the IRS or was being audited by the IRS and the IRS revenue officer or revenue agent noticed issues that appeared illegal, fraudulent or felt the matter needed further review. The revenue officer or revenue officer could refer the case or issues to the Criminal Investigation Division. Oftentimes, information could be received by the public such a disgruntled employee, ex-spouse or other whistleblower. Furthermore, the IRS may obtain information from other law enforcement agencies whether federal, state or local that could inevitably lead to the initial criminal investigation.
Once the criminal investigation has begun, Special Agents will analyze the information to determine if criminal tax fraud or some other financial crime may have occurred. The preliminary investigation is often referred to as the “Primary Investigation.” A supervisor of the Special Agents will review the initial information and make a determination as to approve the case for further review and development. If the supervisor approves, approval can be obtained from the head office and the Special Agent in charge will initiate a Subject Criminal Investigation. At this point, the investigation would be considered open and ongoing as the Special Agent will work to further obtain facts and evidence needed to establish the necessary elements for criminal activity. The information, facts and evidence can be obtained in various ways from various sources such as third-party interviews, search warrants, surveillance, subpoenaing bank records, related financial records & tax returns and reviewing any other financial or asset related documentation. Generally, the Special Agent will work with a criminal tax attorney within the IRS Chief Counsel in an attempt to ensure certain legalities are maintained during the course of the investigation.
At what point is there a charge or prosecution? Once all evidence has been gathered and analyzed, the Special Agent and their supervisor will make a determination that the evidence does or does not equate to criminal activity. If the evidence does not substantiate criminal activity and charges, the investigation is discontinued. If the determination is that the evidence would substantiate a criminal charge and thus prosecution recommended, the Special Agent would move forward with preparing a special agent report. The special agent report would thereafter be reviewed by multiple parties such as supervisors, review teams etc.
Upon this “final review” if the Criminal Investigation Division determines a criminal prosecution is warranted, the division will recommend prosecution to the Department of Justice (Tax Division) or United States Attorney. Generally, the Tax Division of the Department of Justice will prosecute the matter if it is a tax investigation, and the United States Attorney would prosecute for other investigations.
If you have been contacted by an IRS Criminal Investigator or know of an ongoing investigation of which you are a witness or target, it is highly recommended you contact a tax attorney or criminal tax attorney.