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IRS Investigation of Tax Crimes

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This article will explain the basics of criminal tax investigations. It is extremely important if you find yourself under such an investigation, or believe that the potential for a criminal investigation exists in your case, that you obtain an experienced attorney to represent you.

Internal Revenue Code (IRC) Section 7608(b) grants the right to the criminal investigators of the IRS’ Intelligence Division to investigate tax crimes. There are various means by which the IRS may decide to begin a criminal investigation, including audits that indicate potential fraud, informant’s tips, or other credible reports, such as newspaper articles about fraudulent behavior. An IRS agent will begin to collect more information at this point as part of the procedures of the Internal Revenue Manual in order to establish a “firm indication of fraud.” Once such an indication can be demonstrated, the taxpayer’s civil audit will be suspended, and referred to the Criminal Investigation Division (CID).

The Criminal Investigation Division (CID) of the IRS is empowered under IRC Sections 7622 and 7602 to examine records, books and other supporting documents regarding information contained in tax returns, to take testimony and to administer oaths.

Taxpayers and their representatives will not be informed of the reasons for the suspension once their case is referred to the CID. It is thus crucial that taxpayers be careful regarding any statements they may make to an IRS agent, as the potential exists for such information to be used against them in a criminal proceeding.

After a case is referred to the CID, it will be reviewed by the CID Chief. The Chief will then assign a Special Agent to investigate if it is felt that the case clearly indicates possible fraud. The Special Agent, accompanied by another agent serving as a witness, may then contact the taxpayer, without prior notice. The agent is required to give the taxpayer a Miranda-type warning. An agent may also, in certain circumstances, obtain a search warrant, as well as the summons power under IRC Section 7602.

If an agent determines after the investigation that a prosecution should be in order, the case will then be forwarded to the IRS attorneys. Under the criminal standard of proof, it must be demonstrated that the evidence against the taxpayer is sufficient to prove guilt beyond a reasonable doubt, and that it is a reasonable probability that the taxpayer will be convicted of the crimes alleged.

Once the case is transferred, the taxpayer will then usually have the opportunity to present any defenses at a special conference with the IRS. If the IRS counsel agrees that the taxpayer should be prosecuted after the evidence and arguments presented at the conference, the case will then be referred to the Tax Division of the Department of Justice for review. If the DOJ attorney decides that the taxpayer should be prosecuted, the case may be then transferred to the U.S. Attorney (the DOJ attorney may also give the U.S. Attorney discretion of whether to prosecute, or not, in certain cases). The U.S. attorney may in some circumstances receive the case with an authorization for a grand jury investigation to be conducted.

As can be seen from the information above, criminal tax investigations are a serious matter. There are numerous potential pitfalls that may arise at any step of a tax investigation that may lead a taxpayer to ultimately wind up being convicted for a tax crime.

The taxpayers are advised to obtain experienced tax attorneys to represent them if they believe, at any point in their civil investigation that the potential for a criminal investigation exists.

Contact Sherayzen Law Office for Legal Advice Regarding Criminal Tax Matters

If you believe that you may be subject to a criminal IRS investigation, contact Sherayzen Law Office. Our experienced tax law firm will analyze the facts of your case, offer defense options and rigorously represent your interests during the IRS investigation and any court proceedings.

Criminal Tax Evasion

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This article provides some general background to IRC Section 7201 criminal tax evasion charges and describes Section 7201 principal criminal penalties.   As you will see, the penalties are severe, and you should immediately seek the advice of a tax attorney if you have any doubts as to whether you are complying with the law and IRS rules.

Legal Test under IRC Section 7201

IRC Section 7201 deals with criminal tax evasion charges.  In Sansone v. United States, 380 U.S. 343, 354 (1965), the United States Supreme Court stated that two different charges can be brought pursuant to Section 7201: (1) the offense of willfully attempting to evade or defeat the assessment of a tax, and (2) the offense of willfully attempting to evade or defeat the payment of a tax.

The legal test that the government must satisfy consists of three elements:(1) that a tax deficiency existed, (2) an affirmative act of tax evasion, or an attempt to evade taxes, and (3), willfulness. The government is required to prove each of three elements beyond a reasonable doubt – the standard of proof in criminal cases – in order to show a violation of this section. By contrast, in a typical civil case, the standard of proof is only a preponderance of the evidence.

In general, the courts have held that filing a false return may demonstrate an attempt to evade the assessment of a tax, but it is not necessary for an individual to have filed a false return in order to show an attempt of tax evasion.  Certain courts have also held that it is not required for the government to prove the exact amount of tax due in order to show tax evasion.

Each of the elements necessary to prove a violation may involve complex factual matters and/or legal arguments, so you may be well advised to seek an experienced tax attorney if you find yourself in such a case.

Penalties under IRC Section 7201

Under IRC Section 7201, “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”

Thus, the criminal penalties under Section 7201 may consist of two parts.  First and foremost, imprisonment of up to five years (this charge may have its complications when combined wiht other penalties – therefore, the particular facts of your case will determine whether you potentially face more than five years in prison).  Second, the monetary penalty of up to $100,000 if the defendant is an individual or up to $500,000 if the defendant is a corporation.  The statute allows for the combination of both types of penalties in a single case.

Contact Sherayzen Law Office for Legal Help in Dealing with Section 7201 Charges

If you are or may potentially be in a situations where the U.S. government may charge you with criminal tax evasion offenses, contact Sherayzen Law Office for legal help.  Our experienced tax firm will analyze your case, help you determine whether you may potentially face criminal charges (if you not yet charged), determine the probability of a successful criminal prosecution by the U.S. government, build a creative ethical defense (while considering other possibilities to turn this into a civil case), and rigorously represent your interests in court and during negotiations with the U.S. Department of Justice or IRS.