Understanding how the IRS selects cases for criminal tax prosecution is crucial for taxpayers aiming to safeguard their financial and personal well-being. The IRS employs a meticulous and strategic approach to determine which cases merit criminal tax charges, ensuring that resources are allocated efficiently and effectively. Here’s an in-depth look at the factors and processes the IRS considers when choosing to prosecute criminal tax violations.
Limited Resources and Selective Prosecution
The IRS has limited resources for conducting criminal tax investigations and is highly selective about the cases it pursues. This selectivity ensures that the IRS can focus its efforts on cases that have the highest impact and likelihood of successful prosecution. This is precisely why IRS criminal tax investigations have a formidable 90% conviction rate in cases they opt to fully investigate. Often, the IRS chooses cases that send a strong message to the general population about the consequences of cheating on taxes. By targeting high-profile individuals, such as celebrities, prominent community figures, and politicians, the IRS aims to deter others from engaging in similar fraudulent tax activities.
Enforcement Priorities and Strategic Messaging
The IRS Criminal Investigation Division (IRS-CI) establishes enforcement priorities to guide its prosecutorial decisions. Several factors influence these priorities:
Payroll Tax Compliance
Recently, the IRS-CI has intensified its focus on payroll tax cases. By prosecuting those who fail to comply with payroll tax laws, the IRS sends a clear message about the importance of adhering to employment tax obligations, thereby enhancing overall employment tax compliance.
Original Tax Preparers
Tax preparers are a significant focus for the IRS-CI, especially around tax season (typically around April 15th). The IRS frequently indicts tax preparers who engage in fraudulent activities or who fail to comply with tax laws, recognizing that these individuals can be significant sources of tax compliance issues. This encourages tax preparers to resist aiding and abetting the income tax evasion of their clients.
Publicity and Deterrence
High-profile criminal tax prosecutions are strategically chosen to garner media attention, thereby increasing public awareness of the IRS’s commitment to enforcing tax laws. These cases serve as deterrents, discouraging others from attempting to evade taxes.
Types of Audits and the Role of Fraud Technical Advisors (FTA)
Audits conducted by the IRS can vary in their degree of scrutiny. They might be as straightforward as correspondence-based clarifications or as involved as on-site evaluations where IRS agents sift through financial records at your home or business. During these audits, the IRS may utilize a Fraud Technical Advisor (FTA). The FTA’s role is to identify potential fraud indicators. If an FTA detects what are known as “badges of fraud,” such as unusual discrepancies or suspicious activities, they may recommend that the case be referred to the criminal investigation unit for a closer examination. This referral often leads to a more intensive criminal tax investigation, given the IRS-CI’s formidable 90% conviction rate in cases they choose to prosecute.
Criteria for Criminal Tax Prosecution
When evaluating potential cases for criminal tax prosecution, the IRS-CI considers several critical criteria to determine whether criminal tax charges are warranted:
Severity of the Violation:
The IRS assesses the magnitude of the tax discrepancy. More significant discrepancies and more egregious fraudulent activities are more likely to result in criminal tax prosecution.
Willfulness:
The intent behind the violation is a significant factor. Cases demonstrating deliberate intent to evade taxes carry a higher likelihood of criminal tax prosecution.
Criminal History:
Individuals with a demonstratable history of willful tax violations or other criminal activities are more likely to face criminal tax prosecution.
Evidence Strength:
The availability and strength of evidence proving the tax crimes at issue are crucial. Strong, corroborated evidence increases the chances of criminal tax prosecution.
Public Interest:
The IRS considers whether criminally prosecuting the case serves the public interest, including deterring others from similar actions and maintaining trust in the tax system.
Additionally, given limited resources, the IRS-CI places significant weight on the likelihood of the prosecution resulting in a criminal tax conviction while selecting cases for investigation.
IRS-CI Investigation Process
- Data Analysis and Forensic Accounting: Utilizing advanced data analytics and forensic accounting techniques, the IRS-CI identifies irregularities and patterns indicative of fraud.
- Interviews and Witness Statements: Conducting interviews with the taxpayer and relevant third parties helps gather firsthand information and corroborate evidence.
- Document Examination: Scrutinizing financial records, tax returns, bank statements, and other pertinent documents uncovers fraudulent activities.
- Surveillance and Undercover Operations: In certain cases, the IRS may employ surveillance or undercover operations to gather additional evidence.
- Grand Jury Indictment: For more significant cases, a federal grand jury must vote to move forward with an indictment. After a grand jury investigation, the U.S. Attorney makes a written recommendation either for or against prosecution. The regional counsel of the IRS then reviews this report for final approval.
Furthermore, IRS-CI special agents have broad powers to conduct investigations. They are usually required to inform taxpayers of their Fifth Amendment rights against self-incrimination, including the right to remain silent when they suspect a taxpayer of a tax crime. An agent typically begins an investigation by gathering background information about the taxpayer, interviewing the taxpayer, examining the taxpayer’s books, records, and returns from prior years, investigating the taxpayer’s education and employment history, and locating the taxpayer’s bank accounts. They identify and investigate violations of the criminal statutes of the Internal Revenue Code, together with other crimes against Internal Revenue laws, such as conspiracy to defraud, false claims, false statements, presenting false documents at an audit, perjury, and failure to report currency transactions. Because IRS-CI has only limited resources, the selection of cases for full criminal investigation reflects not only the potential for a conviction but also CID’s priorities and the availability of agents to investigate the case. Most of their investigations center on attempts to violate a known legal duty that continues over several years and involves substantial tax deficiencies. Although cases involving evasion of income tax involve most of IRS-CI’s focus, it also takes cases involving estate, gift, employment, and excise taxes.
Referral to DOJ for Potential Prosecution
After completing the investigation, the IRS-CI reviews all collected evidence against the established criteria. If the case meets the threshold for prosecution, it is forwarded to the IRS District Counsel for further review and potential referral to the Department of Justice (DOJ). The DOJ then decides whether to file criminal tax charges based on the strength and merit of the case. Factors such as the taxpayer’s health or other circumstances that could elicit sympathy may influence the decision to decline prosecution.
The Importance of Professional Criminal Tax Defense Attorneys
Given the gravity of criminal tax prosecutions, securing experienced legal and financial tax defense is paramount. Engaging a dual-licensed civil and criminal tax defense attorney and CPA from the award-winning Tax Law Offices of David W. Klasing can make a significant difference in the outcome of your case. Here’s why choosing our professional assistance is crucial:
Expertise in Tax Law
Our specialized knowledge of federal and California state tax regulations and IRS procedures is essential for navigating complex criminal tax investigations. With a team of seasoned dual-licensed Tax Attorneys & CPAs, we are uniquely poised to defend against both civil and criminal tax allegations.
Risk Mitigation and Wealth Preservation
We focus on minimizing risks and preserving your wealth through strategic defense planning. Developing a robust defense strategy tailored to the specifics of your case enhances the likelihood of a favorable outcome, ensuring that your financial future remains secure.
Strategic Defense Planning
Our proactive approach involves identifying potential criminal tax exposures early in the audit process. By hiring our dual-licensed Tax Attorneys & CPAs at the beginning of an audit, we can monitor the audit, look for signs of a potential clandestine criminal tax investigation, and implement effective mitigation strategies.
Evidence Management
We excel at effectively managing and presenting evidence to undermine the IRS’s case, highlighting inconsistencies or errors in their criminal tax investigation. Our meticulous approach ensures that your defense is comprehensive and persuasive.
Negotiation Skills
We can negotiate plea bargains or reduced civil and criminal tax penalties, aiming to minimize the impact of criminal tax prosecution. Our long track record of successfully preventing criminal tax charges for audit clients speaks to our negotiation prowess. See our client testimonials here.
Protecting Your Rights
Ensuring that your constitutional rights are upheld throughout the criminal tax investigation and prosecution process is critical for a fair defense. We make sure that your Fifth Amendment rights are respected and that you are treated fairly by the IRS.
Strategic Cooperation
Our strategy blends staunch defense with calculated cooperation. When it serves our client’s best interests, we judiciously weigh the benefits of collaborating with federal agents.
Client Liberty Above All
While financial ramifications are vital, the true hallmark of our success is preserving our client’s personal and professional freedoms and net worth. To date, in the 15+ year history of the firm we have only had two clients criminally prosecuted for tax crimes where a very large percentage easily could have been. Both cases where our clients went to jail resulted from the IRS opening a criminal tax investigation before we were hired. We achieved damage control in both cases by strategically limiting the amount of time the ultimately served. One client was looking at 80 years in jail under the federal sentencing guidelines. We reduced that exposure to just 10 months.
Unmatched Experience
Our legacy isn’t merely longevity. The depth, variety, and successful outcomes of the cases we’ve steered make us a trusted choice. Our craftsmanship shines through, whether it’s tax preparation, federal court battles, or navigating the complex maze of negotiations with formidable adversaries like IRS revenue agents, revenue officers, their managers, chief counsel’s office, appeals officers, U.S. Attorneys, IRS or California criminal tax investigations, etc.
Prioritizing Your Well-being
Beyond the black and white of financial data lies the multi-hued spectrum of our client’s emotions and aspirations. Our decisions are always intertwined with their comprehensive well-being.
Comprehensive Service Spectrum
Our wide-ranging services mean our clients are sheltered under one umbrella, irrespective of the nature or complexity of their issues. This cohesive approach ensures not only consistency but enhanced efficacy.
Note: Audits are conducted in several different ways depending on the type of audit. They all involve providing records and documents to back up the information on your tax returns. Sometimes, this will be done entirely through correspondence, while other times, agents might ask you to come to a field office or even come to your home or business to look through your books and records in person. No matter which type of audit you are facing, you should reach out immediately to the skilled dual-licensed Civil and Criminal Tax Attorneys & CPAs at the Tax Law Offices of David W. Klasing.
Contact the Tax Law Offices of David W. Klasing Today
At the Tax Law Offices of David W. Klasing, our award-winning and dual-licensed civil and criminal tax defense attorneys and CPAs specialize in high-risk IRS audits and criminal tax investigations. We provide unparalleled client service with a focus on risk mitigation and wealth preservation, ensuring that you receive the comprehensive support necessary to navigate these intricate federal and California tax exposures. Whether you need to defend yourself against a criminal tax investigation or have questions about optimizing the Tax Code for your business or family, our seasoned dual-licensed attorneys and CPAs are uniquely equipped to assist you. We always keep a mix of civil and potentially criminal tax controversies going simultaneously to keep the IRS guessing.
With a long track record of successfully handling high-risk eggshell and reverse eggshell audits, we have consistently prevented our audit clients from facing federal or California state criminal tax charges. Our proactive approach includes monitoring audits for signs of potential criminal tax investigations and swiftly identifying criminal tax exposures to mitigate risks effectively. To date, none of our audit clients have been criminally prosecuted for tax crimes, even in cases involving frequent high-risk audits. For those in California and beyond, dealing with undisclosed foreign accounts, unreported offshore income-generating assets, or other complex tax issues, our dual-licensed Voluntary Disclosure Attorneys and CPAs navigate the complexities of federal and California state voluntary disclosures. If you have willfully committed tax avoidance or failed to report foreign income, our team can help you self-report through a voluntary disclosure before the IRS initiates an audit or criminal tax investigation, ensuring a nearly guaranteed pass on criminal tax prosecution and often reducing civil penalties.
To make our services as accessible as possible, we’ve introduced a convenient scheduling option, where clients can reserve a four-hour slot at any of our satellite locations, and David W. Klasing, an instrument-rated private pilot, will personally travel in the firm’s fast and efficient Cirrus SR22 to any of our satellite offices to meet with you. We have designed this service to benefit our clients, with no additional travel expenses added to your bill. To learn more about our services, call us today at (888) 564-1409 or schedule a reduced rate initial consultation online here.
