If you are sitting on a string of tax returns you know are false, a pattern of unfiled returns, or a foreign account you never disclosed, you have probably reassured yourself that federal criminal tax prosecution is slow, specialized, and unlikely to reach you. That reassurance rested on an institution that no longer exists. On August 18, 2026, the Department of Justice published a final rule handing every criminal tax prosecution in the country to a division built to hunt tax fraud, and the rule took effect on August 24, 2026. Anyone with genuine exposure should understand what changed before deciding whether to keep hiding and should discuss it with a dual-licensed Criminal Tax Attorney & CPA rather than with the accountant who prepared the original returns as they are likely to become government witness number one against you.
What Does the New Rule Actually Do?
AG Order No. 7108-2026, published at 91 Federal Register 53357, amends Part 0 of Title 28 of the Code of Federal Regulations. It creates a new Subpart M and assigns to the Assistant Attorney General for the National Fraud Enforcement Division, at 28 C.F.R. section 0.70(b), “All criminal proceedings arising under the internal revenue laws.” The same rule strikes paragraph (w) from section 0.55, which had temporarily housed criminal tax prosecution inside the Criminal Division. It rewrites section 0.55(b) to carve tax frauds out of the Criminal Division’s general fraud authority. Criminal tax prosecution now belongs exclusively to the Fraud Division.
This completes a migration that began last year. The Tax Division supervised federal criminal tax enforcement for more than ninety years before the Department dissolved it on November 30, 2025, and its functions moved to the Civil and Criminal Divisions under AG Order No. 6508-2025, effective December 9, 2025. The Acting Attorney General created the Fraud Division by memorandum on April 7, 2026. This rule ends the interim arrangement and makes the new structure permanent, meaning every IRS criminal tax investigation referred for prosecution from this point forward lands in the Fraud Division’s hands.
Why “All” Is the Most Important Word in the Regulation
The regulation that governed the Department of Justice’s Tax Division for decades did not read that way. It assigned criminal proceedings arising under the internal revenue laws subject to several express jurisdictional carve-outs, including certain offenses involving forcible interference with revenue officers, unauthorized disclosure of return information, and tax stamps. The new section 0.70(b) does not reproduce those exceptions. Instead, it broadly assigns the National Fraud Enforcement Division (NFED) responsibility for “all criminal proceedings arising under the internal revenue laws.”
That matters more than it may sound. NFED now sits over the core federal criminal tax arsenal, including tax evasion under section 7201, willful failure to file under section 7203, false returns and statements under section 7206, and obstruction under the omnibus clause of section 7212(a), which the Supreme Court narrowed in Marinello v. United States by requiring a nexus between the obstructive conduct and a particular administrative proceeding. The new structure places responsibility for conducting, handling, or supervising these criminal tax proceedings within a broader tax fraud-focused division.
The Provision Almost Nobody Is Discussing
Read section 0.70(k) carefully. It authorizes the Fraud Division to investigate criminal conduct in pursuit of a case within its enumerated categories, and then to prosecute any criminal offense identified during that investigation, whether or not the offense falls within those categories. Paragraph (j) adds authority to charge any federal criminal provision alongside a proceeding brought under those paragraphs. For a taxpayer already exposed on the tax counts, this language converts a civil and criminal tax controversy into something with a far wider blast radius.
In plain terms, a criminal tax investigation is now expressly a doorway into any federal charge the investigation happens to turn up. Wire fraud, money laundering, false statements, and structuring require no separate referral and no different division. Paragraph (i) then supplies authority to seek injunctions against fraud under 18 U.S.C. section 1345, obtain restitution, seize and forfeit property, and impose penalties. Section 0.71 lets the division’s leadership certify that a special grand jury is necessary and certify that a proceeding targets a person believed to have participated in organized criminal activity so that deposition testimony can be preserved. That machinery was not written with the ordinary tax litigation client in mind, and it now sits in the same hands that will charge your case.
At the Tax Law Offices of David W. Klasing, we are happy to provide a reduced-rate initial consultation, which you can arrange by calling (800) 681-1295 or by clicking HERE to schedule online.
What Happened to the Review That Used to Stand Between You and an Indictment?
This is the question that should concern any taxpayer with real exposure. Under the old structure, Tax Division attorneys reviewed every criminal tax case that IRS Criminal Investigation generated before it reached a United States Attorney for indictment. They weighed the sufficiency of the evidence, the legal theory, the available defenses, and the broader enforcement consequences. Tax Division Directive No. 128 went further still. It required Tax Division authorization for any criminal charge where the conduct arose under the internal revenue laws, including mail, wire, or bank fraud charged alone or as a predicate to a racketeering or money laundering count. Nothing comparable applied to an ordinary IRS or state tax authority audit.
That centralized review was never a courtesy extended to defendants. It existed to keep enforcement of the tax laws uniform across the country. It nevertheless operated as a genuine checkpoint, and experienced criminal tax defense counsel used it, because a weak case could be argued down or declined before any indictment issued. The new rule does not address whether the Fraud Division will maintain an equivalent authorization requirement, and the Department has not published a successor to Directive No. 128. Until it does, no one can tell you with confidence what internal approval your case will receive before charges are filed, which is precisely why early representation matters more now than it did two years ago.
A second structural change sits quietly in the same rule. Section 0.13(b) now permits an Assistant Attorney General to redelegate litigating authority to Section Chiefs, including authority to designate attorneys to conduct grand jury proceedings that previously could not be redelegated. The Tax Section itself continues to exist within the new National Fraud Enforcement Division, but the hierarchy above it has materially changed. It remains unclear whether the former Tax Division’s centralized authorization and pre-indictment review procedures will survive in equivalent form, or how much charging authority will ultimately be exercised at lower levels of the new structure.
Does the McDonald Memorandum Mean Professionals Are Safe?
On August 13, 2026, Assistant Attorney General Colin McDonald issued a memorandum setting the Fraud Division’s enforcement priorities across public trust and financial integrity, health care, internal revenue, global trade and commerce, and corporate misconduct. It states that the primary focus of IRS Criminal Investigation and Fraud Division prosecutors will not be traditional legal source income tax evasion by business owners, attorneys, physicians, and other professionals who file false individual returns understating their income. Priority shifts instead toward government program fraud and promoters of pandemic-era credit and relief schemes.
Some commentators are already reading that as an amnesty for professionals. It is nothing of the kind, and acting on that reading would be a serious mistake. The memorandum says plainly that those investigations and prosecutions will still occur. Nothing in it touches the civil fraud penalty under 26 U.S.C. section 6663, which imposes 75 percent of the portion of an underpayment attributable to fraud. Moreover, the same affirmative acts of concealment, deception, or intentional misconduct that support a civil fraud penalty can also create serious criminal tax exposure. However, civil fraud and criminal tax prosecution involve different standards and burdens of proof. And nothing in the memorandum prevents NFED from pursuing related federal fraud offenses when the facts support them.
Where Does Your Leverage Actually Sit?
Many of the most important opportunities for criminal tax defense intervention arise before a matter reaches criminal tax prosecution. Criminal tax investigations can originate from civil audits or collection matters. Still, they can also begin from IRS Criminal Investigation leads, third-party information, other law-enforcement investigations, or referrals from prosecutors. During a civil examination, considerable judgment occurs while potential indicators of fraud are being evaluated and developed. But once the IRS determines that firm indications of fraud or willfulness exist and criminal criteria are satisfied, the compliance employee suspends the civil activity and prepares a referral to Criminal Investigation, which then determines whether to accept or decline the case. An eggshell audit, meaning a civil examination involving facts capable of creating criminal tax exposure, is therefore often won or lost by how the examination is handled before that threshold is crossed. The danger is even greater in a reverse eggshell audit, where the government may already know or suspect damaging facts without the taxpayer realizing how much the government knows.
The second lever is timing. A taxpayer who has willfully committed tax crimes and self-reports through a domestic or offshore voluntary disclosure before the IRS has begun an audit or a criminal tax investigation can ordinarily be brought back into compliance, and in appropriate circumstances can substantially reduce exposure to criminal tax prosecution while obtaining a meaningful break on the civil penalties that would otherwise apply. No outcome is guaranteed, and the Internal Revenue Manual states expressly that a voluntary disclosure creates no substantive or procedural rights. What is certain is that the option narrows sharply once the government moves first.
Why Your CPA Cannot Protect You Here
The federal tax practitioner privilege under 26 U.S.C. section 7525 may be asserted only in noncriminal tax matters before the IRS and noncriminal tax proceedings in federal court. It disappears the moment a matter turns criminal; it has never covered the preparation of a return, and California recognizes no accountant-client privilege at all. The accountant who prepared the returns now under scrutiny can be subpoenaed and compelled to testify to everything you told them, and a preparer facing criminal tax exposure of their own has every incentive to place responsibility on the client.
Only the attorney-client privilege and the attorney work product doctrine protect the candid conversation this situation requires. When our firm needs an accountant’s skills on a sensitive matter, we bring our staff of CPAs and CPA candidates onto the engagement as part of the legal team, under attorney supervision, so the accounting analysis supports the legal representation instead of manufacturing a witness for the government. Our dual-licensed Tax Attorneys and CPAs hold both licenses, allowing one advisor to assess the civil and criminal tax consequences of your position at a single hourly billing rate.
We are happy to provide a reduced-rate initial consultation, which you can arrange by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 or by clicking HERE to schedule online.
