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Hawaii’s economy may feel laid-back, but federal tax enforcement here is anything but. Honolulu’s mix of hospitality, construction, real estate, professional practices, and cross-border capital flows means individuals and businesses routinely intersect with complex federal rules. When an IRS civil tax audit or collection action uncovers badges of fraud, it can pivot into a criminal tax investigation with life-altering consequences. Our primary objective at the Tax Law Offices of David W. Klasing is relentless and straightforward: to conclude the criminal tax investigation or high-risk audit without criminal tax prosecution, thereby avoiding the indictment’s intense public scrutiny and collateral damage. IRS-CI reported more than 2,600 new investigations in fiscal year 2024, over 1,500 convictions, and a conviction rate near 90 percent, which is why swift, strategic defense is critical.
While Honolulu’s allure lies in its fusion of tradition and innovation, federal tax obligations remain rigorous. From deciphering the phases of an IRS civil audit and the escalation path to IRS criminal tax investigation to recognizing the red flags that attract CI’s attention, taxpayers should be thoroughly informed. Federal criminal tax transgressions commonly center on non-filing, evasion, and false returns. Evasion under 26 U.S.C. § 7201 requires proof of a tax due and owing, an affirmative act to evade or defeat the tax, and willfulness; false return cases under 26 U.S.C. § 7206(1) hinge on a willfully false material declaration under penalties of perjury; obstruction of the administration of the tax laws under 26 U.S.C. § 7212(a) must satisfy the Supreme Court’s Marinello standard linking the conduct to a pending or reasonably foreseeable proceeding.
The Internal Revenue Service routinely blends civil and criminal tools to identify fraudulent or persistently delinquent taxpayers, collect what it deems owed, and deter others through publicized prosecutions. Civil auditors and collection personnel generally contact you first. By contrast, CI agents conduct investigations covertly and often make unannounced approaches only after their case is fully developed in secret. Lying to federal agents is an additional felony under 18 U.S.C. § 1001.
If you are in an audit that could be a clandestine criminal tax investigation, it would be wise to engage our dual-licensed criminal tax defense Attorneys and CPAs at the Tax Law Offices of David W. Klasing immediately. Our knowledge of the Internal Revenue Manual’s fraud procedures and the Office of Fraud Enforcement’s current playbook is a force multiplier in keeping matters civil. Since 2020, the IRS has centralized its civil fraud strategy in the Office of Fraud Enforcement and replaced the old Fraud Technical Advisor role with Fraud Enforcement Advisors who can be embedded on cases to develop fraud and support criminal tax referrals. Call our Hawaii office at 1-(808)-518-2380 or contact us online HERE for a reduced-rate initial consultation. Our goal is damage control from day one.
What To Do When IRS Special Agents Contact You in Hawaii
Verify credentials and slow things down: Ask to see the CI badges and photo IDs, and note the agents’ names and contact information. Determine whether it is an administrative or grand jury investigation. A grand jury posture signals greater risk, including compulsory process. Then stop. Do not answer substantive questions before you consult counsel.
Do not discuss facts with your accountant: Communications with accountants are not privileged. Only an attorney-client relationship, and work performed by accountants retained through a Kovel arrangement preserves confidentiality for the purpose of legal advice.
Do not guess or shade the truth: Any materially false statement to federal agents can independently trigger prosecution under 18 U.S.C. § 1001. There is no oath requirement for liability, and oral misstatements can qualify.
Know your rights: You have a right to representation and to suspend an interview to obtain one. IRS Publication 1 and the Internal Revenue Manual codify these rights during examinations and collection contacts. If a revenue officer initiates contact, expect an appointment letter and the inclusion of Publication 1. If special agents appear, politely secure their business cards, decline a substantive interview, and tell them your counsel will contact them. Promptly book a consultation.
How Civil Cases Escalate to Criminal Tax Investigations
Civil examiners and collection personnel are trained to spot fraud indicators and consult the Fraud Enforcement Advisor. When firm indications of fraud exist, a Form 2797 referral can be prepared and sent to CI. IRM updates confirm OFE’s role across divisions and document how cases move to Status Code 17 for civil fraud development and Status Code 18 when CI accepts the criminal referral.
Once CI accepts a case, it prioritizes criminal tax investigations with a high probability of conviction. Factors often include identified affirmative acts, expected tax loss, quality of the records, corroboration of unreported income, and the taxpayer’s explanations. After CI finishes its investigation, IRS Counsel and DOJ Tax Division review prosecution recommendations, and if approved, the matter proceeds to the U.S. Attorney for the District of Hawaii. Hawaii criminal cases are prosecuted in the U.S. District Court for the District of Hawaii in Honolulu.
Why precision in responses matters: The IRS has revised its field contact model to schedule initial meetings via Letter 725-B, rather than most unannounced visits, which subtly increases the importance of your first reply and document production plan. Mishandling that step can escalate a civil case.
Introducing the Tax Law Offices of David W. Klasing in Hawaii
At the Tax Law Offices of David W. Klasing, we focus on high-risk civil and criminal federal tax controversies. Our seasoned, dual-licensed civil and criminal tax defense Attorneys and CPAs guide Hawaii taxpayers through civil fraud development, parallel investigations, and grand jury risk with meticulous attention to procedure and proof.
David W. Klasing holds an A+ rating with the Better Business Bureau and a perfect 10.0 AVVO score. In a nation with more than a million attorneys and over half a million CPAs, only an estimated 24,000 hold both licenses, and far fewer have also earned a Master’s in Taxation. Mr. Klasing is in that elite subset and leverages his graduate tax training and decades of practice for focused advocacy in civil and criminal tax defense. We maintain a portfolio that includes both purely civil matters and cases with potential criminal exposure, which keeps the government guessing and positions clients favorably in negotiations.
We are proficient in defending tax evasion under 26 U.S.C. § 7201 and false returns under 26 U.S.C. § 7206(1), with potential fines enhanced by 18 U.S.C. § 3571. We also handle obstruction of the administration of the tax laws under 26 U.S.C. § 7212(a) as clarified by Marinello, which requires a nexus to a pending or reasonably foreseeable IRS action and corrupt intent, yet still reaches document destruction, sham entities, and witness tampering. Employment tax and payroll trust fund cases under 26 U.S.C. § 7202 remain common in hospitality and construction and often arrive alongside civil trust fund assessments. Digital asset matters are a priority for IRS Criminal Investigation, including unreported gains, off-exchange wallets, and mixing services, and the new broker reporting regime increases detection risk even where only crypto-to-crypto swaps occurred. We also defend refund schemes and promoter-related investigations, including Employee Retention Credit claims and fraudulent refund filings, which continue to receive aggressive federal scrutiny in Hawaii.
Choose a dual-licensed Attorney CPA team when criminal tax exposure is in play. At the Tax Law Offices of David W. Klasing, we combine litigation-ready defense with deep tax procedure knowledge, including how exam teams document fraud indicators, when to limit interviews, how to route communications to preserve privilege, and when to engage CI or DOJ Tax to resolve matters pre-indictment. Circular 230 governs practice before the IRS, but only attorneys can shield communications through the attorney-client privilege and attorney work product doctrine and extend that protection to accountants retained under a Kovel arrangement for legal advice.
David’s proven proficiency is now available in Honolulu, Hawaii, at our appointment-only satellite office, providing both legal and federal tax services in one place—at a single hourly billing rate. We have introduced a flexible scheduling option where our clients can reserve a four-hour slot at any of our satellite locations. David W. Klasing will travel to any of our satellite offices to meet with you personally. This option must be preceded by a one-hour phone or GoToMeeting consultation to warrant incurring the travel expenses and opportunity costs of traveling. We have designed this service to benefit our clients, with no additional travel expenses added to your bill. Call us at 1-(808)-518-2380 or complete our online contact form today.
Our Honolulu, Hawaii Office is conveniently located at:
1003 Bishop Street, Suite 2700
Honolulu, HI 96813
Telephone: 1-(808)-518-2380
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