Awards & Recognition
Honolulu’s economy might feel relaxed, but federal tax enforcement is not. In industries common across the islands, such as hospitality, construction, real estate, professional practices, and cross-Pacific finance, a routine civil tax audit or collection action can pivot to a life-altering clandestine IRS-criminal tax investigation if “badges of fraud” surface. The IRS Criminal Investigation division reported for fiscal year 2024 that it initiated more than 2,600 investigations, secured over 1,500 convictions, and again posted a conviction rate of nearly 90 percent. Those numbers explain why swift, disciplined damage control is essential the moment criminal tax exposure is possible.
What “Tax Evasion” Means Under Federal Law
Federal tax evasion is a felony under 26 U.S.C. § 7201. The government must prove a tax due and owing, an affirmative act to evade or defeat that tax, and willfulness. The Supreme Court’s Spies decision describes affirmative acts, such as keeping a double set of books, concealing assets, or using cash transactions, to mislead. Cheek v. United States clarifies that “willfulness” means a voluntary, intentional violation of a known legal duty. Filing a willfully false return under 26 U.S.C. § 7206(1) is a separate felony. Obstructing the administration of the internal revenue laws under 26 U.S.C. § 7212(a) requires a nexus to a pending or reasonably foreseeable IRS action, as well as corrupt intent, as established in Marinello. Making materially false statements to federal agents is its own felony under 18 U.S.C. § 1001. Convictions can also carry higher “alternative” fines under 18 U.S.C. § 3571. Most Title 26 tax-crime charges carry a six-year statute of limitations under 26 U.S.C. § 6531.
Potential exposure and penalties: Section 7201 (evasion) is punishable by up to five years’ imprisonment and fines; § 7206(1) carries a maximum penalty of up to three years; false statements under § 1001 carry a maximum penalty of up to five years. Under 18 U.S.C. § 3571, individuals can face fines up to $250,000 for felonies and organizations up to $500,000, unless a specific statute limits otherwise. Furthermore, courts routinely order restitution.
How Routine Civil Tax Cases Become Criminal in Practice
The IRS formalized a modern fraud pipeline: the Office of Fraud Enforcement (OFE) leads civil-side fraud strategy, and Fraud Enforcement Advisors now support exam and collection personnel in place of the old Fraud Technical Advisor role. When “firm indications of fraud” arise, agents consult the FEA and can prepare a Form 2797 fraud referral to be submitted to IRS-CI. Accepted criminal tax referrals are removed from civil status while the CI builds the case. If CI recommends prosecution, IRS Counsel and the DOJ Tax Division review the matter, and then it is referred to the U.S. Attorney. Prosecutions are brought in the U.S. District Court for the District of Hawaii, located in Honolulu.
Field contact changes matter. The IRS has ended most unannounced revenue officer visits and now schedules initial meetings using Letter 725-B. That change elevates the importance of your first response and document-production plan because early missteps can escalate a civil case toward a criminal path. If CI special agents appear unannounced, verify credentials, take their cards, decline a substantive interview, and contact counsel immediately. Lying to agents can independently trigger § 1001 liability.
High-Risk Fact Patterns We See Most Often
- Classic evasion and false returns: Underreported income, sham deductions, nominee accounts, and cash skimming remain core CI priorities under §§ 7201 and 7206(1).
- Obstruction during an exam or collection: Post-Marinello, obstruction requires a tie to an existing or foreseeable IRS action and corrupt intent, yet still encompasses document destruction, sham entities, and witness tampering.
- Employment tax trust-fund exposure: Willful failures to collect or pay over employment taxes can bring criminal charges under § 7202, alongside civil trust-fund assessments. DOJ Tax and CI continue to emphasize these investigations in cash-intensive sectors common in Honolulu.
- Digital assets: CI explicitly prioritizes crypto tracing and tax crimes involving digital assets. Final broker-reporting regulations require custodial brokers to issue Form 1099-DA for gross proceeds reporting, beginning with transactions on or after January 1, 2025, with basis reporting phasing in from 2026 under transitional relief. Expect much more third-party reporting to the IRS. John Doe summonses remain a valuable tool for identifying U.S. users.
- High-income non-filers: The IRS has launched an initiative covering approximately 125,000 high-income non-filers, backed by resources from the Inflation Reduction Act. Letters were sent to those with an income above $ 400,000, including more than 25,000 individuals with an income over $ 1 million. Non-filing can be charged criminally where willfulness is present.
Why Hire the Tax Law Offices of David W. Klasing in Honolulu
At the Tax Law Offices of David W. Klasing, our mission is urgent and straightforward: keep your matter civil, minimize damage, and prevent indictment where the facts allow. We are a dual-licensed team of Criminal Tax Defense Attorneys and CPAs that pairs litigation-ready defense with forensic tax precision. We understand 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. Only attorneys can confer attorney-client privilege and work-product protection; we extend that protection to accountants engaged under a Kovel arrangement for the purpose of obtaining legal advice.
We handle the full spectrum of federal criminal-tax exposure: evasion under § 7201, false returns under § 7206(1), obstruction under § 7212(a), employment-tax crimes under § 7202, conspiracy under 18 U.S.C. § 371, where charged, and parallel civil fraud penalties. We also advise on the timely use of the IRS Voluntary Disclosure Practice, as outlined in Form 14457, to address willful noncompliance before an examination or criminal investigation begins.
If there is any indication that your matter could become criminal, contact the Tax Law Offices of David W. Klasing promptly. We will halt direct questioning, control document flow, reconstruct records, model tax and penalty exposure, and implement a defense designed to protect your liberty and your net worth. David’s proven proficiency is now available in Hawaii, Honolulu, 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, allowing our clients to 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 (702) 997-6465 or complete our online contact form today.
Our Hawaii, Honolulu Office is Conveniently Located at:
1003 Bishop Street, Suite 2700
Honolulu, HI 96813
Telephone: 1-(808)-518-2380
