U.S. citizens and tax residents are subject to a dizzying number of tax regulations. Failing to file a tax return or misreporting your earnings could result in serious civil and criminal tax penalties. In some cases, a taxpayer may be charged with a crime due to their failure to adhere to the tax code. With the recent change to head of the Internal Revenue Service investigation department, this could signal a change in the frequency of criminal investigations for tax violations. If you are concerned that you may have violated a tax law and that you may be the subject of an IRS criminal investigation, contact our California dual-licensed tax attorneys and CPAs. IRS criminal investigations could be extremely stressful, and the Tax Law Offices of David W. Klasing would like to help you through this difficult time. Our firm is here to explain whether a new IRS criminal investigation department head equals more criminal prosecutions.
How Does a New IRS Criminal Investigation Department Head Affect Taxpayers?
With the retirement of IRS criminal investigation Chief Don Fort, Deputy Chief James Lee took over as the department head on October 1, 2020. Lee has 25 years of experience working at the IRS and has many relationships with tax prosecutors across the United States. According to IRS Commissioner Chuck Rettig, Lee thoroughly understands the need to support compliant taxpayers by enforcing laws against taxpayers who intentionally violate federal tax regulations.
Currently, the IRS criminal investigations division recommends approximately 3,000 cases per year for prosecution. With the above statement from the IRS Commissioner, it is reasonable to believe that the IRS will pursue more criminal investigations against taxpayers under the leadership of Chief Lee. Chief Lee is responsible for IRS criminal investigations for the following financial crimes:
- Cybercrimes
- Identity theft
- Money laundering
- Narcotics and terrorist financing
- Public corruption
This is not an exhaustive list. There are many other financial crimes that the IRS criminal investigations unit will undoubtedly pursue. Our California criminal defense Tax Attorneys and CPAs are ready to assist you if you have found yourself in an Eggshell Audit or IRS criminal investigation for failure to pay taxes.
How IRS Criminal Investigations are Conducted
There is little chance that the IRS will make procedural changes to the way they conduct criminal tax investigations. However, a taxpayer should still be aware of how the IRS will conduct a criminal tax investigation when they have suspicions that a financial crime has been committed.
The IRS will open a criminal tax investigation if they have reason to believe that there was a violation of the Internal Revenue Code, the Bank Secrecy Act that handles foreign reporting requirements, or other money laundering statutes. If the IRS discovers legitimate evidence of a tax code violation, they will refer the case to the Department of Justice and recommend that they prosecute the person or entity in question.
Sources for IRS Criminal Investigations
There could be several sources that may be used to support an IRS criminal tax investigation. Many investigations begin when a revenue agent or officer believes that a taxpayer has committed a crime. For example, if there are discrepancies on a tax return submitted by a person or entity, this could be enough to open an investigation.
Additionally, the IRS may also receive information from outside sources such as tips from the public, tips from law enforcement agencies, or information from U.S. attorneys who deal with tax cases.
Preliminary Analysis for Criminal Investigation
After the IRS has information that a financial crime may have been committed, special agents will analyze the information to determine the specifics of the crime. After reviewing the information, the special agent will submit their findings to their front-line supervisor. The front-line supervisor will then determine whether to continue the investigation. If the case is approved, the special agent in charge will begin a “subject criminal investigation.”
Full Criminal Investigation
The next step is for the IRS to seek evidence that satisfies the elements of crime committed by the taxpayer and possibly other parties involved in the crime. The IRS will use the following methods to gather evidence for the case:
- Conducting surveillance of the targets of the investigation
- Interviewing witnesses who may have observed the financial crime
- Executing search warrants
- Subpoenas of bank records of the target
- Examining financial data
The special agent on the case will be working with IRS criminal tax attorneys at this stage to ensure that all legal issues are addressed.
Recommendations for Prosecution
Once the special agent believes they have gathered all the relevant evidence for their case, the agent or their supervisor will then determine whether the evidence gathered points to a financial crime by the subject. If the evidence is sufficient to support a recommendation for prosecution, the special agent will submit a written report to various IRS officials.
If the criminal investigations special agent in charge determines the case is valid, it will be submitted to the DoJ’s tax crimes division. If the DoJ accepts the case and convicts the defendant, they could face multiple years in prison and fines depending on the circumstances of the case.
Our Qualified California Tax Attorneys and CPAs are Here to Discuss Potential IRS Criminal Tax Investigations
If you believe that you may be the target of an IRS criminal tax investigation, you should consult with our experienced dual licensed California tax defense lawyers and CPAs as soon as possible. An IRS criminal tax investigation is not a matter that should be taken lightly, and the Tax Law Offices of David W. Klasing is here to assist you in exploring your legal options to avoid criminal tax liability. If you are interested in scheduling a confidential consultation, call our firm at (800) 681-1295. Your consultation could also be scheduled online.
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