The IRS Criminal Investigation Division approves for investigation those matters that have the greatest potential of being prosecuted to the extent available resources permit. Generally, case referrals come from any number of sources but the most common are 1) Fraud Referrals from other Divisions within the IRS, 2) IRS Collection Cases (trust fund, evasion of payment), 3) Undercover Sting Operations, 4) Informants –– Ex-spouses, Former Employees, Neighbors, Business Competitors, etc., 5) Whistleblowers, 6) OVDP/OVDI Disclosures, 7) Defendants Seeking Departures for Cooperation, 8) Other Federal or State Agencies, and 9) Structuring (Bank Secrecy Act offenses).
Several factors go into the decision to select cases for prosecution. In addition to the merits of the case and evidence supporting the charges there are several other “badges of fraud” that the IRS and DOJ will consider. These factors include 1) a pattern of behavior (3 years or more), 2) an area of interest, 3) a prior history with the IRS Criminal Investigations Division, 4) potential tax loss, and 5) deterrent impact. The mere existence of one does not automatically subject a taxpayer to criminal investigation however it does increase the likelihood of investigation particularly when more than one badge of fraud is present.