Internal Revenue Service Criminal Investigation Process

Internal Revenue Service Criminal Investigation Process

How Internal Revenue Service Criminal Investigations are Initiated: When it comes to violating Federal Tax Law, one of the scariest concerns that Taxpayers across the globe have, is whether or not they have committed a criminal tax violation — which could end-up launching an IRS Special Agent Investigation — and lead to a criminal indictment and prosecution. Under most circumstances, making a tax mistake — even if the violation is considered reckless disregard or willful blindness — will not usually lead to a criminal investigation. Typically, tax violations of the Internal Revenue Code are civil. Still, some unlucky folks will become subject to an IRS Criminal Investigation. With a criminal tax violation, the Taxpayer is at risk of both monetary penalties and possible incarceration/loss of freedom.  This is especially important in matters involving offshore or foreign accounts, assets, investments and income — due to the sheer magnitude of willful penalties. Any potential IRS criminal investigation must be taken very seriously, for the simple reason that it is a criminal investigation — and that anything the taxpayer says later in the process (read: speak with a Board-Certified Tax Law Specialist before speaking with an IRS agent in a criminal matter). Let’s go through the basics of how the Internal Revenue Service Criminal Investigation process works by identifying excerpts from the Internal Revenue Service website — along with a brief summary of what it means:

Sources of Criminal Investigations for IRS Special Agents

• • • Criminal Investigations can be initiated from information obtained from within the IRS when a revenue agent (auditor) or revenue officer (collection) detects possible fraud. Information is also routinely received from the public as well as from ongoing investigations underway by other law enforcement agencies or by United States Attorneys offices across the country.

What does this Mean?

This means that here is not one particular way for the Internal Revenue Service to obtain information regarding potential criminal violations. It may be the result of an audit or examination — or third-party such as a whistleblower — or other person who may have submitted to a voluntary disclosure before you had a chance to get into IRS compliance voluntarily.

Preliminary Analysis and Investigation Approvals

• • • Special agents analyze information to determine if criminal tax fraud or some other financial crime may have occurred. Relevant information is evaluated. This preliminary process is called a “primary investigation.”

    • The special agent’s front line supervisor reviews the preliminary information and makes the determination to approve or decline the further development of the information.

    • If the supervisor approves, approval is obtained from the head of the office, the special agent in charge, to initiate a “subject criminal investigation.” At this point, at least two layers of CI management have reviewed the ‘primary investigation’ material and determined there is sufficient evidence to initiate a subject criminal investigation.

What does this Mean?

Not every potential criminal investigation will make its way to becoming a potential indictment or a criminal complaint being filed. Rather, Special Agents are first tasked with evaluating the information and conducting a primary investigation. The Special Agents assess the different facts and circumstances and then make a recommendation to the Supervisor — who will then either approve or reject an investigation.

Conducting Internal Revenue Service Criminal Investigations

• • • Once an investigation is opened, the special agent obtains the facts and evidence needed to establish the elements of criminal activity. Various investigative techniques are used to obtain evidence, including interviews of third party witnesses, conducting surveillance, executing search warrants, subpoenaing bank records, and reviewing financial data.

    • The special agent works closely with IRS Chief Counsel Criminal Tax Attorneys during the course of the criminal investigation. This process ensures all legal aspects of the investigation and prosecution recommendation are correctly addressed.

What does this Mean?

In order to conduct a criminal investigation the Special Agents of the Internal Revenue Service will investigate the different fact and circumstances determine the various required elements of different tax crimes are met. As with any criminal investigation, the Internal Revenue Service agents have many tools at their disposal to conduct a detailed and thorough investigation.

Prosecution Recommendations by the Special Agent

After all the evidence is gathered and analyzed, the special agent and his or her supervisor either make the determination that evidence does not substantiate criminal activity, in which case the investigation is ‘discontinued,’ or the evidence is sufficient to support the recommendation of prosecution, in which case the agent proceeds with the preparation of a written report detailing the findings of violation of the law and recommending prosecution. This report is called a “special agent report” and it is reviewed by numerous officials, including:

1. 1. 1. The agent’s front line supervisor, called the supervisory special agent;

      2. A criminal investigation quality review team, Centralized Case Review;

      3. CI assistant special agent in charge;

      4. CI special agent in charge.

If CI determines the investigation should be criminally prosecuted, a prosecution recommendation is forwarded to:

1. 1. 1. The Department of Justice, Tax Division, (if it is a tax investigation) or

      2. The United States Attorney for all other investigations.

Each level of review may determine that evidence does not substantiate criminal charges and the investigation should not be prosecuted.

What does this Mean?

After a comprehensive criminal investigation is handled by the Special Agents, they will gather and evaluate the information to determine whether or not they recommend that a criminal prosecution should be pursued. They will compile this information into what is referred to as a Special Agent Report. If the agents believe that investigation should be pursued, then the report is forwarded to numerous officials who would then make a final recommendation regarding referring the matter for prosecution.

Prosecution Recommendation from an Internal Revenue Service Criminal Investigation

• • • If the Department of Justice or the United States Attorney accepts the investigation for prosecution, the IRS special agent will be asked by the prosecutors to assist in preparation for trial. However, once a special agent report is referred to for prosecution, the investigation is managed by the prosecutors.

What does this Mean?

This means that the criminal investigation department recommended prosecution to either the Department of Justice Tax Division or US state attorney (usually for non-tax matters) we’ll pursue prosecution.

Conviction

The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction – either by a guilty verdict or plea. Approximately 3,000 criminal prosecutions per year provide a deterrent effect and signals to our compliant taxpayers that fraud will not be tolerated.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

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