criminal investigations on taxpayers
  • June 28, 2023
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There are many reasons why you might end up facing an Internal Revenue Service (IRS) tax investigation. Many taxpayers don’t even know they’re under investigation regarding alleged tax evasion or tax fraud until the IRS comes looking for them. There are many different kinds of tax fraud that all attract different penalties, and without proper counsel, it is easy for issues to spiral out of control. If an IRS agent comes across incriminating information during the civil audit, it can lead to an indictment or jail time in certain cases. When you understand how the IRS initiates its tax investigations, you can take preemptive measures by hiring an IRS tax problems resolution attorney to represent you. Understanding how IRS tax investigations are initiated is key.

What is the purpose of an IRS Tax Investigation?

The IRS initiates tax investigations of taxpayers that are suspected of taking part in a tax crime. Through the investigation, the IRS can gather evidence that either exonerates the subject or leads to the initiation of criminal prosecution. When an IRS tax investigation indicates wrongdoing, the consequences can be huge fines and even jail time. This is why it is important to avoid an investigation altogether or make sure that it is carefully managed. Working with a tax law attorney is crucial for your IRS problem’s resolution.

How does an IRS investigation differ from an audit?

During an audit, the IRS simply verifies that you have correctly determined your tax liability. However, when an investigation takes place, the IRS works to build a case against you in respect of your tax crimes. Evidence gathered can later be used for prosecution. An IRS tax investigation is far more serious and should be handled carefully with the help of tax law professionals, such as tax resolution attorneys.

Are you at risk of an IRS Tax investigation?

There are several reasons why the IRS might choose to investigate a taxpayer. A suspicion that any tax crime has been committed such as fraud or tax evasion is reason enough for the IRS to start gathering evidence against you. Some of the signs that you are on the IRS’s radar include having your bank records summoned, or your accountant contacted by the CID. If you have been under audit and your agent suddenly goes MIA, they might also be getting ready to pass on your case to the CID.

Related Blog: 4 Ways a Tax Lien Can Affect You

What to do if you are being investigated?

If you are already under investigation, it is important that you take action as quickly as possible. The most beneficial thing you can do is consult with a tax resolution attorney. Getting your case managed by a tax pro boosts your chances of getting the desired IRS problem resolution. You will also prevent making any mistakes that could worsen your situation. Inform your accountant about the investigation and cease communication thereafter. This is very important because, unlike attorney-client privilege, conversations with an accountant are not protected.

Who Informs the IRS of Possible Fraud?

The IRS has multiple sources of information. They include-

  • Information collected by revenue agents and revenue officers
  • Information provided by other law enforcement agencies
  • Information collected from your digital footprint
  • Discrepancies found during computer data analysis
  • Information provided by whistleblowers

What Happens with this Information?

This information is analyzed to ascertain whether tax fraud or a different financial crime is being committed. This process is called a primary investigation. After the primary investigation is over, a supervisor looks at the collected facts to determine if the findings are to be further investigated or not. If the supervisor gives his go-ahead, the case is sent to management for approval, after which a special agent begins a criminal investigation. At this point, the IRS has established they have enough evidence to start a criminal investigation.

Related Blog: Understanding the Various Types of IRS Levies

IRS Criminal Investigation Process

The Criminal Investigation Division of the Internal Revenue Service conducts criminal investigations on taxpayers if they commit tax evasion or allegedly violate the Bank Secrecy Act, the Internal Revenue Code, and various money laundering statutes. If a taxpayer has committed tax evasion, the IRS can prosecute within six years, but if they have committed tax fraud, the IRS has unlimited time to prosecute the case. In this section, we take a closer look at how the IRS initiates criminal investigations. Read on!

IRS Special Agents

Criminal investigations are initiated from information obtained from IRS revenue officers, who may sniff out cases of possible fraud. The findings and outcomes of these investigations are transferred to the Department of Justice for recommended prosecution. If taxpayers receive a notice about an IRS tax investigation, they must immediately seek assistance from a tax resolution attorney, who can communicate and negotiate with the IRS on their behalf to come up with a mutual solution.

1. Preliminary Analysis

The special agents within the IRS analyze the information obtained by IRS revenue officers to establish whether a taxpayer has committed any criminal tax fraud or financial crime. This process of evaluating all the relevant information is called a primary investigation. The special agent then transfers preliminary information to front-line supervisors, who decide if the case needs to be approved for further investigation. If the supervisor approves, the special agents initiate a subject criminal investigation. During the preliminary investigation, at least two levels of CI management review the information of ‘primary investigation’ and determine if it should go for further investigation, depending on the evidence and proof.

2. Criminal Investigation

Once the IRS special agents receive approval to carry out a criminal investigation, they start obtaining all the critical facts and evidence which can establish strong elements of criminal activity or tax violation. For this purpose, they use many investigative techniques such as executing search warrants, interviews of witnesses, subpoenaing bank records, reviewing financial data and tax filing history, and conducting surveillance. The IRS agents work with the IRS Chief Counsel Criminal Tax Attorneys and other IRS resolution attorneys so that they do not make any mistake in addressing all the legal aspects of the investigation.

3. Prosecution Recommendations

After the facts and evidence are analyzed by the IRS special agents, they will determine whether they substantiate criminal activity. In case they do not, the investigation is discontinued. If there is evidence of a criminal activity or significant tax rules violation, the agent can prepare a written ‘special agent report’ that lists the findings of law violations and recommends prosecution. The report is reviewed by supervisory special agents, a criminal investigation quality review team, and CI special agents and their assistants. All the officials decide if the case should be criminally prosecuted and forwarded to the United States Attorneys, Department of Justice, and Tax Division if it is a tax-related investigation. Once the Department of Justice and attorney accept the prosecution, the special agent will start preparing for trial. Once all the evidence is gathered, the IRS Criminal Investigation prosecution then proceeds to obtain a conviction, by either a guilty verdict or a plea.

Prevention is Better than Cure

If the IRS decides to start a criminal investigation, it means that they have enough evidence to prosecute you. With a conviction rate of 91.2%, it is safe to say that a guilty verdict is all but assured. Paying taxes on time and consulting an attorney helps ensure that you stay protected and get ahead of the IRS tax investigation.

Wrap Up

The Internal Revenue Service cannot tolerate tax violations and financial fraud and has complete authority to take action against offending taxpayers. It is, therefore, important to remain in good books with the IRS by filing your taxes on time and not getting involved in any financial activity that is considered fraudulent. In the event that you or someone you know is involved in a tax violation, you must immediately seek IRS tax help from the team of Dallas IRS tax lawyers at the Law Offices of Nick Nemeth, PLLC. Our experienced Fort Worth tax attorneys specialize in helping taxpayers get favorable outcomes to a range of IRS tax problems. To speak with one of our Dallas tax attorneys or book a free tax attorney consultation, call (972) 426-2991, or email You can also fill out our contact form.

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What Our Clients Have to Say

Susan WilsonSusan Wilson
03:27 25 Jan 23
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