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Tax Crimes & fraud

Tax Crimes Handbook

Office of Chief Counsel 

Criminal Tax Division

How Criminal Investigations Are Initiated


The Internal Revenue Service Criminal Investigation Division conducts criminal investigations regarding alleged violations of the Internal Revenue Code, the Bank Secrecy Act and various money laundering statutes. The findings of these investigations are referred to the Department of Justice for recommended prosecution. 


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.

 

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. 


Conducting a Criminal Investigation

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. 


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.  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.  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.


Prosecution 

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.


Conviction or Plea

The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction 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.


Credits:  Internal Revenue Service;  United States Department of Treasury

http://www.irs.gov/uac/How-Criminal-Investigations-Are-Initiated


Criminal Investigations


The IRS's Criminal Investigation (CI) Division serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.


IRS Criminal Investigation (CI) is comprised of approximately 3,700 employees worldwide, approximately 2,600 of whom are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.


Compliance with the tax laws in the United States relies heavily on self-assessments of what tax is owed. This is called voluntary compliance. When individuals and corporations make deliberate decisions to not comply with the law, they face the possibility of a civil audit or criminal investigation which could result in prosecution and possible jail time. Publicity of these convictions provides a deterrent effect that enhances voluntary compliance.


As financial investigators, CI special agents fill a unique niche in the federal law enforcement community. Today’s sophisticated schemes to defraud the government demand the analytical ability of financial investigators to wade through complex paper and computerized financial records. Due to the increased use of automation for financial records, CI special agents are trained to recover computer evidence. Along with their financial investigative skills, special agents use specialized forensic technology to recover financial data that may have been encrypted, password protected, or hidden by other electronic means.


Criminal Investigation’s conviction rate is one of the highest in federal law enforcement. Not only do the courts hand down substantial prison sentences, but those convicted must also pay fines, civil taxes and penalties.


Credits:  Internal Revenue Service;  United States Department of Treasury; http://www.irs.gov/uac/Criminal-Investigation-(CI)-At-a-Glance

Attempt to Evade Assessment


Although filing a false return is a common method of attempting to evade the assessment of a tax, the requirement of an affirmative attempt to evade can be met by proof of any affirmative act undertaken with a tax evasion motive. Examples: keeping a double set of books, making false entries or alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one’s affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal.

Attempt to Evade Payment


Actions associated with evasion of payment cases almost always involve some form of concealment of the taxpayer’s ability to pay the tax due and owing or the removal of assets from the reach of the IRS. Obstinately refusing to pay taxes due and possession of the funds needed to pay the taxes, without more, does not establish the requisite affirmative act necessary for an attempted evasion of payment charge.Examples of affirmative acts of evasion of payment include, but are not limited to: Placing assets in the names of others, dealing in currency, causing receipts to be paid through and in the name of others, causing debts to be paid through and in the name of others, and paying creditors instead of the government. See Cohen v. United States, 297 F.2d 760, 762, 770 (9th Cir. 1962); see also United States v. Carlson, 235 F.3d 466, 469 (9th Cir. 2000) Signing and submitting false financial statements to the IRS); United States v. Pollen, 978 F.2d 78, 88 (3d Cir. 1992); Placing assets out of the reach of the United States Government by maintaining more than $350,000.00 in gold bars and coins, platinum, jewelry, and gems in safety deposit boxes at bank, in a fictitious name);United States v. Beall, 970 F.2d 343, 345-47 (7th Cir. 1992)Concealing assets by using bank accounts in names of family members and co-workers); United States v. Brimberry, 961 F.2d 1286, 1291 (7th Cir. 1992) Falsely telling IRS agent that she did not own real estate and that she had no other assets with which to pay tax); United States v. Daniel, 956 F.2d 540, 542-43 (6th Cir. 1992).

Tax Crimes Are Serious Business

This Is When You Need an Experienced Team on Your Side


In its Mission Statement, the IRS has indicated that Criminal Investigation serves the American public by investigating potential criminal violations of the Internal Revenue Code (IRC) and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law (IRM 9.1).  

Judging from the publications coming out of Washington and the nature of the cases I have been seeing, both the IRS and MDOR are very serious about both Enforced Collections and Criminal Investigations. I think that this trend will continue as governments continue to add enforcement personnel and continue to become more aggressive with collection activities. It appears that the difficult economic times, high government spending, and soaring federal debt are quickly making the "friendlier IRS" (envisioned in the IRS Restructuring & Reform Act of 1998) a thing of the past.

If You Are Contacted by IRS Criminal Investigators


Too often I encounter taxpayers that have been contacted by IRS/MDOR Criminal Investigations and the taxpayer met with them without legal counsel. When I inquire as to why the taxpayer agreed to such meeting, I am usually advised that "they seemed real nice, like they wanted to work with me" or "I was hoping that if I went ahead and talked to them I could just explain things and they would go away." Unfortunately, both of these answers are almost always wrong.
 












If you are contacted (they usually show unannounced up at your home or business) by CID, you do not have to talk to them as you have 5th Amendment Constitutional rights to due process, representation, and to remain silent. I generally advise taxpayers to politely tell them that you want to consult with your attorney before speaking with them and that you will have your attorney contact them. Then, contact a competent attorney immediately and have that attorney contact them...don't ignore the situation hoping that it will just go away.

What is a Tax Crime?


What is a Tax Crime? To establish a violation of tax evasion (26 USC § 7201), the following elements must be proved beyond a reasonable doubt: 1. An affirmative act constituting an attempt to evade or defeat a tax or the payment thereof. 2. An additional tax due and owing. 3. Willfulness. Crimes involving tax evasion are frequently categorized as either an attempt to evade assessment, or an attempt to evade payment.When taxpayers hear the term “tax evasion” they usually think of acts that would fall into the category of evading assessment. However, I have recently seen the IRS focus on acts involving evading payment. I have found that taxpayers are often unaware that certain acts are possibly criminal when conducted in the context of allegedly evading payment. Examples of tax evasion acts include, but are certainly not limited to, the following as published by the United States Department of Justice
mcgee tax law logoJimmy McGee Tax Attorney