A tax investigation refers to a criminal investigation conducted by the Internal Revenue Service (IRS) Criminal Investigation Division as well as the NC Department of Revenue (NCDOR). The Criminal Investigation Division (CID) conducts investigations into violations of the Internal Revenue Code, the Bank Secrecy Act, and various money laundering issues. Findings from the investigations are then referred to the Department of Justice for recommended prosecution.
Tax Investigation vs. Tax Audit
A tax audit involves the IRS or NCDOR determining whether you have calculated your taxes correctly. A simple mistake, oversight, or an accountant’s malpractice can trigger a criminal investigation if findings from an audit indicate criminal activity. For example, unreported income or underreported income, a false statement, or declaring too many deductions may initiate an audit that could then become a criminal investigation. In a criminal investigation, the goal of the IRS is to mount a case against you so that you can be prosecuted, making it much more serious than a standard tax audit.
How does a Tax Investigation Occur?
A criminal tax investigation could be initiated by information obtained within the IRS from a tax audit in which possible fraud is detected. Information that initiates a criminal investigation could also be received from the public or from other law enforcement agencies. An investigation happens in the following order:
- Information is received regarding potential fraud from an audit or other source.
- Special agents analyze the information to determine if a criminal tax fraud may have occurred. This is referred to as the primary investigation.
- A subject criminal investigation begins if the information from the primary investigation results in sufficient evidence. Once an investigation is opened, a special agent will obtain facts and evidence to establish that criminal activity occurred. Techniques can include interviews of third party witnesses, executing search warrants, reviewing financial data, subpoenaing bank records, and more.
- A determination will be made as to whether the evidence substantiates criminal activity, once the evidence is gathered. If the evidence supports prosecution, a prosecution recommendation is forwarded to the Department of Justice.
- Prosecution begins. The goal of the IRS criminal Investigation recommendation is to obtain a conviction by a guilty verdict or plea as a signal to taxpayers that fraud is not tolerated by the United States government.
Why You Need a Criminal Tax Lawyer
A criminal investigation by the IRS is carried out by specialized, highly trained investigators. Their investigations are thorough and may last years, involving third party interviews and more methods to acquire evidence that supports the crime. The risks of being convicted of a criminal tax crime include jail time, substantial fines, and personal and social collateral damage.
Signs of an IRS Investigation
Taxpayers are often unaware that they are subject to an IRS criminal tax investigation until it is in its late stages. As such, many individuals who are not represented by experienced, competent tax attorneys may make incriminating admissions to IRS special agents. It is essential to know the signs that you may be under criminal investigation by the IRS:
- An IRS agent who has been pursuing you no longer returns your calls. This is an indication that the agent may be referring your case to the CID.
- Your accountant is contacted by CID special agents or has been asked to appear before a grand jury with your tax records.
- Your bank informs you that your records have been summoned by the CID.
- An IRS agent that has been auditing you no longer contacts you for weeks at a time. This is another indication that your case may have been referred to the CID.
- The IRS lets you know that one of your previous tax returns that contains an under- or over-statement of income has been selected for an audit.
- An IRS agent is interested in sensitive transactions or has requested a significant amount of copies of documents.
- An IRS agent asks you questions about the intent of your actions rather than their form.
- A CID agent appears at your home or business in person or contacts you by phone attempting to elicit incriminating information.
How a Criminal Tax Defense Attorney Can Help
Taxpayers under investigation are surprised to learn that statements made to their accountants can be used against them in the investigation. “Accountant-client privilege” does not protect you if you are under investigation for a tax crime. Alternatively, attorney-client privilege remains protected throughout the investigation. Once you discover you are being investigated by the IRS, you will want to contact an experienced tax attorney immediately.
Call Dysart Willis Today
If you have noticed any of the signs above that indicate a criminal investigation may be underway, you should seek legal representation immediately from an experienced IRS criminal tax attorney. The experienced criminal tax attorneys at Dysart Willis are familiar with the strategies used by CID special agents, such as attempts to “ambush” you by contacting you by phone or in-person to attempt to withdraw as much information out of you without legal representation present. The attorneys at Dysart Willis have more than seven years of experience helping clients navigate through their legal options while under investigation. Contact us today.