IRS special agents must follow strict procedures to initiate an investigation and recommend prosecution to the Department of Justice. These procedures include the approval of several IRS officials to ensure that investigations are based on factual evidence that tax fraud or other financial crime has occurred. A criminal investigation differs from an audit. With an audit, the IRS tries to determine if you calculated your tax liability correctly.
With a criminal investigation, the IRS seeks to file a lawsuit against you so that the U.S. UU. The tax system is based on fear. To maintain an adequate level of fear, the government must prosecute tax fraudsters on an ongoing basis.
Referrals are probably the most important source of cases investigated by the CID. The Internal Revenue Service orders auditors and revenue officials to be alert to any evidence of fraud or criminal activity and, when suspected of such activity, refer the case to the CID. Criminal tax investigations are conducted for the purpose of gathering evidence for use in prosecuting a person. A CID investigation usually begins with an interview with special agents.
Any statement you make to a CID agent can have devastating consequences. For example, a CID agent may believe that a statement made by you during an investigation is false or misleading. A false or misleading statement can be classified as a deliberate attempt to evade taxes and could result in criminal charges other than the case being investigated. Such a statement can be used as evidence to deduce premeditation and can be considered an admission that can be used against you in prosecution.
Given these dangers, you should never meet with agents of the Internal Revenue Service CID who are not represented, even if you think you have nothing to hide. The IRS conducts tax audits to minimize the “tax gap,” or the difference between what is owed to the IRS and what the IRS actually receives. Sometimes an IRS audit is random, but the IRS often selects taxpayers based on suspicious activity. The Annual Business Report shows some of the many important investigations that Criminal Investigation (CI) conducted during the fiscal year and highlights the many areas of the program.
For example, a project could try to identify well drillers from municipal or county permits, or funeral directors from death certificate records. The Criminal Investigation Division (CID) is comprised of federal agents (called “special agents”), who are highly trained financial investigators who carry a weapon and carry a badge. The special agent works closely with the IRS's lead counsel, the criminal tax lawyers, during the course of the criminal investigation. In addition to these informal relationships with other investigators, the IRS Criminal Investigation Division participates in formal cooperation programs with other federal agencies.
My clients are often surprised to learn that any statement made to their accountant can be used against them in a criminal investigation, either through the “discovery process” that leads to the trial or when the accountant is called as a witness during a criminal tax trial. An IRS fraud investigation is a heartbreaking experience, not only for the corporate officers, directors and employees who are the subject of the investigation, but also for the corporation's legal advisors. While the primary function of the Internal Revenue Service is to raise money, it is not the purpose of a criminal investigation to ensure the payment of taxes by the person or corporation under investigation. All related tax modules of the IRS computer system are controlled for the taxpayer under investigation, so that all activity in those accounts is directed directly to the Special Agent.
Sometimes this will be done exclusively by mail, while other times agents may ask you to go to a local office or even go to your home or business to review your books and records in person. The civil part of the IRS is responsible for ensuring that tax returns are accurate and that taxes are paid. If approved by the supervisor, approval is obtained from the head of the office, the special agent in charge, to initiate a criminal investigation in question. If you are not satisfied with the results of your audit, you can file an appeal of your tax bill with the IRS and, if your appeal is not accepted, you can take your case to the Tax Court.