The Internal Revenue Service uses the threat of criminal sanctions, fines, and the possibility of imprisonment to deter noncompliance with tax laws. Threats of criminal investigation and prosecution should not be taken lightly because over the years, of those prosecuted for tax crimes, the conviction rate is about 90 percent.
A criminal tax case often begins as an income tax audit that is ultimately referred to the Criminal Investigation Division (“CID”) of the Internal Revenue Service. If CID believes that a taxpayer committed a tax crime, the case is than referred to the United States Attorney’s Office for prosecution. Investigations conducted by the CID are criminal investigations that can result in charges of serious tax crimes. The investigation of tax crimes involves different elements and procedures than a typical criminal case. Consequently, it is very difficult to be prepared for a CID investigation unless an attorney is familiar with the process.
Referrals are probably the most important source for cases that are investigated by CID. The Internal Revenue Service instructs auditors and revenue officers to be alert for indications of fraud or criminal activity and, when such activity is suspected, to refer the case to CID. Criminal tax investigations are conducted for the purpose of gathering evidence to use in a prosecution of an individual. Generally, a CID investigation begins with the interview by special agents. Any statements that 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 may be classified as a willful attempt to evade tax and could result in criminal charges separate from the case being investigated. Such a statement can be used as evidence to infer willfulness and may be considered an admission that may be used against you in prosecution. Given these hazards, you should never meet with Internal Revenue Service CID agents unrepresented, even if you believe that you have nothing to hide.
This can be particularly difficult because CID agents usually show up unannounced and with no warning, and they do this for a reason: to trap an individual by catching them unawares. On occasion, they will try to call to set up an initial meeting. Sometimes they will simply arrive at an individual’s home or place of business unannounced. You should understand that any statement or information that you provide to the agent can be used not only to build a criminal tax case against you, but that any information you volunteer can also be utilized to build a non-tax criminal case against you such as money laundering, mail or wire fraud.
If you are being investigated by CID, the investigation could take months or even years. You might feel compelled to supply all your financial information to a CID agent to cut short the criminal investigation process. The danger of giving into the impulse “to get the matter over with” could result in you providing information or documentation that may be privileged under the Fourth or Fifth Amendments of the United States Constitution. This cooperation may only make it easier to build a criminal case against you.
Once CID completes its investigation, if the agent determines that there is sufficient evidence to support all elements of a tax crime, he or she will recommend prosecution of the case. If the CID agent recommends prosecution of your case, it will be referred to the United States Department of Justice. The Department of Justice will make the ultimate decision as to whether or not to prosecute your case. If CID of the Department of Justice decides not to criminally prosecute your case, you may still be liable for significant taxes, penalties, and interest.
There are no simplistic formulas for arriving at the best defense through the CID process. With that said, since we have been representing clients before the Internal Revenue Service for many years, we have the ability to draw upon our experience to offer pragmatic solutions and unique considerations. We will zealously advocate on your behalf to convince CID to end its criminal investigation of you as early as possible and to not refer your case to the United States Attorney.