Avoiding An IRS Criminal Investigation

Why Risk An IRS Criminal Investigation?

…A Tax Attorney Can Help

irs criminal investigationTaxpayers facing an audit may unwittingly trigger an IRS criminal investigation. A taxpayer who is not represented by a tax attorney or other qualified tax representative may innocently provide the IRS auditor with otherwise unnecessary records and information that could raise suspicion sufficient to start an investigation.

Furthermore, your innocent ramblings and zeal to be cooperative may actually be used against you.


There is an excellent article by CPA, Walter Wotman the underscores in detail the troubles unrepresented taxpayers sometimes face during the tax audit process.  We think it well worth  reading…

Protection With Tax Representation

By Walter Wotman | December 12, 2010

Your tax representative should know that the IRS agent conducting an audit or tax filing review is obligated by law to provide the information they receive in a criminal investigation without notifying the taxpayer or representative. Any information they are given may be passed over even if they are directly asked whether the information will be used in a criminal investigation. In fact -the IRS agent is under no obligation to inform the taxpayer or their representative that the information will be used in a criminal investigation. They are only required by law to let them know that it can be used by criminal investigators and that a criminal investigation is possible. But if there is a criminal investigation already in action they do not have to say anything about it even if asked directly. You should know that the laws protecting individuals who provide information in a civil inquiry is not protected from being used in a criminal investigation.

Taking precautions to protect clients is ultimately more important than attempting to predict how the courts may view the IRS’s new policies. If a client is facing an audit, or an IRS collection action, the tax professional or attorney can successfully resolve the matter without unknowingly sacrificing the client’s Constitutional rights by taking every effort to determine if, in fact, a criminal investigation may be lurking in the shadows. There are certain activities by civil agents that can be indicative of a simultaneous criminal investigation:

(1) the agent shows an undue amount of interest in a sensitive transaction;

(2) the agent requests copies of voluminous documents rather than merely asking to review the documents or review summaries; and,

(3) the agent poses questions that focus on the intent of the taxpayer, as opposed to the mechanics of a particular transaction.

What’s difficult is knowing what or when to ask the question. A tax specialist can’t just ask if his or her client is under criminal investigation because that might be akin to asking a police officer when being questioned for a traffic ticket if they are they interested in what is in the trunk of their car. The question would cause the officer to check the trunk. Similarly, if an IRS agent is asked if their client is under criminal investigation it could very likely cause the agent to increase the scrutiny the client is being put under. However, if they don’t ask – they could very likely be providing information that could cause their client to go to jail.

To minimize the chance of drawing undue scrutiny, the professional should ask the question but do it in a manner that is less likely to raise suspicion. Every CPA, attorney, and enrolled agent has a laundry list of questions that he or she asks at the beginning of every audit or collection inquiry.

The list should include such questions as: are you more interested in income or deductions? What are your primary concerns? What is the specific cause for this audit or review?

By having a list of questions posing an additional question about the potential for a criminal investigation makes it possible to receive important information for their client without causing undue scrutiny from the IRS agent. The best possible manner in which to ask the question about a possible criminal investigation is:

“Look, I have to ask this question, and I ask it in every audit whether I think it is necessary or not. In light of the new IRS policies allowing agents to conduct simultaneously civil and criminal investigations of the same taxpayer, it is important for my client to know whether or not he is also facing a criminal investigation.”

In response to the question that there is no parallel criminal investigation, the professional should immediately prepare a memorandum for the file that documents that the question was asked and the agent’s response was no. This way if the agent said no but it turns out the client was also under criminal investigation, the basis has been established to suppress any evidence received by the IRS agent . If the IRS agent responds in a way that is suggested in the recommended response as set forth in the IRS policy – “I am conducting a civil investigation, but the information I receive can be shared with criminal investigators”- then, it is almost certain that the taxpayer is also being investigated criminally and the representative should take all steps needed to protect the client and their Constitutional right to protect them from criminal prosecution.

In conclusion, if, “parallel” investigations are used sparingly and only in the most deserving circumstances and if the policies prohibiting criminal agents from directing the activities of civil agents are scrupulously followed, such investigations may withstand scrutiny. It is hard to imagine, however, that IRS agents, now explicitly authorized to conduct parallel criminal and civil investigations, will not fully avail themselves of that authority whenever the opportunity arises. The result of such new IRS policies that hide parallel investigations will make it difficult to receive compliance with the federal tax system, and to breed contempt. The answers, perhaps, lie with the IRS. If parallel investigations are widely and routinely used against unknowing and unwitting taxpayers, and criminal investigators begin relying on civil agents to gather evidence for criminal prosecutions, what might happen is that in cases where such actions are justified the courts will be more likely to offer opinions suppressing evidence. Public clamor over IRS abuses could force Congress to impose restrictions on the Service’s ability to solicit information voluntarily from taxpayers, which would create a greater and more costly burden on the Country to collect taxes. So it must be asked whether a tax system based on self-assessment and voluntary compliance can remain viable if the individuals charged with maintaining that system are free to hide information from and even mislead taxpayers?

IRS Policy can be a problem for taxpayers – having a tax representative is very important for your protection. We offer PREPAID ANNUAL TAX REPRESENTATION BY A CPA so don’t wait until you have a problem check it out today!

Just as CPA Wotman says, A simple tax audit can lead to and IRS criminal  investigation. 

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

CommentLuv badge