When Does the IRS Pursue Criminal Charges?
The Internal Revenue Service (IRS) is known for collecting taxes, but it also has a powerful criminal investigation division. While most tax issues are handled civilly, certain circumstances can trigger a criminal investigation. At Varghese & Associates, P.C., we believe it’s crucial for taxpayers to understand when and why the IRS might pursue criminal charges.
When Does the IRS Pursue Criminal Charges?
The Internal Revenue Service (IRS) enforces tax laws in the United States. While most tax issues are handled through civil procedures, certain actions can become criminal.
1. Intentional Tax Evasion
The IRS takes intentional tax evasion very seriously. This includes:
- Deliberately underreporting income
- Claiming false deductions
- Hiding assets in offshore accounts
2. Filing False Returns
Submitting tax returns with knowingly false information can lead to criminal charges. This might involve:
- Falsifying income documents
- Inflating deductions or credits
- Using a false Social Security number
3. Failure to File Returns
While simply forgetting to file once might not trigger a criminal investigation, a pattern of non-filing, especially for high-income individuals, can lead to criminal charges.
4. Employment Tax Fraud
Businesses that fail to properly withhold, report, or pay employment taxes may face criminal prosecution. This includes:
- Failing to collect employment taxes
- Failing to pay collected taxes to the IRS
- Filing false payroll tax returns
The Threshold for Criminal Prosecution
Not all tax errors or even intentional misrepresentations lead to criminal charges. The IRS typically pursues criminal cases when:
- The violation was willful and intentional
- There’s clear evidence of guilt
- The case has prosecution potential
- The action has a deterrent effect on others
Warning Signs of a Criminal Investigation
Recognizing the signs of an IRS criminal investigation is crucial for protecting your rights and interests. While the IRS doesn’t always make it obvious that you’re under investigation, there are several red flags to watch out for:
Unexpected Visits from IRS Special Agents
If IRS special agents show up at your home, office, or place of business unannounced, this is a strong indication of a criminal investigation. These agents typically work in pairs and will identify themselves with credentials. Remember:
- You have the right to ask for identification
- You’re not obligated to speak with them without legal representation
- Any statements you make can be used against you
Receipts of IRS Summonses or Subpoenas
If you receive a summons or subpoena from the IRS requesting specific financial documents, bank records, or other information, this could indicate an ongoing criminal investigation. These legal documents often require you to:
- Produce certain records
- Appear to testify under oath
- Both produce records and testify
- Interviews with Business Associates or Employees
The IRS may contact your employees, business partners, clients, or other associates to gather information. If you learn that the IRS has been asking questions about you or your business practices, it’s a strong sign of an ongoing investigation.
Unusual Scrutiny from Financial Institutions
Your bank or other financial institutions may start asking more questions about your transactions or request additional documentation. This could be a result of IRS inquiries or subpoenas.
Notice of Frozen Assets
If you suddenly find that your bank accounts or other assets have been frozen without explanation, this could be due to an IRS criminal investigation.
Aggressive Audit Techniques
While not all audits lead to criminal investigations, unusually aggressive audit techniques or a sudden expansion of the scope of an audit could indicate that the examination has turned criminal.
Receipt of a Target Letter
In some cases, the IRS may send a “target letter” informing you that you’re the subject of a criminal investigation. This is one of the clearest signs that you’re under investigation.
Grand Jury Subpoena
Receiving a grand jury subpoena is a definite sign of a criminal investigation, as grand juries are only used in criminal matters.
What to Do If You Suspect a Criminal Investigation
If you notice any warning signs of an IRS criminal investigation, taking immediate and careful action is crucial. At Varghese & Associates, P.C., we recommend the following steps:
Stay Calm, But Take It Seriously
While feeling anxious when facing a potential IRS criminal investigation is natural, it’s important to remain calm. Panicking can lead to poor decisions that may complicate your situation. However, this doesn’t mean you should take the matter lightly. An IRS criminal investigation is a serious issue that deserves your full attention and careful handling.
Exercise Your Right to Remain Silent
One of your most important rights is the right to remain silent. If approached by IRS agents, politely inform them that you wish to speak with an attorney before answering any questions. Remember, anything you say can be used against you in court. It’s always better to consult with a legal professional before engaging in any discussions with investigators.
Preserve All Documents
In the face of a potential investigation, preserving all your financial records, tax returns, and related documents is crucial. Do not destroy or alter any documents, as this can lead to additional charges of obstruction of justice. If you’re unsure about a document’s relevance, consult an attorney before taking action. Proper document preservation can be crucial for your defense.
Seek Immediate Legal Representation
Do not attempt to handle an IRS criminal investigation on your own. Contact an experienced tax attorney immediately. Look for an attorney with specific experience in IRS criminal investigations. At Varghese & Associates, P.C., we have extensive experience in this area and can provide immediate assistance, guiding you through each step of the process.
Limit Discussions and Conduct an Internal Review
It’s wise to limit discussions about your case to your attorney. Friends, family, or business associates could potentially be called as witnesses, so maintaining confidentiality is crucial. With guidance from your attorney, conduct an internal review of your financial records and tax filings. This can help identify potential issues or discrepancies and aid in preparing a strong defense strategy.
Consider Cooperation and Voluntary Disclosure
While you shouldn’t speak directly with investigators without legal counsel, cooperating through your attorney is often beneficial. Your legal representative can manage communications and negotiate on your behalf. In some cases, voluntary disclosure of tax issues before an investigation begins can mitigate potential criminal charges. However, this complex decision should only be made with legal advice.
Prepare for Various Outcomes
Work closely with your attorney to understand and prepare for potential outcomes. This may include preparing for possible civil penalties, criminal charges, or negotiated settlements. Understanding the range of possibilities can help you make informed decisions.
Maintain Normalcy and Take Care of Your Health
As much as possible, maintain your regular routines. Drastic changes in your lifestyle or business operations might be seen as suspicious. At the same time, don’t neglect your mental health. The stress of an IRS criminal investigation can be overwhelming, and seeking support from a mental health professional can be beneficial. Ensure that any professional you consult understands the need for confidentiality.
Don’t Face the IRS Alone – Get Experienced Help Now
Dealing with potential IRS criminal charges can be overwhelming, but you don’t have to face this challenge alone. At Varghese & Associates, P.C., we have the experience and experience to guide you through every step of the process. Contact us today for immediate assistance.
