What is the difference between a civil tax audit and a criminal tax investigation?
Shamsey Oloko explained that a civil audit typically results in the taxpayer owing money, which could be a small or large amount, or sometimes no penalty at all. In contrast, a criminal tax investigation is far more serious and can lead to criminal prosecution. If a taxpayer is found guilty, the outcome may include jail time, fines, and court costs. The key difference is that civil cases focus on financial liability, while criminal cases address fraudulent intent and violations of law.
What actions may trigger an IRS criminal investigation?
According to Shamsey Oloko, small errors such as transposed numbers or innocent mistakes generally do not result in a criminal investigation. Instead, the IRS focuses on deliberate fraudulent actions or patterns of deception. Large-scale tax fraud, false statements on tax returns, and systemic attempts to mislead the IRS are common triggers. Even during an audit, if the IRS detects a pattern of dishonesty or fraudulent intent, the matter may be referred to the Criminal Investigation Division.
Can payroll tax violations result in criminal charges?
Shamsey Oloko noted that failing to remit payroll taxes withheld from employees is considered a crime under the law. If the government can prove that an employer withheld taxes without turning them over, the employer may face criminal liability. While the IRS typically gives businesses a chance to correct the issue before escalating, clear evidence of intent to defraud can result in immediate referral to criminal investigation.
What does a criminal tax investigation look like from the taxpayer’s perspective?
At the early stages, taxpayers may not realize that a criminal investigation has begun. In some cases, they are aware because they know the actions they took could draw scrutiny. During a civil audit, if an examiner notices fraudulent patterns, they can refer the case to criminal investigation without the taxpayer’s knowledge. Eventually, taxpayers are notified when their case shifts from civil to criminal, which is the point when they should immediately seek representation from a tax lawyer.
What are the warning signs that a civil audit may turn into a criminal case?
Oloko explained that taxpayers can often recognize red flags during an audit. For example, if the IRS examiner requests third-party information that contradicts the taxpayer’s reported income, it may indicate suspicion of fraud. Shamsey illustrated this with an example of a liquor store owner who reported $2 million in sales, while supplier records showed $10 million in purchases. Such inconsistencies reveal unreported income and expose the taxpayer to criminal charges. When audit questions begin pointing toward fraud, taxpayers should recognize the risk and contact a tax lawyer immediately.
How can early legal representation influence the outcome of a criminal tax investigation?
Shamsey Oloko emphasized that hiring a tax lawyer early is critical to protecting one’s rights. Lawyers understand the system, procedures, and strategies needed to minimize exposure. One of the first steps attorneys take is advising clients to stop speaking with investigators, as false statements can themselves lead to prosecution. Oloko referenced the case of Martha Stewart, who was convicted not for insider trading but for false statements to investigators. By intervening early, a tax lawyer may be able to negotiate with the IRS or prosecutors to keep the matter civil rather than criminal.
What is the most important step if you are under IRS criminal investigation?
Shamsey Oloko concluded with one clear piece of advice: stop talking and call a tax lawyer immediately. Speaking without representation can expose taxpayers to further liability, whereas having a lawyer at the earliest stage offers the best chance to reduce or even avoid criminal consequences.
