The IRS has the ability to pursue you for back taxes, and they can assess penalties and interest. Beyond that, the IRS has the ability to conduct its own criminal investigation. Depending on the results, the IRS may refer you to the Department of Justice for criminal prosecution.
The IRS will typically not make these referrals if the taxpayer has made a good-faith error. They are more likely to refer a case for prosecution when there has been some sort of intentional action. Regardless, if you are being investigated, you need a tax attorney right away.
A Civil Investigation Can Turn Into a Criminal One
The IRS’s criminal investigation arm is separate from the auditors who may seek more information from you, or even come to your home or business. You will generally not be contacted out of the blue by IRS criminal investigators. Most criminal investigations have their genesis in a civil audit. The civil auditor is usually the person who initiates contact with you and begins an investigation. However, the civil auditor’s intent is just to assess back taxes and help collect what the IRS is due.
At some point in the investigation, the civil auditor may learn information or begin to see a pattern that may look criminal in nature. If they spot red flags that indicate fraud, they must stop their own investigation immediately. They will refer the case to the criminal investigatory arm of the IRS, which will then take over the case.
You May Be Prosecuted Under Federal Tax Laws
The Internal Revenue Code is both civil and criminal in nature. Not only does the IRC prescribe tax rules and standards that must be followed, but it also criminalizes certain conduct. For example, the following may be crimes under the IRC:
- Tax evasion
- Filing false returns
- Payroll tax fraud
- Failure to file returns
- Offshore account violations
The Agency May Recommend Charges When There Have Been Willful Actions
If the IRS uncovers issues that may be indicators of negligence or a mistake, the agency will not pursue criminal charges. Here, the agency will seek back taxes and penalties. To be clear, there will still be significant monetary consequences, but you are not facing criminal penalties.
When the IRC makes certain it is looking at criminal conduct, it will use the words “willfully” or “knowingly.” Under criminal law, these words have a definite meaning. They signify that there was some intent to undertake an illegal action. The person must have known exactly what they were doing. They may not need to have an intent to break the law, but they would need to have the intent not to file a tax return.
If the IRS criminal investigators determine that a law was violated, they pass the case over to the DOJ. The IRS has the authority to investigate, but it cannot prosecute cases on its own. That is within the purview of the DOJ, although the IRS may provide assistance along the way.
Criminal Cases Require the Prosecutor to Meet a Higher Burden of Proof
If you are prosecuted for criminal tax violations, the government needs to meet a higher standard of proof than it would in a civil fraud case. In the latter, the government just needs to meet the clear and convincing evidence standard, show that it is more likely than not that you failed to follow tax rules.
Like any other criminal matter, the IRS must prove its case against you beyond a reasonable doubt. This standard means that no reasonable juror could believe that a crime was not committed. IRS criminal cases may be heavily factual in nature, especially because the key element in the case is proving intent.
You will know what level of scrutiny you are under by the classification of the IRS agent who is speaking with you. If you are being contacted by a revenue agent, the IRS still considers the matters civil in nature. It is when you are contacted by a Special Agent that you know that the matter has become a criminal investigation.
You should hire a tax lawyer whenever you are dealing with the IRS, but if you do not have an attorney when you are contacted by a Special Agent, you need one immediately. The IRS will use anything that you say against you in a prosecution, so you must have an experienced tax lawyer who can protect your legal rights. You should not give any “informal statement” to the IRS because nothing good can come of that. You may even be prosecuted for giving a false statement.
Always Hire a Tax Lawyer When You Are Under Scrutiny from the IRS
It is possible to avoid criminal prosecution under certain circumstances, but you should make these efforts with the help of a tax lawyer. The key is that you fix any issues involving noncompliance before the case becomes a criminal investigation. If you have not filed tax returns, you should get current on them immediately. If you know that you have either underreported income or have not reported it at all, you can make a voluntary disclosure and work with the IRS.
They are less likely to prosecute you if you come forward and show good faith, rather than the agency detecting what is happening and then coming after you. It may be possible to work with the IRS to obtain the most favorable potential resolution to your tax issues.
Contact a New York Tax Attorney Today
If you have tax problems with the IRS, and especially if you have been contacted by a special agency, you need legal help right now. The New York tax lawyers at the Thorgood Law Firm can help you resolve your tax issues with the IRS, and they can defend you in the event of an audit or a criminal investigation. To discuss your circumstances with an experienced tax attorney, you can schedule a free initial consultation with Thorgood Law. Get started by filling out an online contact form or by calling us today at (212) 490-0704.
Frequently Asked Questions (FAQs) About IRS Criminal Investigations
1. Can the IRS really pursue criminal charges for back taxes?
Yes. The Internal Revenue Service (IRS) can investigate potential criminal violations related to unpaid taxes. If investigators find evidence of willful misconduct, the case may be referred to the U.S. Department of Justice (DOJ) for prosecution. The IRS itself cannot prosecute cases but can recommend charges.
2. What triggers an IRS criminal investigation?
Most IRS criminal investigations begin as civil audits. If a civil auditor discovers “badges of fraud” — such as intentional underreporting of income, falsified documents, or patterns of deception — the auditor must stop the civil audit and refer the case to IRS Criminal Investigation. At that point, a Special Agent may take over.
3. What is the difference between a civil audit and a criminal investigation?
A civil audit is focused on assessing and collecting back taxes, penalties, and interest. A criminal investigation focuses on whether a taxpayer willfully violated federal tax laws.
If you are contacted by a Revenue Agent, your case is typically civil. If you are contacted by a Special Agent, your case may involve potential criminal exposure.
4. What tax crimes can lead to federal prosecution?
The Internal Revenue Code includes criminal provisions for conduct such as:
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Tax evasion
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Filing false tax returns
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Payroll tax fraud
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Failure to file tax returns
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Offshore account violations
These offenses typically require proof that the conduct was done “willfully” or “knowingly.”
5. What does “willfully” mean in a tax crime case?
In criminal tax cases, “willfully” means you intentionally committed the act. The government must prove you knew what you were doing and intentionally violated a legal duty. Honest mistakes, negligence, or misunderstandings generally do not meet this standard.
6. What is the burden of proof in a criminal tax case?
In a criminal case, the government must prove guilt “beyond a reasonable doubt,” which is the highest legal standard. This is a higher burden than in a civil tax case, where the government may only need to prove its case by clear and convincing evidence.
7. Will the IRS prosecute me for an honest mistake?
Generally, no. The IRS typically pursues criminal charges when there is evidence of intentional wrongdoing. Good-faith errors or negligent mistakes are more likely to result in civil penalties rather than criminal prosecution.
8. Can I avoid criminal prosecution by correcting my tax issues?
In some cases, yes. Taking proactive steps — such as filing missing returns, correcting underreported income, or making a voluntary disclosure — may reduce the risk of criminal prosecution. Acting before the IRS initiates a criminal investigation is critical.
9. Should I speak to an IRS Special Agent without an attorney?
No. If you are contacted by a Special Agent, you should immediately consult a qualified tax attorney. Anything you say can be used against you. Providing informal statements without legal representation can significantly increase your legal risk.
10. When should I hire a tax lawyer?
You should strongly consider hiring a tax lawyer if:
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You are under audit
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You have unfiled tax returns
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You suspect underreported income
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You are contacted by an IRS Special Agent
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You believe your case may involve fraud allegations
Early legal intervention can often make a significant difference in the outcome of your case.
