IRS/ Tax Investigations & Prosecutions
If you are visited by an agent from IRS-CID (Criminal Investigations Division), that means that there is a criminal tax investigation occurring regarding federal tax crimes. Many criminal tax investigations come after a civil audit occurs, which is brought about by concerns the IRS has that you or your business are not accurately reporting income. However, just because you have not been the subject of a previous civil audit does not mean you will not become the subject of a criminal tax investigation. That is because these investigations sometimes start after the IRS receives a tip from a “whistleblower,” such as a former employee, business partner or spouse. They can also start if the federal authorities suspect underlying criminal activity that is generating income. That is because criminals generally do not report the money they make from their crimes (duh), despite the fact that it constitutes taxable income.
Much of the IRS’s investigation will be financial. This means that much of the agents’ work entails using federal grand jury subpoenas to obtain troves of financial records, which they methodically review. In addition, the IRS-CID agents, sometimes in conjunction with the FBI, will conduct interviews of every single person involved with the finances of the entity or individual under investigation. This almost always includes interviews of relevant accountants and tax preparers. The DOJ Tax Division or U.S. Attorney prosecutors will also subpoena witnesses to the federal grand jury to provide sworn testimony about their knowledge of the facts in the case.
When your bank receives a federal grand jury subpoena in a tax investigation, the bank may or may not inform you, depending upon whether the subpoena requested or required the Bank’s secrecy. One tell-tale sign of your bank receiving a grand jury subpoena and not being allowed to tell you is if you suddenly find that your bank is closing your account and there is no other reason for them to do so. For good reason (i.e., their continued existence), banks do not like to service customers who are under federal criminal investigation.
When deciding what to do if you are on the other end of an IRS-CID tax investigation, please refer to the section of this website “I am Under Federal Investigation, What do I do?”
Important note about reacting to tax investigations: if you are the subject of the investigation, do not simply file amended tax returns or (if you have not previously filed) file returns for the first time. Your return itself might incriminate you and lead to additional charges that would not have been brought against you if you had not filed. Before you do either of those things, speak to a federal criminal defense attorney, preferably one with a background in federal tax prosecutions.
