Frequently Asked Questions Regarding The IRS Criminal Tax Investigations.
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Having more than two decades of experience in Tax Representation, here are the most common questions and concerns of taxpayers inquiring about Criminal Tax Investigations.
1. I received a notice that my return was selected for audit AND I know that the subject return contains either understatements of income or overstatements of deductions. Why should I engage a tax attorney or lawyer?
Although this is initially only a civil audit, tax agents are trained to be on the lookout for and refer fraud red flags to the Criminal Investigation Division. Existing "accountant-client privilege" does not extend to criminal investigations, meaning that your accountant may be forced to provide details to the Internal Revenue Service about your situation.
2. Is the IRS required to warn me when I am placed under criminal investigation?
Any taxpayer who is being criminally investigated by the IRS will be assigned to an IRS Special Agent. A Special Agent must follow rules of conduct specified in Internal Revenue Manual whereby the agent shows his credentials that he is a "Special Agent" and that if the person to be questioned by the agent is the target of the investigation, the agent is required to warn a taxpayer that he is being investigated for criminal violations of the tax laws, that he has a constitutional right not to say anything, and that anything he says can be used against him. Upon hearing these Miranda-type warnings, it would be in your best interest to discontinue any further communication with the agent and seek an experienced criminal tax attorney immediately.
3. How does the IRS go about criminally prosecuting suspected tax crimes?
Tax Crimes are investigated by the Criminal Investigation Division (CID( of the Internal Revenue Service. CID uses a variety of criteria in selecting cases for investigation. The heaviest weight placed on how likely a prosecution is to result in a conviction. Any recommendations by CID to prosecute an alleged tax crime are reviewed by the District Counsel of the IRS. If the IRS District Counsel approves the recommendation, the case is referred to the Tax Division of the Department of Justice. If after reviewing the case the Tax Division makes a recommendation to prosecute, the case is finally referred to the U.S. Attorney for possible prosecution if accepted by the U.S. Attorney's office. If factors such as poor health or other factors that would tend to create sympathy for the taxpayer making it unlikely that the taxpayer would be convicted are present, prosecution may be declined at any point in this process. Additionally, we may argue what facts and circumstances and evidentiary problems support the lack of probability of conviction. Because at each level of review there is an opportunity to argue to the government why it would not be in the government's best interest to pursue criminal prosecution, it is to your advantage to seek counsel as early as possible.
4. What role does a Grand Jury play in the IRS attempting to prosecute a tax crime?
A Federal Grand Jury must vote in favor of issuing an indictment for a taxpayer to be charged with a tax felony. A Grand Jury is granted substantial investigatory powers, including the power to compel testimony and require production of physical evidence to facilitate this process. The work of the Grand Jury is required by law to proceed in secret and therefore only the grand jurors, the government attorneys, the court reporter, and witnesses may be present during the Grand Jury investigation. The Grand Jury is asked to weigh if it is more likely than not that a federal crime has been committed and is to weigh whether there is probable cause to believe that the crime was committed by a particular person under the same standard. A Grand Jury is composed of from 16 to 23 persons chosen at the direction of the appropriate U.S. District Court. In all cases, at least 12 jurors must vote to return an indictment. In cases where a Grand Jury declines to charge a person, a decision called a no true bill or a no bill is recorded.
5. What tactics does the Criminal Investigation Division commonly employ in conducting an investigation?
IRS Special Agents understand that the key to proving criminal tax cases is obtaining evidence of the taxpayer's criminal intent. The best sources of that evidence are admissions and false statements of obtained directly from the taxpayer; however, as this direct evidence of criminal intent is usually difficult to obtain, the Special Agent will be expected to interview third parties including the taxpayer's return preparer to establish intent through circumstantial evidence. Other steps in the investigation may include examining the taxpayer's books and records and returns from prior years, investigating the taxpayer's education and employment history, and locating the taxpayer's bank accounts. Investigating agents may resort to indirect methods of proof such as the net worth method to establish not only the largest possible tax deficiency but a clear intent to defraud. The government can also prove a tax deficiency by demonstrating that specified items were omitted from gross income.
6. What is income tax evasion and how is it punished?
Income Tax Evasion is a felony crime defined as a "willful attempt to evade or defeat any tax or payment of any tax by any person" and is punishable by imprisonment for up to five years and fine of up to $100,000 for individuals and up to $500,000 for corporations. Moreover, the term "person" in this context carries a very broad definition under the tax law and it has been interpreted by the courts to apply to attempts to evade another's taxes as well. For example, this interpretation has led to third parties such as a taxpayer's accountant being convicted of attempting to evade the taxes of his or her client by preparing an intentionally fraudulent return.
7. What is the crime of making, subscribing, and filing a false return or document and how are is it punished?
It is a felony crime for any person who willfully makes and or subscribes a false return, statement or other document under penalties of perjury, or aids or assists in the preparation or presentation of a false return or other document or simulates or falsely executes or signs any bond, permit or entry required under the Internal Revenue Code. Any person who willfully makes and or subscribes a return, statement, or other document containing a declaration that is made under penalties of perjury and who does not believe it is true and correct is guilty of a felony. These felonies are punishable by up to a $100,000 fine ($500,000 for corporations) and three years imprisonment.
8. Is there a method by which I might avoid criminal prosecution where I committed a tax crime in the past?
A taxpayer who suspects a criminal investigation might be under way, but who has not as of yet been contacted by the IRS, can possibly avoid prosecution by making a voluntary disclosure to the Criminal Investigation Division of the IRS. Taxpayers who fear a criminal investigation may be underway but who have not been contacted by the IRS may also be tempted to file delinquent or amended income tax returns or otherwise discuss with IRS representatives and in the process reveal the reason for their apprehension. A valid voluntary disclosure, requires at a minimum, that the taxpayer must not have reason to suspect that an investigation was about to begin when the disclosure was made, the disclosure is full and accurate, and the taxpayer must commit to cooperate with the IRS in determining the correct amount of taxes owed subsequent to making the voluntary disclosure. To avoid making an inadvertent disclosure to IRS personnel out of fear of an ongoing criminal investigation, you should not pursue this option without the assistance of an experienced tax attorney.
9. Should I possibly consider making a Voluntary Disclosure?
The IRS has established policy surrounding voluntary disclosures that if properly complied with ensure that the vast majority of taxpayers who make a proper voluntary disclosure need not fear criminal prosecution. However, the IRS voluntary disclosure policy does not guarantee a grant of amnesty or immunity from prosecution. The IRS states that a voluntary disclosure occurs when a taxpayer makes a truthful, timely, and complete disclosure, and the taxpayer cooperates with the IRS and makes a good faith arrangement with the IRS to pay all determined deficiencies, including interest and penalties. To qualify as a true voluntary disclosure, the disclosure must be made before the disclosing individual is aware of events that indicate the government is likely to discover the crime being disclosed. Given the technical and tactical aspects of making voluntary disclosure, experienced tax counsel should be engaged.
10. What is the consequence of a taxpayer lying to an IRS agent?
At some point during a civil examination or criminal investigation a taxpayer may find himself explaining his previous actions regarding his tax return to an IRS agent. Because it is a crime in and of itself, to lie or mislead a federal agent, you really only have two choices when faced with an interview by and IRS agent - say nothing or tell the truth. If you know for a fact that you, or perhaps an overzealous tax preparer, substantially understated income, overstated deductions and or falsely claimed credits then it is imperative that you seek counsel from an experienced tax attorney before continuing any further communication with the IRS agent so that you do not need to worry about inadvertently incriminating yourself.
11. What experience does the Law Offices of Jeffrey B. Kahn, P.C. have in handling criminal tax investigations?
We will monitor and respond appropriately at the earliest stage in a criminal investigation, including obtaining copies of bank records turned over to the IRS, quashing summons for information, utilizing available legal privileges and defenses to limit personal records turned over to a Grand Jury, and providing the appropriate responses to an auditor's questions and requests for documents in a civil audits with criminal implications. Our experience is also key when faced with strategic decisions such as whether to speak freely and candidly with a civil tax examiner or IRS Special Agent or whether to remain silent. Only an experienced tax attorney is specifically trained to advise you on when to avail yourself of the powerful constitutional protections afforded by the fifth amendment protection against self incrimination and forth amendment protection against unreasonable searches and seizures.
12. Will the Law Offices Of Jeffrey B. Kahn, P.C. handle your tax representation in an efficient and expedient manner?
We will act as your advocate and effectively work your case. We have helped many taxpayers not only in California. Let us have the opportunity to help you.
13. I have more questions. How can I contact you?
For prompt evaluation of your case, we encourage you to contact us using our toll-free number at 866.494.6829. or send us an email for your free and confidential analysis.
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