The criminal investigation
is the heavy artillery of the IRS arsenal.
It is used in only a tiny percentage of
cases, but its impact is devastating. It
can bring personal, social and financial
ruin, loss of professional licenses, huge
monetary fines, and incarceration. And
despite the jokes about "Club Fed," spending
a couple of years in federal prison is
no laughing matter.
Often you won't know that an IRS criminal
investigation has started until it is
too late. But sometimes there are "warning
A Revenue Officer who has
been pressing you for payment suddenly
disappears and won't return your phone
This is not necessarily a stroke of
good luck. Instead, he may be back at
the office writing up a referral to his
friends in the Criminal Investigation
A Revenue Agent who has been
auditing your tax returns disappears
for days or weeks.
Again, this isn't cause for celebration.
The case may have been referred. When
the Criminal Investigation Division is
in a case, or even considering whether
to accept a referral from another division,
no action is taken for fear that something
done by the Examination Division or the
Collection Division will harm the chances
of a successful prosecution down the
Your bank notifies you that the
Criminal Investigation Division of
the IRS (using a summons), or the local
U.S Attorney's Office (using a grand
jury subpoena), has requested copies
of your bank records.
You need representation to track the
IRS investigation and secure the same
records the IRS gets in these cases.
Knowledge is power.
Your accountant is
contacted by Special Agents or is subpoenaed
to appear before a grand jury and bring
your tax records.
Since conversations with your accountant
are not protected in a criminal investigation
or prosecution, discussions you may have
had in the past are fair game for questions
by the IRS or the grand jury. Obviously,
this means that once you know you are
under investigation you should say nothing
at all to your accountant, or you may
someday watch him being forced to repeat
the conversation from the witness stand.
Accountants are an integral part of the
defense team in any criminal tax matter,
but only when they have been retained
by counsel and thus are brought within
the attorney-client privilege under U.S.
v. Koval , 296 F.2d 918 (2d Cir. 1961)
and other cases which have followed it.
The so-called accountant-client privilege
provided under state law, and even under
the Internal Revenue Code itself, does
not apply in a criminal case.
notified by the IRS that one
of your previous tax returns has been "selected" for
audit, and you know that in the
tax year in question there was an
understatement of income or an overstatement
If the returns you filed contain either
understatements of income or overstatements
of deductions, you should not have any
further discussions with your accountant
or anyone else until you have retained
legal counsel. This is often referred
to as the "egg shell audit" situation.
While it may at present be only a civil
examination, Revenue Agents are trained
to watch for "badges of fraud," and
to refer potential fraud to the Criminal
Investigation Division. The "accountant-client
privilege" does not extend to criminal
investigations, so your accountant may
be forced to tell the IRS and the grand
jury everything you have told him.
A Special Agent contacts you.
This is not a warning sign; it is a
giant roadside billboard with flashing
lights. You will be told that you are
not required to speak with the Agent,
and that you may have a lawyer present,
but the Agent will then try to get you
to talk -- for hours. Special Agents
love these ambush interviews. They know
only too well that once you hire an attorney
they will probably not again have the
chance to talk with you, so their best
and perhaps only chance of getting statements
useful to them in prosecuting you is
to get you to talk before you are represented
by counsel. DON'T DO IT!! Do not talk
to the Agent or give him any information
or documents. Instead, respectfully tell
him that you would like to consult with
counsel, and nothing more. If you are
already under investigation by CID and
you have been talking and "cooperating" with
any Special Agent, STOP IMMEDIATELY and
retain competent counsel. If you try
to handle this on your own, you will
have plenty of time in prison to contemplate
the old adage "a man who represents
himself has a fool for a client."
If any of these things happen to you,
drop whatever you are doing and find
competent representation immediately
-- you're going to need it. Please understand
that there are relatively few criminal
tax investigations each year, so not
many attorneys are experienced in handling
them. In fact, it is almost impossible
to handle these cases correctly unless
you have been an Assistant U.S. Attorney,
a Department of Justice trial attorney,
or an IRS Special Agent. You owe it to
yourself to find someone with these qualifications.
Call us -- we can help!
WANT MORE INFORMATION?
Fraud Investigations -- A Procedural
Roadmap, by Burton J. Haynes with Joseph
M. Jones. published in the "Corporate
Criminal Liability Reporter."
With The IRS Collection Division: Healing
Self-Inflicted Wounds - Representing
published in "The Freestate
Accountant" as a part of Mr. Haynes'
series "Dealing with the IRS Collection
for Criminal Tax Trials , U.S.
Department of Justice, Tax Division.
Revenue Manual -- Part 9 (Criminal