As a general rule, one should always file their tax returns regardless of that person’s ability to pay their taxes. That said, failure to file will not automatically result in an IRS criminal investigation. According to the IRS, most average criminal investigation initiates when a late filer has failed to file for three years or more and owes approximately $70,000. Furthermore, it should be kept in mind that the IRS tends to prioritize public figures, athletes, movie stars, and similar late filers before going after late filers of a lower profile, and in fact the latter group may be able to get away with a lot more in terms of how much can be owed prior to the initiation of an IRS criminal investigation.
Under IRS guidelines, IRS special agents must follow strict procedures to initiate an investigation and recommend prosecution to the Department of Justice. Among such procedures is a requirement that special agents seeking to initiate an investigation provide several high-level IRS officials with evidence and documentation supporting the theory that a financial crime or fraud has occurred, but this is preceded by a “primary investigation.” During the “primary investigation,” special agents analyze relevant financial information to determine if a financial fraud or crime is occurring. Ultimately, the information uncovered goes through two levels of approval before the criminal investigation is initiated.
IRS criminal investigations typically fall into one of four categories: legal source tax crimes, illegal source financial crimes, narcotics-related financial crimes, and counterterrorism financing. Once the criminal investigation is initiated, a variety of techniques are employed by the IRS special agents including interviews of third party witnesses, conducting surveillance, executing search warrants, subpoenaing bank records, and reviewing financial data. The special agent or agents, aided by the IRS Chief Counsel, eventually come to a determination as to whether the evidence obtained substantiates a criminal investigation. If so, a “special agent report” is compiled and reviewed by several different higher-ups in the IRS. If it passes these levels of review, the case will be referred to the Department of Justice, tax division for prosecution, and in some cases the U.S. Attorneys Office for non-tax matters.
Prosecution can end in a conviction, plea or acquittal, but it should be noted that the IRS is amenable to pleas, depending upon the seriousness of the crime. More importantly, notwithstanding the leeway that one might have with respect to the lengthy time between failure to file a return and initiation of a criminal investigation, one should always do their best to file on time, regardless of whether or not they can pay their taxes.
If you are a target of an IRS criminal investigation, receive notice of a third party summons, or have other reason to suspect that you may be under investigation, it is important that you seek the advice of a criminal tax attorney immediately. Time is of the essence; please contact our San Diego office for assistance.
For more information, please see:
- More about the Criminal Investigation Division
- Visit from an IRS Special Agent
- Are You a Criminal Investigation Target?
- About IRS Criminal Investigations
- IRS Methods of Proving Tax Fraud and Tax Evasion
- Criminal Tax Attorney v. White Collar Defense Lawyers
- Criminal Investigation Division Tactics
- Tax Crimes
- Tax Crimes – Perjury