Sam Brotman, JD, LLM, MBA July 2, 2020 47 min read

An Overview of Criminal Tax Matters

 

If you believe that you are being investigated criminally by the IRS, you probably have a good sense as to why. Depending on how certain you are of this, you need to stop right now. You need to contact a criminal tax attorney to help you. This is certainly not a situation to try to handle on your own or with your CPA or tax preparer. This is very serious business and the stakes are too high. 

The IRS Criminal Investigation Division (CID) is exactly what it sounds like. It is the central investigative body charged with investigating and building cases against people who are charged with tax crimes. Criminal investigation works with a variety of different agencies to help build up the tax side of a case. For example, they can work with the FBI, Homeland Security and other agencies to help build and prosecute those who cheat on their taxes.

The reality of the situation is the criminal investigation division is a very small but focused unit but with a very high conviction rate. Currently, when it comes    to tax crimes, the U.S. Attorney's Office has a 90 percent conviction rate. That is pretty staggering and can be attributed to the work that the criminal investigation division does.

You Need an Experienced Defense Team

My law firm, Brotman Law, is highly-experienced in addressing criminal tax situations. We will work with you to build a strong defense and lessen the likelihood of incarceration and exorbitant fines and penalties. We specialize in small business tax matters and have years of experience in dealing with the IRS on all levels — from simple audits to high-profile criminal investigations.

In this article, I will address criminal investigations, their complexity, what the IRS is looking for, consequences of investigation and possible conviction, and why it is imperative that you need a criminal tax attorney to defend the IRS’s case against you. At the conclusion, I will answer some FAQs.

Under the Radar

Criminal investigations are multi-year investigations. They are very focused and the agents who work these cases put in a lot of time. Often, when the subject of these investigations becomes aware that a criminal agent is looking into their conduct, it is already too late, because the government is very far along on the case.

The government will make its presence known, either through contacting third-party witnesses or the subject of their investigation directly.

Government agents stay under the radar until they are pretty far along in their case. It is not as if they get assigned a case and go knocking on somebody's door. They work behind the scenes, looking at tax returns that were filed. They look at other information, such as source documents, like bank records, to build a case. 

Only after they have built that case and they are certain or fairly certain that they are going to attain a conviction, do they go out in the field and start corroborating it. 

By the time you become aware that a criminal agent is on to you, it may be very very far along — maybe almost the point where you are going to be indicted. That is why it is important to involve a criminal tax attorney who knows what they are doing. They will build a strategy to figure out why the feds are looking at you and what you can do about it in this stage. 

The earlier that you get counsel involved, the earlier that we can build a strategy. The earlier that we can start mitigating issues, the better. We will start working immediately, to mitigate your risk, build your defense, and work quickly to solve your criminal tax issue.

What Is the IRS Looking for?

IRS criminal investigators are looking for what we call badges of fraud. They are looking for circumstances that would be clear indicators that the taxpayer committed a willful violation of our country's tax laws. These willful violations can include tax evasion, willfully failing to file a tax return or any other number of tax crimes.

Badges of fraud are things like concealing records, destroying evidence, lying, falsifying documents, or taking other actions  to conceal or evade investigations. Those are the things that the CID is looking for. Criminal cases depend on willfulness. 

You may have heard that the standard of proof in a criminal case is “beyond a reasonable doubt.”

Criminal investigators (CIs) are really seeking a very high bar to try and prove beyond a reasonable doubt that someone is guilty of a tax crime. They are getting lots of evidence to support that somebody fraudulently committed a violation by digging into these badges of fraud, interviewing people and gathering documents to support their case.

The CI is trying to paint you in the worst light possible because they want to leave no doubt; they want to leave no stone unturned in showing that you are a bad guy and that you deserve a criminal conviction. 

They are developing a case, not only around the actions that were taken but trying to pigeonhole the intent that you had in committing those actions. That is really the focus of most IRS criminal investigations.

A Long, Drawn-out Process

As you can imagine, building a criminal case against a taxpayer can take a very long time. The IRS really picks and chooses its cases. Criminal investigations are very personal to the agents who work them and the IRS gives them a lot of freedom to build and develop their cases. 

It gives its agents the license to work as much as they need to within reason, to build the best case they can to turn it over to the U.S. Attorney in order to secure a conviction. That is the goal of a criminal agent …  to build and secure that conviction.

As a result, criminal investigations can take years. There is a lot of fact-finding. There is a lot of collecting information. There are a lot of witness interviews. There are a lot of third parties. The CIs are really trying to build as much of a case as possible so that they can get to the point where once you're caught, you’re caught. 

The problem with criminal tax cases, in particular, is that the conduct in question may be several years old. We are in 2020 right now, so we could be dealing with charges that stem from 2013 or 2014. These charges are old, which drives home the point that these cases take a long time to develop.

Just remember … CIs are basically ready to convict you long before you step into a courtroom. That is why you need a strong criminal defense.

So, What Are They Doing All of This Time?

A number one tactic of an IRS criminal investigation is secrecy. Government agents do not like to shine a light on their investigations. They do not  like to reveal details in their investigations or for you to know that they are there until it is too late. 

A lot of times what we see in criminal investigation situations is by the time you become aware of the agent, they have already built a tremendous case against you or against people that you may know, whether you are a subject or target or simply a person of interest. That is one of the tools that they use. They use secrecy and they use time to build these cases up.

I have already touched on that the CID will be gathering evidence in the form of documents and this can take a tremendous amount of time. They will use any means necessary to gain access to your financial documents, even executing search warrants. And while you are blissfully unaware of all of this, they will be interviewing third-party witnesses. 

The CID is trying to build a case. By the time they come to interview a target or subject of an investigation, they have all this information. They have their case built and they are trying to trap that person into a story or a lie. Those are the most common techniques we see with criminal investigations.

Obviously, the facts in every case are different and the methods that the CID uses in every case are different, but those are the ones we routinely see. We see government agents spend a lot of time working on these cases and developing them in order to secure their convictions. They have all of the resources of the U.S. Government at their disposal to move forward against the taxpayer. 

That is why it is very important when you think you are the subject of a criminal investigation to get criminal tax counsel involved as soon as possible so that we can start throwing roadblocks in the way of that investigation and ultimately work on securing your innocence.

Too Much at Stake

The most obvious risk of an IRS criminal investigation is jail. The reason why the U.S. Attorney's Office has a 90 percent conviction rate when it comes to criminal tax cases is because they have your tax return as evidence that you did something wrong and they have got you dead to rights.

The CID also wants to send a message to other people who may be thinking about committing tax crimes or who are committing tax crimes, "Do not mess with the United States Government." That is why you often see media coverage of criminal tax cases that are high-profile, involving business moguls, politicians or celebrities. The government wants to make an example of these offenders.

The other consequences and risks of a criminal investigation are ones that you may not think of. Number one, criminal investigations are very public matters. Once you get indicted, there is a certain amount of press coverage that comes with it. The U.S. Attorney's Office issues a press release. 

Oftentimes, it involves the liquidation of your assets. The feds may take your retirement accounts, they take your homes, they take all sorts of things in order to satisfy the restitution amounts that often get served in these cases.

The shock waves from these cases often extend to families. Many families do not survive criminal tax cases. Many marriages do not survive criminal tax cases. Many spouses go through a very, very hard time during these investigations. 

A lot of the time, our role is not just about dealing with the defendant in the case or who is being charged. It is also about providing support for their families, for their wives, their children, the husbands, and anybody else who is involved in these types of cases.

The fallout from these cases also ripples through business relationships. Even in cases where there is innocence or an acquittal, the lasting effects of an IRS criminal investigation can scar a taxpayer for life.

I am not saying this to be overly dramatic, I say this because I have watched my clients go through this and that is why I believe so passionately about defending their rights against the government.

It is really important when you are dealing with a criminal investigation, even if you know for sure that you have not done anything wrong, that you take the appropriate actions to protect yourself, your family and your livelihood going forward.

“Best Case” Scenario

It bears repeating, but since the U.S. Attorney has a 90 percent conviction rate with criminal tax cases, the odds are not exactly in your favor. It is important to understand what the goals are at the outset. The number one thing to be aware of is that most criminal tax charges can be mitigated. 

Oftentimes, there is a pattern of criminal conduct; it is exactly that, it is a pattern. It occurs over multiple years, it occurs over multiple tax returns and the tax loss has to be enough in order to whet the appetite of the U.S. Attorney.

The IRS does not go after people for $5,000 or $10,000 dollars. They are looking for bigger cases because they are dealing with limited resources and they are looking to send a message.

 At the very least, tax counsel can come in and try to mitigate the tax loss, mitigate the charges, and lessen the charges, penalties and possible sentencing. That happens at the U.S. Attorney level. 

However, In a lot of cases — if you have the facts to support it — you can completely derail a criminal investigation. Criminal investigations have a very high bar. You have to prove beyond a reasonable doubt that someone did something. There are a lot of things that you can do to throw roadblocks into the system. 

There are a;sp a lot of things that you can do to work with the criminal agents and work with the U.S. attorneys to achieve a global resolution to the civil and criminal side of things.

For example, if you run a business and you are accused of committing tax fraud in that business, we can plead the business to criminal charges and reduce the criminal charges or eliminate them completely for the individual, coupled with payment of the tax.

There are a lot of reasonable goals. It depends on, number one, the facts of the case and number two, the tax loss and how much culpability you really have.

Anything really is possible but it is important that you are honest with yourself at the beginning, that you are honest about the conduct, and that you are candid with your attorney. 

Your candid conversations with tax counsel are protected under attorney-client privilege and then we can just sit down and lay the cards on the table and call it what it is. Then from there, we can build a strategy that works around reasonable expectations for the case.

At the very least, a reduction in criminal charges or elimination of them completely is a pretty good goal and I think it is one that is fairly achievable, depending on your circumstance.

Why You Need Legal Counsel

A criminal investigation is a problem that you cannot solve on your own and that you cannot ignore and hope it goes away. The mistake that a lot of people make is they waste time. The sooner legal counsel can get involved and look at the facts, the sooner we can control what happens in the future, and the better off you are going to be. 

You cannot change what happened in the past, there is nothing you can do. The past is the past, but you can certainly change the future. You can alter what the events are in the future by taking certain actions now.

The best thing that you can do in a criminal investigation is mitigate your liability. Take steps to undermine the government's case before it reaches its conclusion. Put things in front of the agent that would dissuade against willfulness. 

Put things in front of the agent   that would contradict their facts. Make it as hard for them as possible to hand that case over to the U.S. Attorney.

If you do enough of that from the beginning — especially when the agent is not in the conclusion stage of their investigation — there is a good chance you can sabotage their case and derail it, and that they ultimately, will not recommend it for prosecution.

You are not really going to be able to do that by yourself. When dealing with people who are not covered under attorney-client privilege, those people can eventually be used to testify against you. Having the protection of an attorney in a criminal matter is critically, critically important.

How Can Brotman Law Help Me in My Criminal Tax Case?

Should I retain Brotman Law to represent me in my criminal tax matter? When you go through a criminal tax case, there are a lot of different phases. Criminal tax cases can be multi-year investigations. They are a huge commitment; they are a huge threat, and because of the success of the U.S. Attorney's Office with its 90 percent conviction rate, you have to be on guard.

From our end, our firm really has a lot of experience in dealing with these types of cases. We know tax, we know tax on the civil side and we know it in all phases of the criminal side. When we reach a mutual decision with the client that it is in our best interest to move forward on a criminal case, there is a lot of strategy that goes in that process.

There is a strategy in terms of how we are going to handle this from a legal perspective; there is a strategy involved in terms of how we are going to handle this from a resource perspective, and it is a fight. Make no mistake about it. 

These are the biggest stakes that we face because there is  a real possibility that at the end of the day our client is going to end up in jail, and we take that very seriously. We are going to do everything that we can on our end to mitigate any consequence.

We are constantly looking for avenues to turn the case civil, to make it go away and to reduce things down to the lowest level possible. We are constantly derailing the investigative process; we are constantly working with the U.S. attorneys and the agents to take the air out of their case, and we are fighting as hard as we can on behalf of our clients.

I think it is our tenacity that really separates us as a firm because we have the experience in going through these cases. We can empathize with our clients, and we fight on their behalf because it is personal to us. That is what I think really separates us.

If you are reading this and you want to know more, I invite you to come sit down and talk with us. Come meet me, come meet our senior team, come lay out the facts of your case and let us figure out if it is a good fit. If it is not a good fit, I promise you we are not going to take the case. 

How Much Will It Cost for Brotman Law to Take My Criminal Tax Case?

It is a complex question with a complex answer, but let me get straight to the point. Criminal investigations are usually matters that take a long time to resolve. The government is taking their time in building an investigation and there usually is a lot of complicated circumstances around the facts. There may be multiple witnesses and there may be multiple years where conduct is alleged.

We may have unfiled tax returns, we may have fraudulently filed tax returns, or at the very least, tax returns that are not correct. When looking at cost, you have to consider that the behavior in question has generally occurred over an extended period of time. 

With that said, there is a lot of work that goes into these cases. Some of the work happens at the beginning in order to mitigate the damages. Some of it involves preparing for a special agent interview, preparing for a proffer session with the U.S. Attorney, or preparing for a number of different things that get submitted during the course of these investigations.

Generally speaking, we do not use a lot of paralegal time on our criminal matters. The staff that has lower billing rates largely goes away. Now, we can leverage our lower billing rate staff, to help offset the cost in terms of organizing documents and preparing them for submissions and things like that. But, when it comes to a criminal matter, you want the best and the brightest in the firm handling the matter.

That is usually me, and in some combination, with my senior team. Our billing rates for senior attorneys are anywhere between $350-$525 an hour. I want you to take that into perspective. A lot of it is driven by documents, by the conduct of the agent, and by the facts, and so it is very hard to give an estimate.

With that said, when we take a criminal matter on, we are usually looking at about a $25,000 retainer. That obviously varies. If it is a witness investigation, we are not going to need anywhere near that much of a retainer to get the work done in the case. If it is a larger and more complex criminal matter, we have taken retainers that are $100,000 or more.

When we quote a retainer, we look at the volume of work that is involved and try to distribute that as most efficiently as possible. There are a lot of moving pieces that go into this. A lot of the times what happens with a criminal investigation, particularly on the tax side, is that we will bring in a bookkeeper, and a CPA, under what we call a Covell agreement, which protects them under the envelope of our attorney-client privilege and we use that to offset costs.

There is a lot of care that is taken at my level and among our senior attorneys to really mitigate resources, and to protect things because we want to make sure we are giving the client the best representation possible. We take our job as counsel very seriously. 

 

We do not want to be a financial burden on anybody, but we want to make sure that the work gets done because it is in the client's best interest to do the work and to do it right.

There is an investment in that. It is a significant investment, and that investment usually spans over many, many months, in order to resolve these types of cases. That is the best guidepost I can give you for how much a matter generally costs in the firm from a criminal side of things.

If I know more facts, I can definitely give you a better guideline of where you stand, and then how much your case is going to cost, and help you plan that out to make sure that you are utilizing the resources most effectively. I think that is ultimately best for any criminal tax matter and it is best for you, the client

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FAQs

What Should I do if I am Visited by Special Agents? 

Have you ever heard that phrase, “You have the right to remain silent?” Exercise your right to remain silent. Do not talk to the special agent. Get the special agent's card. They travel in pairs, so you will often be visited by two of them. 

Get the special agent's card and say, "I would like to consult with my attorney and I will call you back."

Even if you are just a witness, it is important that you do not expose yourself to liability. By no means should you consent to an on-the-spot interview or start answering questions. 

The special agent will try and push you to do that because their job is to get as much information out of you as possible. It is very important that you take a pause and realize that you are talking to a criminal investigative agent — the people who carry badges and guns  — and step away from the situation.

Hire a third party; have somebody intercede on your behalf, or at least take a pause and figure out what this is about. Once you do that, then you can go into your special agent interview prepared.

You can go in willing to answer the questions that they are asking, or you can decide which questions you are not going to answer because you may be potentially at risk and you are going to want to gauge the interview. That is really really important.

You want to make sure that you are approaching the situation with the degree of caution that it deserves. Be very careful around special agents. These are the people who build cases to put people in jail. Take a pause, review the situation, and then only act when you are certain that you know what the outcome is going to be.

What if I am Under Investigation by the IRS Criminal Investigation Division and I Haven't Done Anything Wrong? 

First, I want you to take a breath and think about the phrase, "I haven't done anything wrong.” “I haven't done anything wrong,” is a very absolute statement. If you are going to make that sort of that absolute statement, you need to be absolutely sure you have not done anything wrong. 

The problem in a lot of these cases is that you  have done something wrong. You may have not had criminal intent behind it, you may have not intended to defraud the government, but for some reason, your actions triggered an IRS criminal investigation.

If you did not trigger a criminal investigation, the agents would not be looking at you. There has to be some reason. Special agents do not just fall out of the sky. It is really important to assess your level of culpability and have an honest conversation about that in the beginning. With that said, special agents are by no means perfect and criminal cases are by no means 100 percent accurate.

What you usually deal with in criminal cases are levels of truth. You deal with things that are 100 percent true. You deal with things that are sort of true and then you deal with things that are absolutely not true. 

The important thing is to understand that this is a strategic position that you are in and that your goal is to mitigate and minimize any impact that this criminal investigation is going to have.

It is not even about indictment, although many cases head towards the U.S. Attorney's Office and they do not spend time on you unless they are charging you. You do not get in their crosshairs by accident, but the important thing is that criminal investigations have a lot of detrimental impacts on people.

It is very important that you work to protect yourself in any way that you can. Even if you are completely innocent, retain criminal tax counsel and have a consultation with us.

At the very least, we can sit down and build a strategy so that at worst, you are completely prepared for something that never happens. Then you do not have to worry about it, but at best, you are in a great position to prevent some serious consequences going forward.

What Should I do if I Suspect That My Tax Preparer is Being Investigated by the IRS?

If you think that somebody might be a subject or a target of an IRS criminal investigation you are going to want to think about cutting off contact with them sooner rather than later. If somebody is under the microscope of IRS-CI, you do not want to be anywhere near that person; you do not want to touch them with a 10-foot pole.

A lot of tax preparers get investigated by CI because they present a huge problem for the IRS. Think about it this way. If you are an individual and you cheat on your taxes, the loss is really mitigated to your individual return. I am not saying that is a good thing but from the government's perspective, when the government looks at tax cases, one of the factors they consider is tax loss.

The tax loss with an individual may not be as great, but when you are dealing with a preparer, the tax loss associated with tax preparer cases can be greatly amplified across all the preparer's clients. If you are one of those clients, there could be errors on your return whether you know about them or not. 

You are going to want to mitigate your own risk. Most often in tax preparer cases, you will face some sort of a civil audit and so it is important to be prepared going into that.

You are not just dealing with civil liability, penalties and interests at this point; you are dealing with potential criminal liability and if you do not think that your tax preparer is going to throw you under the bus in order to save themself, then you are kidding yourself. 

The best thing that you can do is consult with a tax attorney. Depending on the circumstances, you may not need to get tax counsel involved right away, you may just need a little bit of a consultation and wait to see and assess the situation. 

But, it is important that you understand what your risks are, what your rights are and have a clear path going forward on how you should handle things.

If I am Contacted by an IRS Special Agent or by the Criminal Investigation Division About Somebody Else, What do I do? 

The biggest mistake that I see in witness investigations is when the witness assumes that because the special agent is asking about somebody else that witness is not at risk. There is a reason why that special agent is talking to you, and often they will handle their interviews in pairs.

Even though they may say that they are seeking information about somebody else, it does not mean that you are not under the microscope for your actions as well. I never recommend that people talk to special investigation agents in the initial interview.

The best thing to do is get the special agent's card. Take a breather, prepare for that interview and then come back so you can give the agent your full cooperation. Know very clearly what questions you are going to answer and what you are not going to answer. 

When you are dealing with these people, you need to exercise your right to remain silent. You need not give them information that could lead to problems for you down the road.

It is important as a witness to understand that even if you say, "I have not done anything wrong. I have nothing to worry about,” do not underestimate the agents. The agents do not have to be truthful with you. They do not have to tell you what they are really after. They do not have to give you anything. 

You need to be very careful in the statements that you make to them. You need to be very careful in how you approach them and ultimately, the goal is to remove yourself from any element of risk whatsoever.

Should I Hire a Criminal Defense Attorney or Should I Hire a Criminal Tax Attorney? 

It depends. These are different people who do different things.

My experience with criminal defense attorneys is that most of them have a good handle on state cases because they see a lot of them. Even among those who handle federal cases, a lot of them do not practice tax cases very often.

They may have experience trying a criminal tax case because oftentimes, charges from the tax world get wrapped up into things like money laundering and bank fraud and a whole host of other crimes, but they are not a tax specialist.

A tax specialist is very valuable during a criminal tax investigation because we understand the playing field. We know how the civil audit side is supposed to respond. We know how civil collections works and we know what constitutes willfulness in a tax case. We know what positions the client takes and we understand the return. A criminal tax attorney understands these issues and can work to mitigate.

The downside with a lot of criminal tax attorneys is trial experience. Criminal tax attorneys live in the tax world. We are not necessarily experts in criminal trial procedure. 

If your case goes to trial, you probably want somebody who is an expert in criminal trial procedure. Most criminal defense attorneys, because they spend the majority of their time in the courtroom, are experts at criminal defense and criminal defense procedure.

I usually recommend a combination of both. If you have a team of people who have criminal tax experience and potentially criminal trial experience, then you have a very well-rounded defense team. A lot of our most successful cases come from working in tandem with criminal defense counsel. 

If you are in the middle of a criminal investigation or even if you have reasons to suspect you might soon be, you want to have the best team possible because the consequences are so severe. I think it is a good idea to have a blend of both.

What I recommend is, no matter whom you hire, whether it is our firm or somebody else, go interview them. Go talk to them about what their level of experience is. Go talk to them about ways they think they can help in the investigation and get honest feedback.

You have the right to choose who your counsel is. Make an informed decision. Talk to criminal defense counsel; talk to criminal tax counsel. Weigh the pros and cons and make a decision from there.

Is it Possible to Just Pay Your Taxes and Make a Criminal Investigation Go Away? 

No. When a case reaches the level where IRS-CID is involved, it has evolved beyond the point of paying the taxes because what they are doing is looking at your conduct, and even the payment of tax does not eliminate your previous conduct. It is an admirable thing to do, but at the same time, it is not going to make your criminal charges go away completely.

Now, the good news is that payment of tax can mitigate the tax loss. It can let some of the air out of the tires with what the IRS is charging you with because, look at it from a practical perspective, the U.S. attorney is saying, "We are going to charge you with these crimes. You did all this stuff, and you defrauded the government," and blah, blah, blah. 

If you pay the tax and the interest and the penalties, you can mitigate some of the harm done. There is still harm but it is a lot less of an appealing case for a prosecutor if they are not able to stand in front of the judge and argue a tax loss. 

The answer is still no. It does not make it go away, but yes, it can help strategically within an investigation.

What I recommend is to not pay the taxes immediately. Wait, develop a strategy and offer that as a carrot potentially in the future to help mitigate your criminal exposure. It is better to play your cards at the right time than to hurry up and just do things without any sort of strategy in place. Sit down with a criminal tax attorney, build a plan and then execute that plan over the course of the investigation

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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