This Chapter will walk you through the process of a criminal tax case from the initial investigation through a plea or trial. Any questions you may have as to what a specific step in the process will look like to you, or what goes on behind the scenes will be answered in this chapter. Do you have questions on how criminal tax proceedings are initiated and charged? This chapter will answer those too.
I. The IRS Phase
A criminal tax case generally begins with the IRS. The IRS has its own criminal investigation (“CI”) branch, dedicated to investigating taxpayers suspected of violating the internal revenue laws. Within the CI branch are special agents who are responsible for conducting these investigations. CI Special Agents are considered law enforcement officers, and they have many of the same powers as traditional law enforcement officers, such as the ability to make arrests and carry firearms. See IRM 18.104.22.168.1 Authority To Carry Firearms (11-10-2004). CI Special Agents can conduct their investigations without the assistance of other outside law enforcement. However, they may work together with other entities within the IRS such as revenue agents, IRS attorneys, and Fraud Technical Advisors (“FTA”).
Revenue agents are civil accountants employed within the IRS to ensure compliance with tax codes by examining and auditing tax returns and records. If you are going through a civil audit by the IRS, these are generally the individuals who will be conducting your audit. They are often a large source of referrals to CI. See infra part ii. How are Administrative Investigations Initiated. IRS Attorneys work as a form of “in-house” counsel and provide legal assistance to CI Special Agents. You probably won’t have much contact with the IRS Attorneys, but they become especially involved if the CI Special Agent wishes to enforce a summons or seek a search warrant during an investigation. FTAs are a type of specialized consultant with the IRS, and their main job is to look specifically at any indications of fraud to determine whether a referral to CI for a criminal tax administrative investigation is appropriate.
II. DOJ Tax Approval Phase
The approval phase begins when a case is referred to the Criminal Enforcement Section (“CES”) of the Department of Justice Tax Division for authorization. In most tax cases, the Tax Division’s approval of a case is necessary before prosecution. CES has different offices for different geographic locations. CTM 1.04[b].The DOJ Tax CES organization chart is at CTM 1.13. Therefore, which CES office that reviews the referral is going to depend on where the tax crime took place. See id.
Since the Government only has so many resources available to prosecute these crimes, it is important that CES carefully selects those cases which have the greatest conviction potential, highest quality of referral from IRS, and align with its priorities to refer to grand jury investigation or USAO prosecution. See generally USAM 6-4.010. The idea behind this is the tax division brings fewer charges with better results so that the average taxpayer is deterred. See id.
Most recently, the Tax Division’s major litigation priorities include corporate and healthcare fraud, offshore tax evasion, stolen identity refund fraud, and employment tax crimes. See generally, Department of Justice Tax Division, FY2019, Congressional Budget. https://www.justice.gov/jmd/page/file/1034246/download.
III. The Grand Jury
A federal grand jury is made up of 16 to 23 citizens who are tasked with determining whether or not there is probable cause to charge a defendant with the crime presented. See Fed. R. Crim P. (6)(a)(1). A grand jury can only be used to gather evidence before a defendant has been indicted. Costello v. United States, 350 U.S. 359, 362 (1956). The grand jury does not decide whether the defendant is innocent or guilty of a crime. Therefore, their principal function is investigation. The Grand Jury phase doesn’t fit squarely into the criminal tax case roadmap because it can be initiated in a few different ways, and doesn’t always- although in most criminal tax cases it will- occur.
The most common way a grand jury investigation is initiated in a tax crime is through Tax Division referral to the USAO. JM 6-4.200. The USAO is authorized to conduct grand jury investigations into tax crimes that the Tax Division has already referred to the USAO for prosecution. See CTM 3.00. The USAO is also authorized to conduct a grand jury investigation into a tax crime with the tax division’s prior permission, or if the Tax Division believes further investigation is required to decide if a case should be prosecuted.See id.
The USAO can initiate a grand jury investigation into a Tax Crime without a Tax Division referral in limited circumstances. For example, the USAO can expand a non-tax investigation in order to include tax related offenses. See id. at 9. However, in these cases, the Tax Division has to authorize the specific tax charges before the USAO files an information or seeks the return of an indictment. See Tax Division Directive No. 86-59 (October 1, 1986), available in Criminal Tax Manual, Chapter 3.
The IRS can also initiate a grand jury investigation in some instances. If CI for some reason is unable to either finish its investigation, decides further investigation is needed, or determines that it is unable to use its administrative investigation to properly gather evidence, it can request that the Tax Division authorize a grand jury to investigate the suspected tax offense. JM 6-4.121. There are also limited cases in which CI is allowed to refer a case directly to the USAO for prosecution and grand jury investigation. See JM 6-4.243. In the event that the IRS requests a grand jury investigation, this will be considered a referral to the justice department. Once a criminal referral is made, the IRS can no longer use their administrative summons powers. See 26 U.S.C. § 7602(d).
So why would the IRS want to turn their investigation over to a grand jury? The grand jury is a powerful tool for a couple of reasons. First, the grand jury has subpoena power. See JM 9-11.000. This means they can legally compel a person to come before them and testify or produce documents. You can’t just ignore a subpoena. A failure to comply with a subpoena could cause serious legal consequences. Unlike an administrative summons used by the IRS, the taxpayer will not be notified of a subpoena, and the requirement to return documents or appear to testify can be on very short notice. Grand juries are not subject to evidentiary rules, meaning they can consider all types of evidence, even evidence that may not be allowed at trial. JM 9-11.232. Finally, the grand jury allows a prosecutor to test out their case prior to trial. Unlike an administrative investigation, while you may have a lawyer assist you through the grand jury phase, no other lawyers are allowed in the grand jury room. Fed. R. Crim P. 6(d). The prosecutor, testifying witness, and a court reporter are the only individuals who are permitted to be in the grand jury room. Id.
IV. The Prosecution Phase
If the Tax Division approves a case for prosecution, it will typically be sent to the appropriate United States Attorney’s Office to be handled by an Assistant United States Attorney. The United States Attorney’s Office that receives the case isn’t selected by random. When the Government charges a crime, they have to show that the trial for this crime will occur in the right place. This place is called venue.
Under the Constitution, the proper venue is the place where the crime was committed. U.S. Const. art. II, § 2, cl. 3; U.S. Const. amend. VI. This applies to a federal criminal tax case unless there is a statute or rule that says otherwise. Fed. R. Crim. P. 18. In the federal criminal system, trials are heard in one of the 94 federal judicial districts throughout the United States. See United States Department of Justice, Justice 101, Charging, https://www.justice.gov/usao/justice-101/charging. Each state has at least one district, and many states have multiple districts, which each contain a district court. See id. The exact location within the judicial district is decided by convenience to the defendant and witnesses. See id. When we discuss each of the major tax crimes below, we will also discuss any special rules relating to venue.
The Government only has to show that the venue is proper “by a preponderance of the evidence”. United States v. Maldonado-Rivera, 922 F.2d 934, 968 (2d Cir. 1990), cert. denied, 501 U.S. 1210 (1991); United States v. Griley, 814 F.2d 967, 973 (4th Cir. 1987). A preponderance of the evidence is the legal way of saying that it is more likely than not. If you had to put a number to that concept it would look something like 50.000000001%.
How Are Tax Crimes Charged?
After a case is received by the Tax Division or USAO, the Government looks at all of the information provided as well as any recommendations by the IRS, and decides what crime can be proven from the facts of the case. The prosecutor is instructed to initially charge the most serious crime that can be proven.JM 9- 27.300.
The formal document the Government uses to charge the crime will either be an indictment or an information. In most federal tax crimes, the Government will use an indictment to charge the crime. The indictment is a formal written accusation containing the charges against the defendant and the facts supporting them. Fed R. Crim P. 7(c)(1). The indictment is presented to the grand jury by the Government. If the grand jury decides there is sufficient evidence to indict the defendant (only 12 of 16 are needed to indict), they will return the indictment known as a “True Bill” and present it to be signed and filed with court. United States Department of Justice, Justice 101, Charging, https://www.justice.gov/usao/justice-101/charging. When the indictment is returned, a warrant for the defendant’s arrest may be issued, and the defendant may be arrested. However, an arrest warrant does not absolutely need to be issued. The court may instead issue a document called a summons, legally requiring the defendant’s appearance in court. See Fed. R. Crim P. 9. Prior to the indictment there will be a chance for discussions with the AUSA at which point, the Government can agree to request a summons rather than an arrest warrant. The decision to do this is fact specific and depends on the individual AUSA handling the case. However, in criminal tax cases, an arrest may be the preferred means to deter others from committing a violation of tax laws. See Lauro v. Charles, 219 F.3d 202, 212 n.7 (2d Cir. 2000).
An information is also a formal written accusation, but instead of going through the grand jury process, it is filed with the court under oath. Fed. R. Crim P. 7(b). An information may only be used in federal misdemeanor cases unless the defendant specifically agrees to be charged by information. See id.
Pre-Trial- What Happens Before A Case Goes to Trial?
Many important events can occur during the pre-trial phase of the criminal tax process from working out evidentiary issues, to setting a timeline, to discovering evidence and negotiating a plea.
Before the trial, both parties may have some issues regarding the evidence or the charges that they want to address. Either party can do this by making a pre-trial motion. See Fed. R. Crim P. 12(b). See also Fed. R. Crim P. 47. We’ve already discussed the Motion for Pre-Trial Detention, which the Government can make if they believe a defendant should not be released on bond awaiting trial. Other pre-trial motions include motions to dismiss, motions to suppress evidence, motions in limine, and severance motions. See generally, Department of Justice, Justice 101, Pre-trial Motions https://www.justice.gov/usao/justice-101/pretrial-motions.
A motion to suppress is one of the more commonly utilized pre-trial motions, and can have a major impact on the strength and outcome of a case. While a motion to suppress is a tool which can be used by either party, it is often used by defense counsel to keep evidence from being presented at trial. This evidence can be testimonial, such as a defendant’s statements, or physical evidence, such as documents or photographs that may have been improperly obtained. We have discussed in previous sections some of the important rights that the defendant has at different stages of a criminal proceeding. If these rights are not afforded to the defendant, and evidence was obtained as a result, a motion to suppress this evidence is one important remedy. For example, John Doe is arrested but is not told that he has the right to remain silent. When questioned about his tax return, John Doe admits that he underreported his income to avoid paying taxes in a higher bracket. John Does admission would likely be suppressed.
Pre-trial conferences are another useful tool in efficiently moving the case along and ironing out any unresolved issues prior to trial. See Fed. R. Crim P. 17.1. Pre-trial conferences are generally formal meetings in court with the AUSA, defense counsel, and presiding judge present. Some districts have mandatory pre-trial conference proceedings, which set timelines for actions such as discovery, pre-trial motions, and filing witness or exhibit lists. If a pre-trial conference is required, the defendant may be able to waive their appearance, as long as their defense counsel is present.
How do I Find Out the Evidence Against Me?
Prior to trial, the Government and defense counsel will conduct a sharing of evidence known as a discovery period. See Fed. R. Crim P 16. This includes a sharing of documents, photos, and other physical evidence or the sharing of testimony prior to trial, called a deposition. See Fed. R. Crim P 15. Depositions are an important tool for both sides, and can be used not only to build a case, but also at trial to impeach a witness who makes a statement at trial that is inconsistent with their sworn deposition testimony. See Fed. R. Evid. 801(d)(1).
With the exception of limited privileged documents, the Government will generally turn over what evidence they have to defense counsel. In order to ensure a fair trial, the Government must automatically (even if the defense does not request this discovery) turn over all evidence they have that may exonerate the defendant, as well as any statements that the defendant made. Brady v. Maryland, 373 U.S. 83, 87 (1963); Giglio v. United States, 405 U.S. 150, 154 (1972). If the court determines that there was a violation of the discovery rules it can impose strict penalties, including a mistrial or exclusion of the evidence.
V. Plea Agreements
Many federal criminal cases are resolved through plea bargaining rather than at trial. See Lafler v. Cooper, ___ U.S. ___, ___, 132 S. Ct. 1376, 1388 (U.S. 2012). A plea is when the defendant admits to the crime, and agrees that they may be sentenced by the presiding judge. Plea bargaining is an important part of the criminal justice system because it allows the case to be settled outside of the courtroom prior to trial and helps to keep the criminal justice system from getting bogged down. The plus side of the plea agreement for the Government is appropriate punishment with less time and resources, while the plus side for defense is the ability to know what you’re getting and the opportunity for a more lenient sentence.
The Government is authorized to offer the defendant a deal where in exchange for the defendant’s plea, the prosecutor will recommend a specific sentence or sentence range to which the defendant agrees. See Fed. R. Crim. P. 11. In criminal tax cases, the AUSA handling the case is permitted to enter into a plea agreement with the defendant even prior to the indictment, and pursuant to the Tax Division’s Major Count Policy, they do not have to get tax division approval before entering a plea to the major counts on a tax case indictment. See USAM 6-4.310. The major counts are determined by the Tax Division on a case by case basis, but are generally the most serious charges with the most severe possible punishments. See id. If the major count is a felony tax crime, the AUSA is not permitted to plea the defendant out to a lesser included charge (a secondary offense underlying a more serious offense) or misdemeanor offense. See id. For example, if the charge is felony tax evasion, the Government can’t accept a plea to the misdemeanor offense of failure to pay a tax. However, the Government is permitted to dismiss lesser counts of the indictment in exchange for the defendant’s plea to one or more of the major counts. See id.
Plea discussions occur between the prosecutor and the defendant’s counsel. The judge should not have a hand in any plea discussions, but will ultimately be the person who accepts the plea. See Fed. R. Crim. P. 11(c)(1). While the Government can recommend the sentence negotiated in the plea, if the judge feels as if the plea is not in the “best interest of justice” he or she may reject the plea agreed on between the Government and the defendant. See H.R. Rep. No. 94-247, 94th Cong., 1st Sess., 6 (1975). See also United States v. Reasor, 418 F.3d 466 (5th Cir. 2005). While this is not the norm, it is a possibility that the defendant should be aware of. If the defendant’s plea is accepted, there will be no trial, and the defendant will be punished in accordance with the law.
What are the Types of Pleas?
The defendant may plead guilty, not guilty, or nolo contedendre (no contest). See Fed. R. Crim. P. 11 (a)(1). The defendant can also enter into a negotiated plea agreement or a plea to the bench. See Fed. R. Crim. P. 11 (c).
Anyone who has watched a crime television show has probably heard of a negotiated plea. This is an agreed plea between the Government and the defendant, which we discussed above in What is a Plea Agreement supra. If, however, the defendant does not like the offer made by the government, but would still prefer to plead guilty to the offense charged rather than go to trial, the defendant has the option to plea to the bench, sometimes referred to as an open plea. This generally occurs if the defendant is guilty of the crime charged, but does not believe the Government is being fair and they have a weak case. Open pleas can sometimes be like rolling the dice. Some judges will inform the defendant of the sentence before the defendant enters a plea, but some judges will require that the defendant plead guilty without prior knowledge of the sentence that the judge will impose.
For a defendant to plead guilty, they must admit that they have actually committed the crime for which they are charged. If the defendant does not want to admit guilt, but agrees that the Government has sufficient evidence against him or her, they may be allowed to enter a plea of nolo contendere or no contest. See Fed. R. Crim. P. 11 (a)(3). This has the same immediate effect of resolving the case without trial and moving to sentencing, but can have different future consequences. For example, a plea of nolo contendre may not be utilized in civil proceedings. Fed. R. Evid. 410(2). However, the defendant does not have the right to a no contest plea. See Fed. R. Crim. P. 11 (a)(3). Some judges do not accept no contest pleas, or will accept them with certain conditions. In fact, it is the Government’s policy to strongly object to no contest pleas, and they may not accept them unless it is an extreme circumstance and only after formal written approval by the Assistant Attorney General of the Tax Division. See U.S.A.M. 9-16.010 and 9-27.500
How is a Plea Accepted?
Once a defendant pleads guilty, the presiding judge will go through a series of questions called a plea colloquy to ensure that the plea is made in the best interests of justice, and to preserve the record for appeals. We will discuss the appeal process in Chapter 4, Sentencing, supra.
The plea colloquy is different from judge to judge, but they will all have same the same basic concepts. The judge will ensure that there are proper facts to support the guilty plea, ensure that the defendant is aware of their rights and the consequences of pleading guilty, and ensure that the defendant is voluntarily pleading guilty and is aware of mentally able to enter a plea. See Fed. R. Crim. P. 11(b)(1).
If the prosecutor has recommended a sentence or sentence range, the judge will also decide if the sentence is fair and in accordance with the sentencing guidelines. If all of these criteria are met the presiding judge will accept the defendant’s plea and either proceed to the sentencing phase. Once the court sentences the defendant the plea can’t be withdrawn unless it is by motion or appeal. See Fed. R. Crim. P. 11(b)(e).
We previously discussed how the majority of criminal tax cases will resolve with the defendant taking a plea, but in the rare instance that a case does go to trial, we’ll discuss the components of the federal criminal trial and what you can expect when you walk into the courtroom on trial day.
What is the Jury’s Role in a Trial?
The jury is also known as the fact finders. Their role is to listen to the evidence presented by the Government and the defense, and then make a fair and impartial decision as to whether the Government has proved every element of the charged offense beyond a reasonable doubt. See Generally American Bar Association, How Courts Work, The Role of Juries (2019). https://www.americanbar.org/groups/public_education/resources/law_related_education_network/how_courts_work/jury_role/#:~:text=The%20jury%20is%20the%20fact,judge%20to%20sentence%20the%20defendant.
Prior to the trial, the Government and the defendant’s lawyer will have an opportunity to ask the pool of potential jurors questions to determine if they can make a fair and impartial decision in the case. See Fed. R. Evid. 47. These questions will be aimed toward discovering the juror’s beliefs and biases and any conditions that would keep them from paying attention and judging fairly. Once the jury is selected, they will be sworn in and prepared to sit for the trial.
What Happens at a Federal Criminal Trial?
The federal criminal trial is a daunting, intimidating, and somewhat mythical practice. A federal trial is much more formal than a state trial, such as those that you may have seen on Law and Order.
Before the trial begins (this can occur either before or after jury selection), the parties may be given the opportunity to argue for the last-minute exclusion or inclusion of possibly prejudicial evidence or testimony at trial in what is called a motion in limine. Luce v. United States, 469 U.S. 38, 41 n.4 (1984).Generally, at the trial stage both sides will have an idea of what the other side intends to bring out, and may wish to pre-emptively ensure that this information is not presented to the jury. Once these motions have been resolved, the jury will either be selected and sworn in or called in to begin the trial.
The defendant will sit at one table with their lawyer. It is important that the defendant is present for all of the proceedings on the day of trial, but the Government may not force the defendant to testify (although they will have an opportunity to do so during the defense’s case in chief if they choose). See U.S. Const. amend. V. If the defendant has been in custody they will be allowed to change out of their prison uniform into plain clothes for trial day. See Estelle v. Williams, 425 U.S. 501 (1976). At the other table will be the Government. The prosecutor may try the case alone or may have other prosecutors with them to assist in the trial.
The Government will get to go first. They will have the opportunity to present an opening statement- their version of the story and what they believe the evidence will show-before the jury. Defense counsel will be able to present their opening statement next.
Throughout the trial, both the Government and the defense counsel will have an opportunity to call witnesses and present evidence to the jury. The Government will put on their entire case first. At the close of the Government’s case, the defendant’s lawyer has the opportunity- outside of the presence of the jury- to request that the judge acquit the defendant because no jury could reasonably find the defendant guilty based on the evidence presented by the Government. See Fed. R. Crim. P. 29. This is generally only successful in the event that there is a major pitfall in the case where none of the evidence presented could even reasonably support one of the material elements of the case (i.e., Government is unable to identify the defendant.)
Then, the defense will have a chance to present their case in chief. However, in a typical case (one where the defendant is not claiming an affirmative defense), the defendant does not have to put on any evidence or prove anything to the jury at all. See In re Winship, 397 U.S. 358, 364 (1970). If defense counsel wanted to sit at the desk and play tic-tac-toe (hopefully they do not), they can. It is the Government’s burden to prove each and every element of their cease beyond and to the exclusion of every reasonable doubt. See id.
“Beyond a reasonable doubt” is the highest standard in the criminal justice system, but “reasonable doubt” does not mean no doubt. Just because something is possible, does not mean that it is reasonable, and the judge will instruct the jury on this fact. For example, there is the old snow blower metaphor used by many prosecutors. Say you live in a cold area, where it snows often. It’s winter time and you wake up and your driveway is covered in snow. What happened? You’d probably say it snowed. Now, is it possible that your neighbor came by in the middle of the night with a snow blower and covered your property in fake snow? Yes. Is this reasonable? Depends on your neighbor, but probably not.
The defendant may choose to testify at trial, but he or she is not required to. The Government can’t make the defendant take the stand, and if the defendant does choose to testify, he may at any point assert his Fifth Amendment rights and choose not to answer a question. U.S. Const. amend. V. After the defendant presents their case in chief, they may again move for a judgment of acquittal. See Fed. R. Crim. P. 29.
At the close of the trial, the lawyers for both parties will have an opportunity to discuss the evidence presented to the jury and guide them on how this evidence should be interpreted. This is called a closing argument, and it is not the law. The jury will be instructed by the judge on the law applicable to the case. Outside the presence of the jury and prior to this instruction by the judge, both sides will have a chance to review and object to the specific statement of the law that will be provided to the jury.
After the judge reads the jury instructions, the jury will leave to a separate room within the courtroom to decide on a verdict. This process is known as jury deliberation. No one can require a juror to discuss what occurred in a jury room. During deliberation, the jurors will likely review the evidence, discuss if the evidence meets all of the elements of the crime beyond a reasonable doubt, and determine if the defendant is innocent or guilty. This is called the verdict. A jury’s verdict must be unanimous. Fed. R. Crim P. 31(a). If after serious deliberation the jurors can’t come to a unanimous verdict, it will be considered a “hung jury” and, and the case may be tried again in front of a new jury. Fed. R. Crim P. 31(b)(3).
If a jury does come to a unanimous decision, they will present their verdict to the court. Fed. R. Crim P. 31(a). The clerk of court will then read the jury’s verdict out loud. After the verdict is read, either party may “poll the jury” or request each juror to individually state that this is their true verdict and that they were not coerced into making that decision. Fed. R. Crim P. 31(d). However, polling the jury rarely results in a different outcome. If the defendant is found not guilty, he will be acquitted and released if he is in custody. If the verdict is guilty, the next phase will be sentencing.