Can you serve tax fraud jail time? Learn about tax evasion penalties, possibility of a prison sentence for crimes, fines & other tax return laws & punishment
Introduction to the IRS Criminal Investigations Division
The IRS Criminal Investigation Division is responsible for handling tax cases that are the subject of fraud and misinterpretation of the law. According to the IRS, “Criminal Investigation (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.”
The IRS Criminal Investigations Divisions examines potential criminal activity that is specifically related to tax crimes and makes recommendations for prosecution to the United States Department of Justice – Tax Division. As an example, tax fraud cases are typically referred to the IRS Criminal Investigation Division.
You may be aware that the U.S. tax code allows deductions of “ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business.”
If you make a mistake on your tax return, the government isn’t going to put you in jail, but if you make a big mistake on your tax return and it was accompanied by the willful knowledge that you intended to make that mistake, the situation is different. For instance, if you said I’m just not going to report any income or I’m going to try and conceal income so I don’t have to pay taxes ie. I’m going to evade taxes or if you deliberately file a tax return that’s false or engage in any of the tax penalties, yes you can go to jail for that. The auditor is not going to be the one that puts you in jail but what happens is with civil audits, which are a great referral source for the criminal division of the IRS, a lot of times what will happen is the government will engage them and they call it a parallel investigation. They’ll have a civil auditor who’s conducting a civil audit, the auditor will find something, and they will report it to the criminal division.
So the first thing is don’t talk to the agent. Get the agent’s card, get their contact information, figure out who that person is and then pause and take a deep breath. Agents show up at your door for a couple of reasons. Number one, you owe them money and they’re trying to collect. Number two they’re auditing you but usually when they’re auditing you they’ll be sending you a letter and say “Hey I’d like to set up an appointment” so that you can be audited. It’s not like people go through surprise audits. Number three are Criminal Investigation people and obviously if the criminal investigative agent shows up to your door, you want to be very careful what you tell them but even with a civil collection agent, somebody paying a surprise visit to you is not really a welcome thing and you’re probably not prepared for it. So the easiest thing to do is to say “hey I can’t talk to you, I need to run this by an attorney.
So if you’re watching this video and you believe that you’re being investigated criminally by the IRS, you probably have a good sense of why you’re being investigated and depending on how certain you are of this, you need to stop right now. You need to call an attorney and you need to retain a criminal tax attorney to help you. The reason for that is criminal investigations are multi-year investigations. They’re very focused, they’re very detail-oriented and the criminal agents that work these cases put in a lot of time. Often when the subject of these investigations or the target of these investigations become aware that a criminal agent is looking into their conduct, it’s already too late because the government is very far along on the case. They’ve started either contacting third party witnesses, they’ve contacted the subject or target directly, or they’ve taken other action to make their presence known. They don’t make their presence known unless they’re pretty far along in their case. In the beginning they go knock on somebody’s door, but know they’re working behind the scenes. They’re looking at tax returns that were filed, they’re looking at other source documents, they’re looking at information, they’re pulling bank records and they’re building a case. Only after they’ve built that case and they’re certain or fairly certain that they’re going to attain a conviction do they go out in the field and start collaborating. So by the time you become aware that a criminal agent is on to you they may be very very far along or you may be almost the point
So there are two answers to this question. Number one is “What does the IRS criminal investigation process look like from the IRS site?” and number two “What does it look like?” So from the IRS side of things, the criminal investigation process begins with a referral. The IRS doesn’t just sit in their office and pick people at random to initiate criminal investigations. What usually happens is a referral will come into the criminal investigative unit either through an audit or through a collections officer or through a whistleblower or through some other third party government investigation. So CI will take that lead and they’ll examine the information that’s being presented in the referral and then decide whether they want to devote investigative resources to looking at that case or not. If they do decide that they want to devote investigative resources then CI invokes on a fact-finding mission. So CID cases take many years to build in a lot of cases and so what they’re doing is they’re constantly looking for information. They’re trying to develop a case and the goal is when CI puts a case in the hands of a United States attorney, that US attorney has every tool they need in order to secure a conviction. So CI agents take their time. They’re very meticulous, they’re very careful and it’s only after they take great care and caution that they let their investigation be known to the public or to the subject or target of that investigation. The client may or may not be aware that CI is involved.
