Chapter 7

6 Frequently Asked Questions about the Criminal Tax Process

There are countless ways people get themselves into messy, financial jams. As a tax attorney I’ve consulted with such people who just refused to see the writing on the wall until special agents came charging out of the woodwork and through their doors.  

Many – too numerous to count – people think they can get out of paying their taxes only to discover that not paying is actually more expensive than paying them in the first place. It shouldn’t surprise you to know then that many of those same clients could have avoided needing my services “if only…”

With regard to the criminal law tax process, I still get a fair amount of questions, from “What do I do if I get visited by special agents?” to the perennial “How much are you going to charge to defend me?” Six questions come up the most frequently so in writing this, I hope to answer them as clearly as possible.

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

You’ve heard the phrase: ““You have the right to remain silent. Anything you say can and will be used against you in a court of law. You have the right to an attorney...” Most of us have, if only in books or at the movies. The Miranda Warning is given for a reason – to protect you.

If a special agent ever gives you the Miranda Warning, do not talk to him or her. They usually travel in pairs, and if and when you are visited, there will usually be two of them. Get their business cards but say little besides "I would like to consult with my attorney and I will call you back."

Even if you are just a witness to a possible crime, it is important that you do not expose yourself to liability. Do not consent to an on-the-spot interview or start answering questions. 

Special agents will prod you and try to push your buttons. Part of their job is to get as much information as possible. It is important that you realize these are criminal investigative agents — the people who carry badges and guns  — and step away from the situation.

Think about having somebody intercede on your behalf and get down to the bottom of what this is about. Once you do that, then you can go into your special agent interview prepared.

Decide which questions you are not going to answer ahead of time because you may be at risk. Therefore it behooves you to gauge the interview carefully. 

Make sure that you approach the situation with the degree of caution that it deserves. Remember, it is the job of the special agents to build cases that put people in jail. Review the
situation and act when you are certain that you know what the outcome is going to be. 

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. 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. Did I mention be very careful?

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.  Again, I think it is best to have a blend of both.

No matter whom you hire, whether it is our firm or somebody else, I recommend that you interview them. Talk to them about what their level of experience is. 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 and talk to criminal tax counsel. Weigh the pros and cons and before making your decision.

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 the 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 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.

Why Do I 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.

Conclusion

Criminal Tax Law can get very complicated and the investigations can last for years. When special agents show up at the taxpayer’s home or business from the criminal division of the IRS, it’s a serious matter.

You might ask: “Where do they get their information?” It can be as simple as an ex-spouse, or a former business partner tipping them off. 

Failing to file currency transaction reports could also lead the IRS to dig around. In states like California, hiring illegal aliens to work without documentation can get a business in hot water, and if tax evasion charges are added to the infraction, it’s time to call an attorney. 

If you or anyone you know is skating that line of running a profitable and above-board business and falling behind on state and/or federal taxes, get some help before a fall. Give the offices of Brotman Law a call.

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