IRS Criminal Investigations and Prosecutions

The Internal Revenue Service represents the branch of the U.S. government that directly impacts most American citizens and residents. The vast majority of people who deal with the IRS come in contact with one of the many civil divisions. The civil side of the IRS is involved in making sure that tax returns are accurate and that taxes are paid. The IRS conducts civil audits to ensure returns are correct. The IRS also has criminal investigators, known as Special Agents, who enforce the criminal tax statutes. Criminal cases investigated by the IRS are prosecuted by the Department of Justice.

An IRS civil auditor may refer a case to the criminal investigation side of the IRS if the civil agent suspects the tax return to be fraudulent. A collections officer seeking to collect unpaid taxes may reach a civil settlement or take collection activity, such as seizing assets. The collection officer may also refer a person to the Criminal Investigation Division if the collections officer finds what appears to be efforts to evade the payment of tax through conduct such as hiding assets or having other individuals hold assets so as to prevent the IRS from collecting.

The Criminal Division of the Internal Revenue Service investigates violations of the criminal tax laws. The criminal tax laws include:

1. Tax evasion. This is a felony punishable by up to 5 years in prison, and a fine of up to $100,000 (or not more than $500,000 for corporations) for each year in which tax evasion occurs.
2. Failure to file return, pay tax or keep required record. The willful failure to file a return, keep a required record, or pay a tax is a misdemeanor punishable by imprisonment for up to one year and a fine of not more than $25,000 (or not more than $100,000 on in the case of a corporation).
3. Filing false returns. This is a felony punishable by up to 3 years in prison or a fine of no more than $100,000 (or in the case of a corporation not more than $500,000) for each year that a document signed under penalty of perjury (such as an income tax return) is submitted to the IRS with a false entry or statement.
4. Fraudulent returns, statements, and other documents. This is a misdemeanor punishable by up to one year in prison and a fine of not more than $10,000 (or $50,000 in the case of a corporation). This covers any statement, return, list, or other document willfully delivered to the IRS knowing that the item is fraudulent or is false as to any material matter. Under this law, five false documents could constitute five separate crimes each punishable by up to one year in prison.

There are additional criminal statutes including:

• A statute directed at tax return preparers who intentionally prepare false tax returns
• Failure to collect and pay over withholding taxes (principally aimed at employers)
• Removal or concealment of goods or assets to evade collection of tax

Criminal Case Conferences

In a criminal tax investigation, prosecutions must be approved by the Department of Justice Criminal Tax Division in Washington, D.C. This applies to any criminal tax investigation, even if it originated in one of the local U.S. Attorney's Offices. A person under IRS criminal investigation has the right to a series of conferences with the IRS and the Department of Justice in an effort to discuss whether the criminal case should be filed.

The conferences include a meeting with the IRS Criminal Investigation Special Agent in Charge (usually accompanied by IRS District Counsel). During this conference, experienced counsel can gather information and, if appropriate, provide information that may cause the IRS criminal investigators to reevaluate the decision to proceed with the prosecution. In addition, a conference is available with the attorneys in the Department of Justice Criminal Tax Division in Washington, D.C. This conference provides an additional opportunity for experienced counsel to gather information and to attempt to dissuade the Criminal Tax Division from authorizing criminal prosecution. Finally, if the case is sent by the Criminal Tax Division to the local U.S. Attorney's office for prosecution, a conference is also available with the U.S. Attorney or the Assistant U.S. Attorney. At this conference we can present evidence to convince the government not to move forward with the prosecution. None of these conferences are available unless requested by defense counsel. We have observed instances in which defense counsel either did not know to request these conferences or for some other reason, chose not to take advantage of the conferences.

Offshore Accounts and the Voluntary Disclosure Practice

One of the current issues of high priority to the Internal Revenue Service, as well as the Department of Justice, involves U.S. taxpayers with unreported offshore financial accounts. The government believes that offshore accounts are one of the major criminal tax problems and provide an opportunity for individuals to evade U.S. income taxes. Thousands of U.S. taxpayers took advantage of the Offshore Voluntary Disclosure Program (OVDP) to come clean with the IRS and avoid criminal prosecution. The OVDP program ended in 2018 and is no longer available for taxpayers to avoid criminal prosecution.

The government is increasing its efforts to identify unreported offshore accounts in which Americans have a direct or indirect interest. Through treaties with foreign countries, lawsuits against certain offshore banks and other investigative efforts, the IRS is receiving large numbers of reports from foreign financial institutions identifying U.S. customers. When the government receives notice of unreported offshore accounts, it opens an audit and sends letters which appear to be purely civil in nature but seek information that can result in criminal prosecution.

Click here to see our blog about these letters from the IRS.

There still remains an avenue through which an individual may avoid criminal prosecution resulting from unreported offshore accounts and income. The IRS announced details of the Voluntary Disclosure Practice (VDP). This program, although not guaranteeing immunity from prosecution, does provide for that result. The VDP has limits as to who can enter the program. If admitted, care must be taken in order to ensure a successful conclusion which includes no criminal prosecution.

The VDP also benefits those who have not filed tax returns. It is imperative that anyone who has not filed tax returns to contact us as soon as possible to take advantage of the VDP and avoid criminal prosecution. A person who is under civil audit or IRS criminal investigation cannot take advantage of the VDP to prevent criminal charges. It is therefore important to speak with us so that we can guide those who have failed to file their tax returns into the program and successfully complete the program without the risk of going to jail. See our blog on VDP. If you wait until an IRS audit is opened, you cannot enter the VDP.

Experienced Defense Attorneys on Your Side

The Law Offices of Horwitz & Citro, P.A. has represented individuals who are subject to an IRS criminal investigation, as well as those who have retained us after being indicted. We have also been retained by individuals who, while under a civil audit, are accused of conduct by the civil agent which raises the fear that the civil agent believes that tax fraud is present. In addition, we have been requested by firms that deal with civil tax matters, to assist when the civil attorney is confronted with comments by the IRS agent indicating the civil auditor may suspect fraud. We are also requested to assist CPA’s in dealing with difficult audits.

Our Strategy

We strive to convince the government not to file criminal charges when we are retained early in the government investigation or audit. There have been investigations that we could not prevent from resulting in an indictment. When the government proceeds with its criminal prosecution, we seek the best result for our client. Ultimately, whether to take a case to trial is a matter which solely rests with the client, based upon our advice. In certain circumstances, the evidence may be such that a conviction is highly probable. In those cases, if the client does not wish to go to trial, we seek to minimize the sentence. In almost every case, our clients have received a sentence below the sentence requested by the government.

In a case of a healthcare provider, the government requested a five-year prison sentence and we were able to argue successfully to the judge that only a term of probation with no incarceration should be imposed. The government appealed the court's sentence. In spite of the Government's appeal, our client’s sentence remained probation and no time in prison.

Contact Us to Request a Consultation

We analyze all facts and theories of defense and based on our analysis and trial experience we determine whether a trial has a meaningful possibility of a successful outcome. The firm's clients who have gone to trial and been found not guilty have included business owners charged with failure to collect and pay over withholding tax, owners of businesses who have been accused of tax evasion, individuals who have been accused of willfully failing to file income tax returns, violations of currency reporting laws, and people who were charged with filing tax returns that contained false deductions or unreported income.

The distinction between a civil violation of the IRS code and a criminal violation of the tax code can rest upon many factors. We have the experience to take all steps necessary to reduce the risk of criminal prosecution and limit exposure to a civil issue. One meeting with an IRS agent without consulting with us first can have drastic results.

Call the Law Offices of Horwitz & Citro, P.A. at (407) 901-5852 or use our contact form to get in touch and discuss the details of your case.