An IRS criminal investigation is a federal law enforcement proceeding that can result in criminal prosecution, substantial fines, and imprisonment. IRS Criminal Investigation (CI) is the criminal enforcement arm of the IRS, with the authority to investigate and recommend prosecution for tax crimes including tax evasion (IRC 7201), filing false returns (IRC 7206), and failure to file (IRC 7203). Unlike a civil audit, where the worst outcome is a financial penalty, a criminal tax investigation puts your liberty at stake.

If you have been contacted by IRS special agents, received a target letter, or have reason to believe you are the subject of a criminal tax investigation, the single most important thing you can do is retain a criminal tax defense attorney before you say a word to anyone. Anything you say to a special agent can and will be used against you. Anything you say to your CPA can be compelled through testimony. Only communications with your attorney are privileged.

At Brotman Law, I represent individuals and businesses facing IRS criminal investigations, grand jury proceedings, and federal tax crime prosecutions. After handling thousands of tax cases over two decades, I understand how CI builds cases because I understand the system from the inside. I know when to fight, when to negotiate, and how to protect your rights at every stage of the process.

If you are under criminal tax investigation, call (619) 378-3138 immediately.

Federal Tax Crimes — What You Could Be Charged With

Federal tax crimes are codified primarily in Title 26 (Internal Revenue Code) and Title 18 (federal criminal code) of the United States Code. Each offense has specific elements the government must prove beyond a reasonable doubt. Understanding what you are potentially facing is the first step toward building an effective defense.

Tax Evasion — IRC 7201

Tax evasion is the most serious common tax crime. It is a felony carrying a maximum penalty of $250,000 in fines and 5 years of imprisonment per count ($500,000 for corporations). To secure a conviction, the government must prove three elements: (1) a substantial tax deficiency existed, (2) the defendant committed an affirmative act of evasion (such as concealing income, filing a false return, or hiding assets), and (3) the defendant acted willfully.

Willfulness is the critical element. The government must prove that you knew you had a legal duty to pay taxes and deliberately chose to evade that duty. Mere negligence, even gross negligence, is not enough. Typical sentences for tax evasion convictions range from 12 to 36 months of incarceration, depending on the tax loss amount and the defendant’s criminal history.

Filing False Returns — IRC 7206(1)

Filing a false return is a felony punishable by up to $250,000 in fines and 3 years of imprisonment per count. The government must prove that a return was filed, the return contained a material false statement, and the defendant signed the return knowing it was false. Each false return constitutes a separate count. If you understated income or claimed fictitious deductions on multiple years of returns, you face multiple counts with consecutive sentences possible.

Failure to File — IRC 7203

Failure to file a tax return is a misdemeanor carrying up to $25,000 in fines and 1 year of imprisonment per count. However, a pattern of willful failure to file across multiple years can be charged as multiple counts, and it can also serve as evidence supporting a more serious tax evasion charge. The government must prove the defendant was required to file, failed to do so, and the failure was willful. Non-filers who also concealed income or assets face the real risk of upgraded evasion charges.

Tax Fraud — Aiding and Assisting False Returns — IRC 7206(2)

This provision targets preparers, advisors, and anyone who aids or assists in preparing a false return. It is a felony with a maximum penalty of $250,000 in fines and 3 years per count. Tax preparers, accountants, and business partners can be charged under this section even if they did not sign the return. If you operated a business where someone else prepared returns with false information at your direction, both of you face exposure.

Conspiracy to Defraud the United States — 18 USC 371

Conspiracy is a separate felony charge that carries up to $250,000 in fines and 5 years of imprisonment. The government must prove that two or more persons agreed to defraud the United States (by impeding the IRS in its function of assessing and collecting taxes) and that at least one conspirator committed an overt act in furtherance of the conspiracy. Conspiracy charges are frequently added to tax cases involving multiple defendants — business partners, spouses, or taxpayer-preparer relationships.

Structuring — 31 USC 5324

Structuring involves breaking up cash transactions to avoid the $10,000 Currency Transaction Report (CTR) reporting threshold. It is a felony punishable by up to $250,000 in fines and 5 years of imprisonment. Structuring is a stand-alone crime — the government does not need to prove the underlying funds were illegally obtained. Cash-intensive businesses, including restaurants, retail operations, and cannabis businesses, are particularly vulnerable to structuring investigations. Structuring cases often involve asset seizure and forfeiture, adding immediate financial consequences on top of criminal exposure.

Failure to Report Foreign Accounts — FBAR Violations

Willful failure to file a Report of Foreign Bank and Financial Accounts (FinCEN Form 114, commonly called an FBAR) can result in criminal penalties of up to $100,000 per violation or 50% of the account balance per year, whichever is greater, plus up to 5 years of imprisonment. The government must prove that the taxpayer had a foreign account exceeding $10,000, knew about the reporting requirement, and willfully failed to report it. With the implementation of FATCA and international information-sharing agreements, the IRS has significantly expanded its ability to identify unreported foreign accounts. International tax compliance failures are now among the fastest-growing categories of criminal tax referrals.

How IRS Criminal Investigations Begin

Understanding where criminal tax investigations originate helps you assess your risk and take appropriate protective measures. CI cases begin through several channels:

• Revenue agent referral. This is the most common trigger. During a civil audit, a revenue agent identifies “badges of fraud” — indicators that the taxpayer’s noncompliance was deliberate rather than accidental. The agent refers the case to CI, and the civil audit is suspended while the criminal investigation proceeds.
• Informant tips. CI receives tips from current and former employees, business partners, ex-spouses, and competitors. A disgruntled employee who knows about a second set of books or unreported cash income can set a criminal investigation in motion.
• Whistleblower claims. The IRS Whistleblower Office pays informants 15-30% of collected proceeds for actionable information about tax noncompliance exceeding $2 million. The financial incentive has made whistleblower-initiated investigations increasingly common.
• Bank Secrecy Act referrals. Financial institutions file Currency Transaction Reports (CTRs) for cash transactions over $10,000 and Suspicious Activity Reports (SARs) for transactions that appear unusual. FinCEN data feeds directly into CI’s analytical systems.
• Cross-agency referrals. DEA, FBI, state attorneys general, and state tax agencies share information with IRS CI. A state sales tax investigation can lead to a federal criminal tax referral. A DEA investigation into drug proceeds can generate tax evasion charges.
• Grand jury investigations. In complex cases, the DOJ Tax Division may convene a grand jury to issue subpoenas and compel testimony before any target is formally identified.

The “Badges of Fraud” — What Triggers a Criminal Referral

Revenue agents are trained to identify specific indicators of fraudulent intent, known as “badges of fraud.” The presence of multiple badges dramatically increases the likelihood of a criminal referral. These include:

• Substantial understatement of income — particularly when the taxpayer had knowledge of the omitted income
• Fictitious or overstated deductions — fabricated expenses, inflated charitable contributions, personal expenses claimed as business
• Two sets of books or records — maintaining separate records showing actual versus reported figures
• Destruction of records — shredding documents, deleting electronic files, or “losing” records when an audit is announced
• Concealment of assets or income sources — offshore accounts, nominee entities, unreported bank accounts
• Failure to cooperate with the examining agent — evasiveness, repeated delays, refusal to produce records
• Unexplained increases in net worth — lifestyle that is inconsistent with reported income
• Dealing in cash — particularly when combined with underreported income

The IRS Criminal Investigation Process

An IRS criminal investigation follows a structured process that can take one to three years from initiation to resolution. Understanding each stage is essential because your defense strategy must adapt as the case progresses.

The critical takeaway: IRS CI’s conviction rate exceeds 90%. By the time CI contacts you, they have typically been investigating for months and have already assembled substantial evidence. In my experience, early intervention by a criminal tax defense attorney — ideally before subject contact or immediately after — provides the best opportunity to influence the outcome of your case.

Signs You May Be Under Criminal Investigation

Many criminal tax investigations begin without the target’s knowledge. However, certain warning signs suggest that your case may have moved from the civil to the criminal track:

• Special agents contact you. IRS special agents carry badges and firearms. They are law enforcement officers, not revenue agents. If someone identifying themselves as a “special agent” from IRS Criminal Investigation contacts you, you are the subject of a criminal investigation. Do not speak with them without an attorney.
• You receive a target letter or grand jury subpoena. A target letter from the DOJ Tax Division or a U.S. Attorney’s Office means you are a target of a criminal investigation. A grand jury subpoena means evidence is being gathered for potential indictment.
• Your bank receives a summons you did not know about. If your bank notifies you that it received an IRS summons for your records and you are not in a civil audit, CI may be investigating you covertly.
• Your accountant or employees are contacted by agents with badges. If people in your professional orbit are being interviewed by armed federal agents, you are likely the subject of the investigation.
• Your civil audit suddenly goes quiet. If your IRS audit was progressing normally and then all communication stops, the revenue agent may have identified badges of fraud and referred your case to CI. During a criminal investigation, the civil audit is typically suspended.
• Your offer in compromise or installment agreement is declined without explanation. If the IRS declines to process your OIC or installment agreement and does not provide a clear reason, it may be because a criminal investigation is pending and the IRS cannot settle the civil liability while criminal charges are being considered.

If you observe any of these indicators, contact a criminal tax defense attorney immediately. Do not call your CPA first. Do not attempt to “fix” anything on your own. Do not destroy documents. Any of these actions can create additional criminal exposure.

Why You Need a Criminal Tax Attorney — Not a CPA, Not a Civil Tax Lawyer

This is the most important decision you will make in this process. The distinction between a criminal tax defense attorney and other tax professionals is not a matter of preference — it is a matter of constitutional protection.

Attorney-Client Privilege

Attorney-client privilege is the foundation of criminal tax defense. Every communication between you and your attorney made for the purpose of seeking legal advice is protected from compelled disclosure. The government cannot subpoena your attorney to testify about what you told them. The government cannot seize your attorney’s notes or files related to privileged communications.

This protection does not extend to CPAs or enrolled agents. If you tell your accountant that you hid income, that communication is not privileged, and your accountant can be compelled to testify against you in court. The IRS knows this, which is why one of the first steps in a criminal investigation is often to interview (or subpoena) the taxpayer’s accountant.

The Kovel Arrangement

Under the United States v. Kovel doctrine, a criminal tax attorney can retain an accountant to work under the attorney’s direction, extending attorney-client privilege to the accountant’s work product. This is called a Kovel arrangement. It allows your defense team to conduct the detailed financial analysis required in tax cases while keeping that analysis privileged. Without a Kovel arrangement, any analysis your accountant performs is discoverable.

Fifth Amendment Protections

A criminal tax attorney understands how to invoke and preserve your Fifth Amendment right against self-incrimination — in grand jury proceedings, in interviews with agents, and critically, in parallel civil proceedings where the IRS may try to compel information that could be used in the criminal case.

DOJ Tax Division and Federal Court Experience

Criminal tax cases are prosecuted by the DOJ Tax Division in Washington, D.C. or by Assistant U.S. Attorneys in the relevant federal district. An effective criminal tax defense attorney has direct experience with these prosecutors, understands the federal sentencing guidelines as applied to tax cases, knows when a case can be resolved pre-indictment, and has the trial experience to take a case to a jury when necessary.

Parallel Proceedings Expertise

When civil and criminal investigations run simultaneously, the stakes and complexity multiply. Your criminal tax attorney must navigate both tracks — protecting your rights in the criminal proceeding while managing the civil case in a way that does not create additional criminal exposure. A civil tax attorney or CPA handling the audit side can inadvertently waive rights or disclose information that damages your criminal defense.

The bottom line: Do not talk to special agents without a criminal tax attorney. Do not give documents to the IRS. Do not discuss the investigation with your CPA. Call an attorney first.

Defense Strategies in Criminal Tax Cases

Every criminal tax case has a defense. The question is which strategy — or combination of strategies — gives you the best chance of avoiding prosecution or minimizing consequences. Here are the principal defense approaches I employ in my practice.

Voluntary Disclosure

If you have unreported income, unfiled returns, or undisclosed foreign accounts, and CI has not yet initiated an investigation, a voluntary disclosure can significantly reduce or eliminate criminal exposure. The IRS has long maintained a practice (currently through its Updated Voluntary Disclosure Practice) of not recommending prosecution for taxpayers who come forward voluntarily before the government discovers the noncompliance. The disclosure must be timely, truthful, and complete. Once CI has opened an investigation, voluntary disclosure is no longer available.

Good Faith Defense — Reliance on Professional Advice

If you relied in good faith on the advice of a qualified tax professional (CPA, attorney, or enrolled agent) and that advice turned out to be incorrect, the reliance can negate the willfulness element required for conviction. To establish this defense, you must demonstrate that you provided your advisor with complete and accurate information, and that you actually followed the advice in good faith. The defense fails if you withheld material facts from your advisor or knew the advice was wrong.

Lack of Willfulness

Willfulness is an element of every federal tax crime. The government must prove that you acted deliberately and with knowledge that your conduct was unlawful. If the noncompliance resulted from honest mistake, confusion, reliance on bad advice, mental health issues, substance abuse, or genuine ignorance of the law, the willfulness element may not be satisfied. Demonstrating lack of willfulness is often the most effective defense in tax cases.

Statute of Limitations

Under IRC 6531, the statute of limitations for most tax crimes is six years from the date of the offense. For tax evasion, the six-year period runs from the filing of the false return or from the affirmative act of evasion. For failure to file, it runs from the due date of the return. If the government brings charges after the statute has expired, the case must be dismissed. Statute of limitations issues are common in tax cases involving older tax years.

Constitutional Challenges

Fourth Amendment protections against unreasonable searches and seizures apply to criminal tax investigations. If CI obtained evidence through an illegal search, improper summons, or without proper judicial authorization, that evidence may be suppressed. Fifth Amendment protections prevent the government from compelling self-incriminating testimony. Constitutional challenges can result in the exclusion of critical government evidence, potentially undermining the entire case.

Sentencing Mitigation

Even when conviction is likely or has occurred, effective sentencing advocacy can dramatically affect the outcome. Factors that support a lower sentence include first-offense status, cooperation with the government, full payment of restitution, personal circumstances (health, family, community involvement), and acceptance of responsibility. Working with a tax debt relief attorney to resolve the underlying civil liability can also strengthen your sentencing position. In many tax cases, the difference between a prison sentence and probation with conditions comes down to the quality of the sentencing presentation.

Brotman Law Criminal Tax Defense Results

The following results are representative of criminal tax matters I have personally handled at Brotman Law. Every case is different, and prior results do not guarantee a similar outcome. However, these cases illustrate the range of outcomes that effective criminal tax defense can achieve.

View more of our case results and client outcomes.

Parallel Proceedings — When Civil and Criminal Overlap

One of the most dangerous aspects of a criminal tax investigation is the potential for parallel civil and criminal proceedings. The IRS can run a civil audit and a criminal investigation simultaneously, and information gathered in one proceeding can be used in the other.

How Parallel Proceedings Create Risk

During a civil audit, you are expected to cooperate — produce records, answer questions, and substantiate your return positions. In a criminal investigation, you have the right to remain silent. When both proceedings are active simultaneously, you face an impossible dilemma: cooperate with the civil audit and potentially provide evidence that will be used against you criminally, or invoke the Fifth Amendment in the civil proceeding and risk adverse inferences that increase your civil tax liability.

Protecting Yourself in Parallel Proceedings

In my practice, I manage both tracks by coordinating the civil and criminal defense strategy, asserting Fifth Amendment protections appropriately, seeking a stay of the civil proceeding while the criminal investigation is active, and ensuring that information shared in the civil context does not compromise the criminal defense. I have seen firsthand how taxpayers without coordinated counsel routinely make statements in civil proceedings that become the foundation of criminal charges.

The Risk of Civil-to-Criminal Escalation

Not every criminal tax case starts as a criminal investigation. Many begin as routine civil audits that escalate when the revenue agent discovers evidence of fraud. If you are in a civil IRS audit and your case involves substantial understatement of income, fictitious deductions, or other badges of fraud, you should consult with a criminal tax attorney even if no criminal investigation has been announced. The time to prepare a criminal defense is before the referral, not after.

How We Defend Criminal Tax Cases: Step by Step

1. Immediate Consultation — Time is critical. We assess your exposure under IRC 7201 (evasion), 7203 (failure to file), or 7206 (fraud).
2. Kovel Arrangement — If needed, we engage your CPA under attorney-client privilege protection via a Kovel letter.
3. Investigation Assessment — We determine whether you’re in a criminal investigation (CI), audit with criminal potential (eggshell), or pre-indictment phase.
4. Voluntary Disclosure Evaluation — If charges haven’t been filed, we evaluate whether IRS Voluntary Disclosure Practice is an option.
5. Grand Jury / DOJ Interface — If the case is referred to DOJ Tax Division, we interface with the assigned AUSA.
6. Negotiation — We negotiate for non-prosecution, pre-trial diversion, or reduced charges where possible.
7. Sentencing Mitigation — If conviction occurs, we present mitigating factors including cooperation, restitution, and compliance history.

Call (619) 378-3138 for an immediate consultation.

What Only a Practitioner Would Know About Criminal Tax Defense

Criminal tax defense is one of the most specialized areas in all of law. The cases that end well almost always share one thing in common: the attorney understood not just the law, but how the system actually operates on the ground. Here is what two decades of practice have taught me.

The Eggshell Audit: When a Civil Case Becomes Criminal

When the IRS suspects fraud during a civil audit, they conduct what practitioners call an “eggshell audit” — continuing the civil examination while secretly referring the case to Criminal Investigation (CI). The civil auditor may not even know a referral has been made. In my experience, the signs are subtle but recognizable if you know what to look for: the revenue agent’s questions shift from “show me the documentation” to “explain why you reported it this way.” That shift in tone means something has changed behind the scenes. It means it is time to invoke the Fifth Amendment and get criminal defense counsel involved immediately. I have seen too many taxpayers — and even their CPAs — miss this signal entirely, continuing to cooperate with an audit that is no longer truly civil.

Special Agent Visits: The First 48 Hours Are Everything

IRS CI special agents often show up unannounced at a taxpayer’s home or business. They are trained in interrogation techniques, and they are very good at putting people at ease. Anything you say — including casual conversation at the front door — can and will be used against you. I tell every client the same thing: be polite, confirm your name, and say nothing else until your attorney arrives. Do not invite them in. Do not answer “just a few quick questions.” The conviction rate for IRS criminal cases is 90%. That number reflects cases that go to trial — the real work in criminal tax defense happens before charges are ever filed. What you do in the first 48 hours after agent contact often determines whether charges are filed at all.

The Voluntary Disclosure Practice: Timing Is Everything

The IRS Voluntary Disclosure Practice (IRM 9.5.11.9) allows taxpayers to come forward before the IRS comes to them. But the window closes the moment the IRS initiates an examination, investigation, or receives information from a third party — a whistleblower, a foreign bank disclosure, a disgruntled business partner. I have had clients walk into my office one week before a referral was made. That single week was the difference between a civil penalty and a felony charge. If you have unreported income, undisclosed foreign accounts, or unfiled returns, the time to act is now — not after you receive a letter, and certainly not after special agents arrive at your door.

Kovel Agreements: How We Protect CPA Communications

Under United States v. Kovel (2d Cir. 1961), a CPA retained by a law firm — not by the client directly — can be covered by attorney-client privilege. I use Kovel arrangements in every criminal tax case to protect the forensic accounting work product. The CPA works at my direction, as part of the legal team, and their analysis stays privileged. Without a properly structured Kovel agreement, the IRS can subpoena the CPA’s working papers, interview notes, and draft calculations — materials that can become the prosecution’s roadmap. I have seen cases where the absence of a Kovel letter turned a defensible position into an indictment.

Sentencing Guidelines: The Numbers Behind the Negotiation

Federal sentencing for tax crimes follows USSG §2T1.1. The tax loss amount determines the base offense level, and every dollar matters. A $100,000 to $250,000 tax loss produces a level 16 offense (21-27 months under the guidelines). A $1.5 million loss pushes it to level 22 (41-51 months). In my practice, I negotiate the tax loss calculation before sentencing — challenging the government’s methodology, presenting alternative calculations, and documenting mitigating factors. The difference between a 14-month sentence and a 30-month sentence often comes down to how the tax loss is calculated, not whether the client is guilty. This is where deep tax expertise intersects with criminal defense, and it is where experienced practitioners earn their keep.