rs-irs-audits

So you ever heard that phrase you have the right to remain silent? Exercise your right to remain silent. Don’t talk to the special agent, get the special agent’s card. They travel in pairs so you’ll often be visited by two of them. But get the special agent’s card and say I’d like to consult with my attorney and I’ll call you back even if you’re not a subject or a target of an investigation. Even if you’re just a witness, it’s important that you don’t expose yourself to liability. By no means should you consent to an on-the-spot interview or start answering questions. The special agent will try and push you to do that, because their job is to get as much information out of you as possible but it’s very important that you take a pause. Realize that you’re talking to a criminal investigative agent (the people that carry badges and guns) and step away from the situation. Hire a third party, have somebody intercede on your behalf or at least take a pause and figure out what this is about. Once you do that, then you can go into your special agent interview prepared. You can go in willing to answer the questions that they’re asking or you can decide which questions you’re not going to answer because you may be potentially at risk and you’re going to want to gauge the interview. So that’s really really important. You want to make sure that you are approaching the situation with the degree of caution that it deserves. Be very careful around special agents – these are the people that build cases to put people in jail, so take a pause, review the situation and then only act when you’re certain that you know what the outcome is going to be.

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.

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What Are the Risks of an IRS Criminal Investigation? Well the most obvious one is Jail the US Attorney’s Office have a 90 percent conviction rate when it comes to criminal tax cases in most cases this is because they have your tax return as. The evidence that you commit that you did something wrong and they’ve kind of got you dead to rights criminal investigation unit is building evidence and support that you’re a bad person that you did something wrong and so they’re really seeking to put you in jail and they’re doing that to send a message to other people who may be thinking about committing tax crimes or who are committing tax crimes as do not mess with the United States government. The other consequences and arrests are ones that you may not think of number one criminal investigations are very public matters once you get indicted there’s a certain amount of press coverage that comes with it the US Attorney’s Office issues a press release oftentimes it involves the liquidation of your assets they take your retirement accounts they take your homes they take all sorts of things in order to satisfy the restitution amounts that often get served in these cases the fallout of these cases often involve families many families don’t survive criminal tax cases many marriages don’t survive criminal tax cases many spouses go through a very very hard time during these investigations and a lot of the time we know what our role as attorneys is it’s not just about dealing with the defendant in the case or who’s being charged it’s about providing support for the families for the wives the children. The husbands and anybody else who’s involved in these types of cases so the fallout in these cases is not just with the individual but it ripples through their personal relationships it ripples through their business relationships and even in cases where there’s innocence or a quill the lasting effects of an IRS Criminal Investigation can scar a tax payer for life in a lot of cases and I don’t say this to be overdramatic I say this because I’ve watched my clients go through this before and that’s why I believe so vigorously and if their rights against the government so it’s really important when you’re dealing with a criminal investigation even if you know for sure that you haven’t done anything wrong that you take steps and take the appropriate actions to protect yourself to protect your family and protect your livelihood going forward.

What are some of the tactics that the government uses in an IRS criminal investigation? Well, number one, secrecy. Government agents don’t like to shine a light on their investigations. They don’t like to reveal details in their investigations. They don’t like you to even know that they’re there until it’s too late. A lot of times what we see in criminal investigation situations is by the time you become aware of the agent, the agent has already built a tremendous case against you or against people that you may know, whether you’re a subject or a target or simply a person of interest. So that’s one of the tools that they use. They use secrecy and they use time to build these cases up. The other things that they can do are they can get access to documents, they can get access to financial records. They can execute search warrants. They can do a variety of things to build tools. Oftentimes they’ll interview third party witnesses, and they’ll do so before speaking to the target or subject in question. Because what they’re doing is they’re trying to gather evidence. They’re trying to build a case. So about the time they come to interview a or a subject of investigation, they have all this information, they have all their case built up, and they’re trying to trap that person into a story or trap that person into a lie. Those are the most common techniques we see with criminal investigations. And obviously, the facts in every case are different, some of the methods that they use in every case are different, but those are what we routinely see.

We see government agents spend a lot of time working on these cases, developing these cases in order to secure their convictions, and then using that tool, that time, and those resources, the infinite power and resources of the U .S. government to move forward against the taxpayer. That’s why it’s very important when you think you’re the subject of a criminal investigation, get criminal tax counsel involved as soon as possible so that you can start throwing roadblocks in the way of that investigation and ultimately work on securing your innocence.

Anybody that you think might be a subject or a target of an IRS Criminal Investigation – you’re going to want to think that about cutting off contact with them sooner rather than later. If somebody is under the microscope of IRS CI, you don’t want to be anywhere near that person. You don’t want to touch them with a ten-foot pole. The fact of the matter is that a lot of tax preparers get investigated by CI because they present a huge problem for a CI. Think about it this way – if you’re an individual and you cheat on your taxes the loss is really mitigated to your individual return. Not saying that’s 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 so the tax loss with an individual may not be as great, but when you’re dealing with a preparer the tax loss associated can be greatly amplified across all the preparers’ clients. So if you’re one of those clients and there could be errors on your return, whether you know about them or not you’re going to want to seek to mitigate your own risk. Most often in tax preparer cases you will face some sort of a civil audit and so it’s important to be prepared going into it that you’re not just dealing with civil liability. You’re not just dealing with penalties and interest at this point, you’re dealing with potential criminal liability and if you don’t think that your tax preparer is going to throw you under the bus in this context in order to save themselves, then you’re 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 to wait to see and assess the situation, but it’s 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. At the very least, having a consult with a tax attorney and understanding what your rights are and what your obligations are will help you lead the road in the future and that’s the best thing that you can do. It’s understanding your risk, it’s mitigating your risk and then helping yourself going forward to keep yourself out of trouble and away from the agent.

So first I want you to take a breath and think about the phrase “I haven’t done anything wrong.” “I haven’t done anything wrong” is a very absolute statement so if you’re going to make that sort of absolute statement, you need to be absolutely sure you haven’t done anything wrong. The problem is in a lot of cases, you have done something wrong. You may have not had criminal intent behind it, you may have not intended to defraud the government in some way, but in some way your actions triggered an IRS Criminal Investigation. If they didn’t trigger any criminal investigation, the agents wouldn’t be looking at you so there has to be some reason that the special agent is looking at you. In particular, special agents don’t just fall out of the sky so it’s really important to assess your level of culpability and to have an honest conversation from the beginning. With that said, special agents are by no means perfect and criminal cases are by no means a hundred percent accurate. What you usually deal with in criminal cases is you deal with levels of truth. You deal with things that are a hundred percent true, you deal with things that are sort of true, and then you deal with things that are absolutely not true. So the important thing is to understand that this is a strategic position that you’re in and that your goal really is to mitigate and minimize any impact that this criminal investigation is going to have. It’s not even about indictment, although many cases head towards the US Attorney’s Office and they don’t spend time on you unless they’re charted for you. You don’t get in their crosshairs by accident again, but the important thing is Criminal Investigations have a lot of detrimental impacts on people and so it is very, very important that you work to protect yourself in any way that you can. Even if you’re completely innocent, go retain criminal tax counsel. Go have a consultation with us. Let’s sit down and build a strategy at the very least so that at worst, you are completely prepared for something that never happens and then you don’t have to worry about it but at best, you’re in a great position to prevent some serious consequences going forward.

Well number one are the facts. When we get an audit case in the firm, one of the first things we’re looking for is any criminal risk to the client. Even innocent misstatements can be taken out of context or they can be construed in a different way and the biggest problem in any criminal case is proving the intent of the person so what we’re looking for when we’re looking at an audit situation is is there any evidence or anything that would suggest fraudulent intent. Usually we can screen that out in the beginning. So if you have a tax attorney on board, that’s usually what our radar is up at initially. If you don’t have a tax attorney on board or for some reason nobody caught it, which is rare, then here are things that you should look for. Number one, the auditor might be engaged in a fishing expedition. So oftentimes what you see in a criminal investigation is you see something called a parallel investigation and so that will be when you have a civil auditor who is conducting an audit and you have CI kind of working in the background. So a lot of the times if that civil auditor knows that he or she is going to refer the case to CI, they’ll start gathering evidence and trying to do CI’s job in the beginning. They’ll seek to interview the taxpayer, they’ll seek to get all the documents and records. They’ll seek to put together as complete a file as you can so number one, you can see that if the auditor starts really digging it might be evidence that your case is going criminal. Number two, if the auditor disappears it might be evidence that your case is going criminal. When they see and they make a referral to CI and CI gets involved, a lot of the times the auditor will stop what they’re doing and will disappear. So if you have a situation where the auditor just starts ghosting you for some reason, that’s a sign that the case has gone criminal. So again if you have any reason to suspect that you may have any criminal liability in any sort of audit, which is what we refer to as an egg shell audit, then you need to tread very carefully. You need to put a plan in place, you need to limit the scope of information and you need to move as quickly through the audit as possible in order to minimize your liability and to prevent the case from turning.

So with the disclaimer that when cases are turned over to the US attorney, the US attorney has a 90 percent conviction rate in criminal tax cases, it’s important to understand what goals are at the outset. So number one at the very least, most criminal tax charges can be mitigated because a lot of the times, what you’re dealing with is when you have a pattern of criminal conduct, it’s exactly that. It’s a pattern. It occurs over multiple years, it occurs over multiple tax returns and the tax loss has to be enough in order to whet the appetite of the US attorney. They don’t go after people for five or ten thousand dollars, they’re looking for bigger cases because they’re dealing with limited resources and they’re looking to send a message. So at the very least Tax Counsel can come in and try and mitigate the tax loss, mitigate the charges and reduce things down. That happens at the US attorney level. By the time you’re talking about charges and plea agreements and all this, that’s usually what happens in a lot of cases, though if you have the facts to support it you can completely derail a criminal investigation. Criminal investigations have a very high bar. You have to prove beyond a reasonable doubt that someone did something so there’s a lot of things that you can do to throw roadblocks into the system. There’s a lot of things that you can do to work with the criminal agents and work with the US Attorneys to achieve a global resolution, a resolution to the civil and criminal side of things. So for example, if you run a business and you are accused of committing tax fraud in that business, we can plead the business to criminal charges and reduce the criminal charges or eliminate them for the individual coupled with payment of the tax or something like that. So there’s a lot of reasonable goals. It depends on number one the facts of the case, number two the tax loss and how much culpability you really have. So anything really is possible but it’s important that you’re honest with yourself at the beginning. That you’re honest about the conduct, that you’re candid with your attorney. Your candid conversations with tax counsel are protected under attorney-client privilege. Then let’s just sit down and lay the cards on the table and call it what it is and then from there you can build a strategy that works around reasonable expectations for the case at the very least though a reduction in criminal charges or elimination of them. That’s a pretty good goal and I think it’s one that’s fairly achievable depending on the facts of your circumstance.