Tax Fraud Attorney — Criminal Tax Defense in California

Written by Sam Brotman, J.D., LL.M. (Taxation), MBA, CPA — Managing Attorney, Brotman Law  ·  Updated May 2026

What I Do in Criminal Tax Cases

I am a tax attorney and a CPA. In criminal tax cases, that combination matters in a specific way: tax fraud prosecutions are built on accounting records, financial transactions, and return filings. The government's case is fundamentally an accounting case dressed in criminal procedure. I can read the same documents the CI special agents are reading and assess exactly what their theory is and where the weaknesses are — without needing a second professional to translate the numbers into legal terms.

The criminal tax defense practice at Brotman Law covers the full spectrum of federal criminal tax matters:

• IRS Criminal Investigation (CI) defense — from preliminary inquiry through subject investigation
• Grand jury subpoena defense — document subpoenas, witness subpoenas, privilege assertions
• DOJ Tax Division engagement — proffer negotiations, pre-indictment resolution discussions
• Voluntary disclosure programs — IRS Voluntary Disclosure Practice (IRM 9.4.3), streamlined filing procedures
• Civil fraud penalty defense — § 6663 fraud penalties in civil examinations with criminal exposure
• FBAR criminal defense — willful failure to file FinCEN Form 114, offshore account violations

I represent clients throughout California and nationally in federal criminal tax matters. Federal criminal tax law is uniform — the statutes, the DOJ Tax Division approval process, and the CI investigation framework are the same in every federal district.

What Tax Fraud Charges Actually Mean

Most people searching for a tax fraud attorney do not yet know whether they are facing a civil matter, a criminal matter, or something in between. The short answer is that "tax fraud" covers a wide spectrum, and where you are on that spectrum determines everything about how to respond.

Here is the actual progression, from civil to criminal:

The civil fraud penalty under § 6663 (75% of the underpayment) and criminal tax prosecution are not mutually exclusive — the government can pursue both simultaneously in parallel proceedings. A civil fraud determination does not bar criminal prosecution for the same conduct, though double-jeopardy principles limit what the government can do in certain circumstances.

The controlling distinction at every stage is willfulness. Civil negligence — making an honest mistake, relying on incorrect advice, failing to report income you did not know about — is taxable but not criminally prosecutable. Tax fraud vs. tax evasion turns on this question: did you know what you were doing was wrong, and did you do it anyway? The government must prove willfulness beyond a reasonable doubt in a criminal case. That is a high standard, and it is the central defense in most federal tax prosecutions.

Federal Criminal Tax Offenses I Defend

Federal criminal tax prosecutions are brought under Title 26 of the Internal Revenue Code, Title 31 of the Bank Secrecy Act, and Title 18 for conspiracy and money laundering charges that frequently accompany tax cases.

IRC § 7201 — Tax Evasion

The most serious tax crime. § 7201 has two elements: (1) an affirmative act to evade or defeat a tax, and (2) willfulness. "Affirmative act" requires something more than failure to file — it includes filing false returns, creating fraudulent records, hiding assets through nominee accounts, making false statements to the IRS, or structuring transactions to conceal taxable income. Maximum sentence: five years per count, plus fines and costs of prosecution. In practice, multi-year tax evasion cases often involve multiple § 7201 counts — one per tax year — which the government may consolidate or charge separately depending on its theory.

IRC § 7203 — Failure to File or Pay

A misdemeanor in its basic form — willful failure to file a return, supply required information, or pay a tax when due. Maximum sentence: one year. The government typically brings § 7203 charges alongside § 7201 counts, or in cases where the evidentiary record supports willfulness but not the affirmative act required for § 7201. A § 7203 charge can also be the basis of a plea to a reduced charge when a § 7201 case is negotiated down.

IRC § 7206(1) — Filing a False Return

Willfully making and subscribing a return that you do not believe to be true and correct as to every material matter. Maximum sentence: three years per count. This charge does not require proof of an actual tax deficiency — only that the return contained a material falsehood and that the signature was willful. It is commonly charged in cases involving overstated deductions, fictitious business expenses, or returns that omit material income. Because it does not require proof of a tax loss, § 7206(1) is sometimes easier for the government to prove than § 7201.

18 U.S.C. § 371 — Conspiracy

Conspiracy to defraud the United States or to commit any federal offense. In tax cases, conspiracy charges typically accompany the underlying tax charges and are used when two or more people coordinated the fraudulent conduct — a business owner and their bookkeeper, a promoter and their clients, spouses who filed joint returns. Maximum sentence: five years. Because conspiracy is a separate offense from the underlying crime, the government can charge both — and does regularly.

18 U.S.C. §§ 1956–1957 — Money Laundering

Money laundering charges are added to tax cases when the funds at issue moved through financial accounts in ways that constitute financial transactions with proceeds of a "specified unlawful activity" — which includes tax evasion. § 1956 (laundering of monetary instruments) carries up to 20 years; § 1957 (engaging in monetary transactions in property derived from specified unlawful activity) carries up to 10 years. The addition of money laundering charges significantly increases sentencing exposure and often reflects the government's view that the conduct was sophisticated and deliberate.

31 U.S.C. § 5322 — Criminal FBAR Violations

Willful failure to file FinCEN Form 114 (the FBAR) for foreign financial accounts with an aggregate value exceeding $10,000 at any point during the year. Maximum sentence: five years per year of willful non-compliance. FBAR criminal prosecutions frequently accompany § 7201 evasion charges in offshore account cases, because the same conduct — maintaining unreported foreign accounts — violates both the Internal Revenue Code and the Bank Secrecy Act. The civil FBAR penalty alone (up to the greater of $100,000 or 50% of the account balance per year of willful violation) can exceed the value of the account.

How IRS Criminal Investigations Start

Civil Audit Referral — the Most Common Path

When an IRS revenue agent conducting a civil examination identifies what the IRS calls "badges of fraud" — indicators that the understatement was willful rather than negligent — they can complete a Form 2797 (Referral Report of Potential Criminal Fraud Cases) and forward it to CI. The civil examination is typically suspended at that point while CI evaluates the referral. The taxpayer often does not know this transition has occurred.

Badges of fraud that revenue agents are trained to identify include: two sets of books, false entries in books and records, destruction of books and records, unexplained income inconsistent with the lifestyle of the taxpayer, fictitious deductions, concealment of assets, failure to file returns over multiple years, and conduct indicating consciousness of guilt (false statements during the audit, evasive behavior, unexplained cash transactions). An audit that starts as a routine civil exam can become a criminal investigation based on what the examiner discovers. See the IRS Criminal Investigation overview for a detailed treatment of how CI works.

Suspicious Activity Reports (SARs)

Financial institutions are required under the Bank Secrecy Act (31 U.S.C. § 5318(g)) to file SARs with FinCEN when they identify transactions that suggest potential illegal activity. FinCEN shares relevant SARs with CI. Common triggers include: structuring transactions to stay below the $10,000 currency transaction reporting threshold (smurfing — itself a federal crime under 31 U.S.C. § 5324), large cash deposits inconsistent with reported income, and unusual patterns of wire transfers through multiple accounts.

Informants

CI accepts tips from confidential informants — employees, business partners, former spouses. The IRS Whistleblower Office under IRC § 7623 operates a formal program that pays awards to informants whose tips lead to collected taxes. That financial incentive structure tends to produce detailed, documented disclosures. Informant-based investigations often begin with information the taxpayer had no reason to believe anyone else knew.

FBAR and BSA Violations

FinCEN and the DOJ regularly refer offshore account cases to CI when bank records from treaty requests — particularly from Swiss, Cayman, and other offshore institutions — reveal undisclosed accounts. The offshore voluntary disclosure programs that ran from 2009–2018 produced a significant volume of disclosures and, in some cases, disclosed information about financial institutions and promoters that led to further investigations.

The Four Stages of a CI Investigation

Once CI opens a case, it progresses through four stages. Understanding where a case is in that progression matters for defense strategy.

1. Preliminary inquiry: Background research, database analysis, financial record review — no contact with the taxpayer. The purpose is to determine whether probable cause exists to open a formal investigation. If it does not, the case is closed here.
2. Subject investigation: The taxpayer is formally designated a "subject." CI begins building its evidentiary record: witness interviews, summonses for financial records, coordination with the assigned AUSA. Direct contact with the taxpayer — showing up at their home or business — typically happens during this stage. This is also when search warrants may be executed.
3. Grand jury: CI works with the AUSA to present evidence to a federal grand jury, which can issue subpoenas compelling document production and witness testimony. The grand jury operates in secret. See the CI investigation overview for a full treatment of grand jury procedure.
4. Indictment: If the grand jury finds probable cause, it returns an indictment — but only after CI's referral receives approval from the DOJ Tax Division in Washington. Tax Division review is a meaningful checkpoint, not a formality. It is also a window where experienced defense counsel can engage.

CI investigations typically run two to five years before direct contact with the taxpayer. By the time a special agent appears at your door, the investigation is generally well advanced. The statute of limitations for tax evasion under § 7201 is six years from the due date of the return — which means the government has time to be methodical.

Voluntary Disclosure — The Window That Closes

The IRS voluntary disclosure practice has historically allowed taxpayers who came forward before a criminal investigation began to resolve their liability civilly, without prosecution. The key requirements are that the disclosure must be (1) timely — before the IRS is on notice of the conduct or before CI takes any overt investigative step with respect to the taxpayer; (2) truthful — complete disclosure, not selective; and (3) accompanied by payment arrangements for the tax owed.

A timely voluntary disclosure does not guarantee non-prosecution — it is a practice, not a statute. But it is a significant factor in the DOJ Tax Division's prosecution decision, and historically taxpayers who qualify and make a timely, complete disclosure have been prosecuted at a far lower rate than those who do not. The practical value of voluntary disclosure is precisely that it happens before the government has built its case.

For offshore account cases, the OVDP (Offshore Voluntary Disclosure Program) closed to new applicants in 2018. The Streamlined Filing Compliance Procedures remain available for non-willful FBAR and foreign income violations, but they are not a substitute for voluntary disclosure in willful cases — the Streamlined procedures do not provide the same prosecution protection, and a misuse of the Streamlined program (using it for conduct that was actually willful) can make things worse, not better.

The practical question for most people calling about this: if you have unreported income, unfiled returns, offshore accounts, or other conduct that you are concerned about — and CI has not yet been in contact — a criminal tax attorney can evaluate whether voluntary disclosure is available, whether the facts support it, and how to structure it. That evaluation is different from the disclosure itself; it involves assessing your exposure across civil and criminal liability and deciding whether the disclosure terms make sense given what you are disclosing.

The window closes when CI contacts you. Not when you decide you are ready. Not after you have had time to think about it.

My Role in a Criminal Tax Case

In a criminal tax case, my role is to protect your legal rights, manage your exposure, and provide the specialized advocacy that this kind of federal proceeding requires. That is different from what a CPA does, what a generalist criminal defense attorney does, and what you can do on your own — and the differences are not small.

Attorney-Client Privilege

Communications between a client and their attorney are protected by attorney-client privilege. Communications between a client and their CPA are not — not in a criminal investigation, not before a grand jury. Circular 230 provides a narrow federally authorized privilege for CPAs in certain non-criminal tax proceedings, but it does not apply when CI or the DOJ Tax Division is involved. An accountant who knows about unreported income, offshore accounts, or returns they prepared that contained false information can be subpoenaed and compelled to testify. An attorney generally cannot be.

This is not a hypothetical. In virtually every CI investigation, the government summonses the taxpayer's accountant and requests their workpapers, files, and any notes from client conversations. If those conversations happened without a privilege structure in place, they are often available to the government.

Kovel Accountant Arrangements

A Kovel arrangement — from United States v. Kovel, 296 F.2d 918 (2d Cir. 1961) — is a structure in which an accountant is retained by defense counsel rather than directly by the client, to assist the attorney in providing legal advice. When properly structured, the Kovel accountant's work product and communications with counsel are covered by attorney-client privilege. This allows us to use accounting expertise in building the defense without sacrificing the privilege that protects what those conversations produce.

Representing at CI Interview Requests

CI special agents will frequently request an interview with the taxpayer — at their home, their office, or a neutral location. There is no legal obligation to participate. You have Fifth Amendment rights against self-incrimination. Declining to speak with CI agents is not an admission of guilt; it is the correct response when a federal criminal investigation is underway.

What I do at this stage is make clear to CI that the taxpayer is represented, manage all communication with CI through counsel, and assess — based on the facts I know — whether any voluntary cooperation is in the client's interest. In the vast majority of cases, it is not. The exceptions are narrow and require careful analysis of what the government already has and what a voluntary statement could provide.

Proffer Agreement Negotiation

A proffer agreement is an agreement with the government under which a subject or target provides information in exchange for use limitations — the proffer statements generally cannot be used in the government's case-in-chief. Proffers are a standard tool in federal investigations. In some cases they lead to reduced charges or non-prosecution. In others, they are a mistake — the information provided confirms the government's theory and fills in evidentiary gaps without securing meaningful protection.

Evaluating whether a proffer makes sense requires knowing what the government already has, what the proffer would add, and what the realistic range of outcomes is with and without cooperation. I handle that analysis and, when a proffer is appropriate, the negotiation of the agreement terms and the preparation of the client for the session.

Grand Jury Defense

Grand jury subpoenas in tax cases require specific handling. A subpoena duces tecum (for documents) must be reviewed for scope, privilege, and whether any aspect is subject to a motion to quash. A subpoena ad testificandum (for testimony) requires a careful analysis of Fifth Amendment rights, potential immunity, and what the government is trying to establish. Defense counsel is not permitted inside the grand jury room — the witness may step out to consult with me between questions, but my role is primarily preparation and the pre-testimony legal analysis that determines how to respond to each area of questioning.

DOJ Tax Division Engagement

Every federal tax prosecution requires approval from the DOJ Tax Division in Washington, D.C. That review is conducted on paper — Tax Division reviews the CI referral package without input from the defense unless defense counsel actively engages. In appropriate cases, I communicate with Tax Division attorneys to present mitigating facts, legal arguments about the willfulness element, or voluntary disclosure information that is relevant to the prosecution decision. This is a window that exists before indictment and closes after it. It is one of the most consequential stages for defense counsel to be involved in.

Frequently Asked Questions