When individuals and corporations make deliberate decisions that violate federal tax laws, they face the possibility of a criminal investigation that can result in prosecution and possible jail time. The key to avoiding conviction: avoiding the criminal referral.
Federal tax crimes for which individual and business taxpayers are commonly investigated include:
- tax fraud and tax evasion
- underreporting taxable income
- claiming false deductions
- failure to collect and pay over employment tax
- false statements
- failure to file returns
- abusive tax schemes
- offshore tax avoidance
- concealing or fraudulently transferring assets
The IRS also investigates tax scams perpetrated against taxpayers, including tax identity theft, cyber crimes, return preparer fraud, fake charities, inflated refund claims, and impersonating IRS agents.
The IRS Criminal Investigation Division's Phoenix Field Office covers the southwestern states of Arizona and New Mexico. The office's special agents investigate both legal and illegal source tax crimes, including cases with an international nexus. The office operates a financial crimes task force named DeTECT that identifies and investigates a wide variety of complex financial crimes. Located on the U.S. / Mexico border, the office provides significant participation in the high level Organized Crime Drug Enforcement Task Force (OCDETF).
The IRS reports that, in 2018, its Criminal Investigation unit:
- initiated 2,886 criminal investigations, 1,714 of which were focused on tax crimes, and 450 of which involved undercover operations,
- recommended 2,130 prosecutions,
- obtained 2,011 indictments, and
- won more than 2,111 sentences.
More than 82% of convictions resulted in prison time, with an average sentence of 45 months. Criminal sentences generally include payment of restitution plus penalties and interest. Sentencing in criminal tax cases is governed by federal sentencing guidelines; generally, the prison sentence is determined by the amount of tax that the taxpayer should have paid.
As sobering as the 2018 records are for taxpayers facing the possibility of criminal prosecution, these two statistics covering recent years illustrate the gravity of a criminal tax investigation:
- 73% of all investigations that are started result in a criminal referral, either to the Tax Division of the U.S. Department of Justice or to the U.S. Attorney's Office.
- More than 92% of referrals result in a conviction or a guilty plea.
Avoiding Conviction for Tax Crimes
For taxpayers who have attracted criminal scrutiny of the IRS, the key is heading off the criminal referral. Recognizing that tactic, the IRS tries to act quickly to interview potential targets before the taxpayer can hire an attorney. Do not talk to the IRS alone, even if the special agent informs you that you are not the subject of the investigation.
You want a criminal defense attorney who knows taxation and is experienced in negotiating with, and trying cases against, the federal government. Of particular importance is hiring a tax litigator who has worked for the government, at either the IRS or the Justice Department.