If you are a reader of our posts, you are aware that the IRS has increased significantly its funding (billions of dollars). As part of this inflow of money, the IRS has focused on two fundamental areas: 1) Customer services and 2) Enforcement.
The IRS keeps publishing the data in an example of transparency and you can see the 2023 snapshot for the Criminal Investigation (CI) division in the Annual report. If you have seen this type of IRS agents, they are the ones carrying the gun and the handcuffs.
In the page 11 of the 2023 Annual report, there are relevant data to keep in mind
- They spent around 70% of their time investigating tax related items (while around 11% for narcotics and 17% for general fraud/money laundering)
- The staffing has been growing steadily from 2,935 staff in 2021 to 3,138 in 2023
- They identified tax fraud for $5.5 billions
- They identified other financial crimes for $31.6 billions
- Their conviction rate is 88.4%
- … more information in the report…
Note that in page 66 and 67 of the 2023 Annual report, you can even see details on the investigations initiated, prosecutions, incarceration rate, average months to serve, etc. by type of case.
In the Annual report, you can see the investigation sources but there are two types of criminal investigations:
- Administrative investigation: These cases start as a normal examination (audit) and from a fraud (civil) case can become a criminal if willfulness is found. The definition of willfulness is a voluntary and intentional violation of a known legal duty. Remember there is a clear intention – not accidental, no negligence, no misunderstanding.
- Some examples that might change the status to a criminal investigation are:
- Provide false statements
- Destroy records
- Unnecessary complexity for no legitimate business purpose
- Offshore accounts or offshore money transfers
- Bad patterns unveiled by the IRS agents
- Hidden bank accounts or assigned to third parties with control of the audited taxpayer
- Some examples that might change the status to a criminal investigation are:
- Grand Jury: This type of investigation comes usually directly from the Department of Justice (“DoJ”). Additionally to the DoJ, it might be requested by the IRS before, during or after the administrative investigation. In general, these are more serious cases and a grand jury might be requested by the IRS “… whenever:
- Using a grand jury would be more efficient, e.g., the administrative process cannot develop the relevant facts within a reasonable period of time.
- An investigation has proceeded as far as the administrative process allows, but prosecution potential would be strengthened by the grand jury process. “
Our recommendation is to avoid escalating your case from a simple examination to a criminal investigation when no appropriate professional guidance (CPA, EA or lawyer) was received. If you do not want an IRS criminal case, remember that willfulness is a requirement and see the list of six examples that might turn a simple audit into a criminal case with a high probability of conviction and even some potential incarceration time.
We have seen even examinations where the IRS agent opened a criminal case against the tax preparer (in a couple of cases, the previous CPAs – there are few bad apples everywhere) and look more in detail to the book of business as the tax preparer was intentionally breaking the law in numerous tax returns.
You can read in the Justice press releases a couple of examples below but new cases are published every week.
Link Justice – CPA involved in syndicated conservation easements – New Jersey Accountant Pleads Guilty to Tax Fraud Scheme
Link Justice – Construction owner would deposit revenues in his personal account (underreporting income) and pay workers with cash and money orders (non payment of employment taxes) – Owner of Newark Contruction Business Admits Tax Evasion and Failure to Collect and Pay Over Taxes
Link IRS CI Criminal Investigation – 2023 Annual report
