How do you know if the IRS is investigating you? The answer is that you may not know until the IRS has already built a strong case for tax law violations and financial crimes against you. That doesn't mean the IRS has full freedom to be secretive about its dealings. Like all Americans, taxpayers under suspicion from the IRS have rights.
In this article, we'll look at how the IRS initiates criminal investigations. If you're currently the subject of an IRS audit, you may already be looking at some little-known signs of a deeper investigation without realizing that special agents are in motion.
The Basics of IRS Criminal Investigations
The IRS's goal in opening a criminal tax investigation is to build a strong case for criminal convictions regarding financial wrongdoings. This is why agents are patient, thorough, and diligent during the investigation process. All evidence will be combed through at length to pick out any suspicious activities that point to fraud or tax evasion. When collecting evidence to bring a case forth, IRS agents will utilize interviews with employees, business associates, friends, and family members to get information. Agents will also spend time looking at timelines to determine patterns of activity spanning multiple years.
How IRS Criminal Investigations Are Initiated
An IRS special agent can establish something called a general investigation to look at allegations or indications of noncompliance. If the general investigation shifts to potential criminal activity, a primary investigation is then initiated.
There's no single way that the IRS becomes interested in someone as a target for investigation. Reasons why an investigation could be triggered include tips from third parties, a random audit, and tax noncompliance.
Can You Ask the IRS If You're Being Investigated?
All suspected criminal tax violations are handled by a unit within the IRS called the IRS Criminal Investigations (CI) division. It might seem like the obvious way to know if you're being investigated would be to simply ask. However, tax law is not necessarily in your favor when it comes to who can do the questioning.
IRS audit agents are not obligated to let you know if your case has been referred to the IRS's CI division for suspected tax fraud. IRS audit agents are also prohibited from providing deceptive answers to anyone who is the subject of a criminal tax investigation. That's why you're very likely to get a generic answer that repeats the IRS's policy of investigating when tax fraud is strongly indicated.
The #1 Way to Know That You're Being Investigated by the IRS
Your chances of being part of an Internal Revenue Service criminal investigation are highest if you're currently being audited. Not every audit turns into a criminal case. However, everyone who receives an audit notice should immediately act as though an investigation is possible. A dual-certified attorney and CPA will be able to help protect your rights during your audit.
Next, take a look at some other ways to know that the IRS is investigating you for fraud or tax evasion.
A Visit From a Special Agent
The IRS can legally use surveillance during criminal investigations. However, agents don't always use "cloak and dagger" techniques to get close to you. In many cases, a special agent from the IRS's CI division will simply show up at your door. While this is the formal way that the IRS informs taxpayers they are under investigation, the true purpose of this visit is to try to get incriminating information that can be used against you.
A visiting IRS agent is counting on the fact that they can surprise you without your lawyer present. You can assume that you are under investigation at this point. The best way to handle an IRS agent's ambush technique is to simply remain quiet. After refusing to give up even the smallest detail, contact a tax attorney as soon as the agent is gone.
Your IRS Auditor Disappears
Were you in the middle of what seemed like a routine IRS audit when your auditing agent suddenly disappeared? Those cricket sounds could actually be the sounds of an IRS investigation brewing in the background. If your audit agent found evidence of fraud or tax evasion, they were obligated to refer your case to the IRS's CI unit. Since they no longer have jurisdiction over your case, your "ordinary" IRS agent is no longer allowed to participate in the investigation.
The IRS Requests a Large Pile of Documents
If an IRS audit agent suddenly begins making what feel like excessive requests for documents in the middle of an audit, this is a sign that the agent thinks something looks "fishy." In addition to requesting larger batches of documents, an agent may also appear very interested in transactions tied to specific dates or topics. Both situations make it very likely that an agent is preparing to refer your case to the IRS's CI division.
The IRS Sends You an Audit Notice for Old Returns
Why is the IRS poking around in tax returns from several years back? This is often an indicator that the IRS is going back into your filing history to look for any red flags regarding income or deductions. While your instinct may be to call your accountant to talk about the situation, it's important to remember that anything said won't be protected by privacy laws. You should strongly consider talking to a tax lawyer instead to enjoy the attorney-client privilege.
You Are Suddenly Hearing "Why" From Your IRS Audit Agent
It's not uncommon for audit agents to ask for forms and documents. However, there's a feeling of a big switch in the air when an agent suddenly starts to ask you about the "why" behind certain transactions. If you feel that the intentions behind your transaction activity are under scrutiny, you should assume that an investigation is looming.
Your Bank Just Contacted You to Let You Know That Your Records Are Being Subpoenaed
The IRS will let your bank know that you're part of an IRS criminal investigation before an agent will tell you. Your bank will give you notice if the U.S. The Attorney's Office has ordered your banking records. Generally, this is confirmation that the IRS is gathering evidence as part of a criminal case against you.
Your Accountant Has Been Subpoenaed
In addition to contacting your bank, the IRS may also contact your accountant. In some cases, accountants are subpoenaed. Many people are unaware that conversations with accountants are not protected by law. That means any statements you've made to your accountant can be used against you during an investigation. Only conversations with your attorney are protected by attorney-client laws. For this reason, it is highly recommended that you only handle financial matters with a dual-certified tax lawyer and CPA.
What to Expect If You're Under Investigation
First, it's important to understand that an IRS criminal investigation must be taken seriously. According to the IRS's own website, the CI unit's conviction rate is one of the highest in federal law enforcement. In addition to routinely handing down prison sentences to tax violators, courts also impose severe fines and penalties.
The truth is that being investigated by the IRS can feel agonizing. Agents don't necessarily have a timetable to work with. In most cases, they will work until they find evidence that justifies charges. After devoting thousands of staff hours to a single case, the IRS CI division will typically announce formal charges anywhere from six to 24 months after suspicions are first raised.
What to Do If You're Being Accused of Tax Law Violations
Calling your accountant is not the smart move to make if you suspect the IRS is investigating you for criminal activity. The information you share with your accountant is not considered privileged. The IRS and prosecutors won't hesitate to subpoena your accountant to use any potentially incriminating correspondences against you.
In order to be protected by attorney-client privilege, it's necessary to bring your tax issue to a dual-licensed tax attorney and CPA. Fortunately, a dual-licensed tax attorney and CPA can sometimes help you to deal directly with the IRS to work up an IRS resolution, allowing you to correct tax errors or pay owed taxes while potentially avoiding jail time and other penalties.
Final Thoughts: An IRS Criminal Investigation Is a Serious Matter
There's no satisfying answer for how the IRS initiates its investigations. The IRS will give you as little warning as possible before letting you know you're being investigated. In most cases, special agents already have what they think they need for the prosecution to move forward by the time you are notified you're under investigation. Anyone who has either suspicion or confirmation regarding charges related to tax fraud or financial crimes needs to contact a lawyer familiar with tax law and criminal investigations without hesitation.
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