The Internal Revenue Service is responsible for enforcing United States tax laws. It has four primary investigative divisions:
These divisions have the power to trigger what every American dreads: an audit. But civil audits, which can involve hefty financial penalties, can be the least of a tax evader’s concerns. A separate unit, entitled Criminal Investigation (CI), investigates potential criminal violations of the Internal Revenue Code and related financial crimes. CI investigations—which can arise from civil probes—often lead to criminal prosecutions, and in many instances, convictions.
The IRS’s chief goal is deterrence. CI consequently investigates alleged tax violations that are likely to garner public attention. If the IRS exposes and holds violators accountable, the theory goes, other tax payers will be afraid to fudge their tax returns. CI therefore focuses on sophisticated criminal conspiracies and financial transactions involving large sums. That said, individual taxpayers aren’t exempt from investigation. Prominent taxpayers may be audit targets, though relatively obscure citizens don’t generally receive as much scrutiny.
The criminal process usually begins with a general investigation; this occurs when it appears that a person or entity isn’t complying with the tax code. If the CI finds something amiss, it will transition to a “primary investigation.” If the primary investigation reveals the potential for enough evidence to prosecute an alleged violator, a “subject criminal investigation” begins. If, at the end of the investigation, the CI believes that a conviction is possible, it will likely refer the case to the U.S. Department of Justice to either prosecute or for further investigation before a grand jury. Federal prosecutors are responsible for handling the case from that point forward.
IRS special agents are required to follow certain guidelines in their investigations. For example, when they initially contact an investigation subject, they must identify themselves and warn of the criminal inquiry. Technical violations of protocol are often excused, but serious error or misconduct can compromise the investigation—evidence obtained through such transgressions may be suppressed in court. So, if an agent deceives a suspect about the nature of the investigation at hand, and that misrepresentation causes the suspect to divulge incriminating information, the information will likely be inadmissible.
Tax crimes usually have a three-year statute of limitations, meaning that the Department of Justice loses the ability to prosecute the defendant if it does not file charges within that timeframe. But for the most serious crimes, such as tax evasion, the statute of limitations is six years. The limitations period is measured from the date of the taxpayer’s last fraudulent act. In many instances, this will be the date of a falsely filed tax document.