IRS Criminal Tax Investigations

The IRS Criminal Investigation (CI) division handles criminal tax violations related to internal revenue laws. IRS Special Agents of IRS Criminal Investigation (CI), usually working in pairs, often conduct interviews and administrative tax investigations into allegations of tax fraud or criminal tax violations arising under provisions of Title 18, U.S.C. (e.g.,18 U.S.C. §§ 286, 287, 371, 1341). Most administrative criminal tax cases follow the procedural steps outlined below:

1. Initiation of Tax Investigations: Criminal Tax Investigation starts their review of a potential tax fraud or criminal tax case based on:
   • Referrals from other IRS divisions for potential tax fraud. Usually based on tax audits or other criminal tax cases which provide evidence that may be used against a new target.
   • Information from other government bodies or private parties. Banks, check cashing locations, foreign businesses may often disclose suspicious activity to the IRS which triggers the IRS Criminal review.
   • Internally developed cases within CI. IRS may target certain business activities in a specific region for criminal investigation due to pattern or information that they obtain which indicates potential criminal tax fraud. Often cash intensive business or labor intensive operations are targeted for IRS tax audits.
2. Investigation Approval: IRS Criminal Investigation Division approves cases that show potential for criminal fraud or need further investigation, subject to resource availability.
3. Joint Investigations: IRS Special agents often work with IRS revenue agents (regular civil tax auditors) or officers on cases involving false returns, failure to file, or failure to pay taxes. If they discover facts that support criminal intent, civil tax audit may be referred to the criminal tax division.
4. Post-Investigation Process:
   • After investigation, a Special Agent’s Report (SAR) is prepared, detailing the criminal tax case with recommendations for prosecution.
   • This criminal tax report is reviewed internally and by the Chief Counsel’s Criminal Tax Division.
   • A Criminal Enforcement Memorandum (CEM) is then drafted, analyzing the case’s legal aspects.
5. Prosecution Referral:
   • If a criminal tax prosecution is recommended, the case is referred to either the Tax Division of the Department of Justice in Washington DC or directly to the U.S. Attorney’s Office.
   • For straightforward cases involving only legal income, expedited guilty pleas can be arranged with simultaneous referral to both the U.S. Attorney and Tax Division.
6. Information Sharing: During a criminal tax investigation, the IRS can share tax return information with the Department of Justice under certain legal provisions.
7. Post-Referral Actions:
   • Once referred, the IRS cannot use administrative summons for the same tax issues unless the Tax Division declines the case.
   • If declined, IRS can take administrative actions, including further investigation using summons, and can resubmit the tax case for prosecution.