IRS Criminal Investigations: A Serious Threat With Warning Signs

Criminal investigations are the most potent (and severe) tool in the IRS’s enforcement toolkit. While they are used in only a small fraction of cases, their consequences are very serious, potentially leading to personal, social, and financial ruin, professional license revocation, substantial fines, and even imprisonment.

Recognizing the Warning Signs

Often, taxpayers remain unaware of an ongoing criminal investigation until it’s too late. However, certain indicators may suggest criminal scrutiny:

• Sudden Disappearance of IRS Revenue Officers or Agents: If a Revenue Officer pursuing payment or a Revenue Agent conducting an audit ceases communication, it could signify a referral to the Criminal Investigation Division (CID). This silence is strategic, as any further actions by other IRS divisions might jeopardize a potential criminal prosecution.
• Bank Records Requested by CID or U.S. Attorney’s Office: Notification from your bank that the CID (through a summons) or the U.S. Attorney’s Office (through a grand jury subpoena) has requested your records is a clear indication of an investigation. Seeking legal representation to track the investigation and obtain copies of these records is crucial.
• Unexpected Visits from CID Special Agents: Unlike Revenue Officers or Revenue Agents (both civil), IRS CID Special Agents typically wear business attire and carry badges (and guns). If you receive an unannounced visit from individuals fitting this description, it is a strong indication of a criminal investigation. Refrain from contact without legal counsel.
• Contact or Subpoena of Your Accountant: If your accountant is contacted by Special Agents or subpoenaed to testify before a grand jury, it signifies that your financial records are under scrutiny. As conversations with accountants lack privilege in criminal cases, seeking legal counsel becomes paramount to safeguard your interests.
• Third-Party Contacts: If friends, family members, business associates, or employees are contacted by IRS agents and questioned about your finances or business dealings, this could signal a broadening of the investigation.
• Audit Notification with Known Understatements or Overstatements: If the IRS notifies you of an audit for a tax year with known understatements of income or overstatements of deductions, it is imperative to cease all communication with your accountant and seek legal counsel immediately. This situation, often referred to as an “egg shell audit,” could escalate into a criminal investigation, as Revenue Agents are trained to identify “badges of fraud” and refer potential cases to the CID.

In summary, recognizing the warning signs of an IRS criminal investigation is critical for timely intervention and protecting your rights. Should any of these warning signs arise, seeking experienced legal counsel is strongly advised to navigate the complexities of the situation and ensure your best interests are protected.

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