This outline will briefly track an IRS criminal investigation and the different stages of the IRS criminal investigation.
- PART I of IRS Criminal Investigation: Revenue Agent Referral to Criminal Investigative Division. A potential criminal referral generally begins when a Revenue Agent refers the case to Criminal Investigation (CI) for review.
- Basis for Referral. When affirmative acts or firm indications of fraud and/or willfulness exist and criminal criteria are met, a referral will be made through the Fraud Technical Advisor (FTA) to Criminal Investigation (CI) via Form 2797, Referral Report of Potential Criminal Fraud Cases.
- Preparation of Form 2797. This is the Form that sets in motion the entire criminal referral process.
- A Fraud Technical Advisor (FTA), a Special Agent from the Criminal Investigation (CI) division and a compliance employee or revenue agent – who is typically the source of the referral – participate in this referral process.
- The referral will be a detailed presentation of the facts that establish firm indications of fraud and/or willfulness, including, but not limited to a description of the firm indications of fraud and/or willfulness, a taxpayer’s explanation of the firm indications of fraud and/or willfulness, the estimated criminal tax liability, and the method of proof used for income verification. If the fraudulent scheme involves multiple parties (e.g., husband and wife, corporation and corporate officers, etc.), those items will be reflected in the Form.
- Initial Conferences and Meetings.
- 10 days after the referral (more or less), the Special Agent will identify the subject as the primary investigation (PI) and will set up an initial conference between the referring compliance employee, the FTA and the evaluating special agent (SA).
- The conference provides the referring IRS employee with an opportunity to explain the case in detail and address any questions regarding the potential criminal violations.
- At this conference, they will review tax returns, evidence gathered to support the alleged offense, criminal tax computations, etc. Also, the following issues should be discussed at the initial conference:
- Verification of income
- Explanations offered by the taxpayer, the taxpayer’s representative, and/or the return preparer concerning the alleged offense
- Whether returns were solicited and attempts were made to resolve the civil issues, and prior IRS action(s) involving a similar alleged offense and
- Observations about the age, health (physical and mental), education and occupation of the taxpayer
- Disposition Conference.
- Another meeting, a disposition conference, will generally follow the initial conference and the same parties will attend the conference.
- The purpose of the conference is to discuss the CI’s decision to accept or decline the referral. CI is required to provide written feedback to the referring employee regarding their decision. See IRM 25.1.3.4(1) and IRM 25.1.3.5(1)). A lawyer from IRS Office of Chief Counsel may also attend this disposition conference.
- During this time, the FTA’s role is limited to monitoring the conference dates and response obligations to ensure all actions occur in a timely manner.
- A decision to extend the time period within which to make a decision regarding the referral may be extended if approved by written agreement of the field territory manager ™ or other individual responsible for making that decision.
- PART II of IRS Criminal Investigation: Taxpayer Conferences to Avoid Prosecution
- Special Agent or Chief Criminal Investigation Division Conference
- Process: This conference is obtained at the request of the taxpayer.
- Attendees: taxpayer, taxpayer representative, and IRS representative from CI.
- Objective: At the conference the IRS representative will inform the taxpayer by a general oral statement of the alleged fraudulent features of the case, to the extent consistent with protecting the Government’s interests, and, at the same time, give taxpayer sufficient facts and figures to acquaint him with the basis, nature, and other essential elements of the proposed criminal charges against him. This might include the method of proof.
- Legal Authority: 26 C.F.R. §601.107 (“ A taxpayer who may be the subject of a criminal recommendation will be afforded a district CI conference when he requests one or where the Chief of CI determines that the conference will be in the best interests of the Government.
- CID and IRS Office of Chief Counsel Conference
- Process: This conference is triggered once CI forward the case to the IRS Criminal Tax attorney for consideration. IRS counsel or Special Agent from CI will then send a letter to taxpayer or taxpayer may request conference.
- Attendees: Taxpayer, taxpayer representative, CI, and IRS Office of Chief Counsel. Taxpayer may in some cases bring a witness.
- The conference is voluntary and therefore no Fifth Amendment rights and statements made by taxpayer (and attorney) can be used against taxpayer in subsequent proceedings.
- Conducting the Conference
- SAC will tell the taxpayer that the investigation has been completed with a recommendation for prosecution; the specific charges; the method of proof used for the specific charges; amount of civil tax liability;
- Discussion of Case: CI has the discretion to discuss the case and facts or elements of the case to make the conference “as meaningful as possible.” See IRM 38.2.1.4.14
- Taxpayer can assist on recording the conference
- No interrogation/questioning
- Following the Conference
- Conference Memorandum:
- Basic information about conference
- Warnings to taxpayer
- Statements of law or fact made by participants (and by whom)
- Comments about demeanor of taxpayer or witness
- Criminal Evaluation Memorandum (prepared by counsel): work product of IRS Office of Chief counsel about merits of the case.
- Information about criminal subjects
- Recommendation as to charges, counts, venue, statute of limitations
- Memorandum should include whether attorney disagrees with CI recommendation and/or whether prosecution is warranted.
- Executive summary of relevant conduct, amount of tax dollars, harm to government, technical tax issues, investigative techniques and any statutes of limitations issues.
- Discussion of the evidence that establishes the elements of the criminal offenses
- Discussion of the law
- Tax loss computations, method of proof, and technical tax issues
- Lifestyle of taxpayer
- Defenses of taxpayer ***
- Sentencing and any mitigating or aggravating factors
- Distribution of a memorandum and SA Report to Associate Chief Counsel & Area Counsel & SAC (Special Agent in Charge) but not to DOJ.
- Conference Memorandum:
- Notice of Referral: Taxpayer will learn if there is a referral to DOJ or not. BUT taxpayer will not be advised if Office of Chief Counsel has sent it back to CI for additional review.
- Legal Authority:
- IRM 38.2.1.4.1-38.2.1.4.20 (2004)
- 26 CFR §601.501(c): The Internal Revenue Service encourages the discussion of any Federal tax matteraffecting a taxpayer. Conferences may be offered only to taxpayers and/or their recognized representative(s) acting under a valid power of attorney. As a general rule, such conferences will not be held without previous arrangement.
- Conferences Not Available
- Grand Jury investigation has begun (MOST COMMON)
- CID requests grand jury
- No More summonses to taxpayer
- Special Agent prepares a report deciding if evidence sufficient for an indictment
- Conference with DOJ available to taxpayer (See below).
- 26 U.S.C. §7215– obstruction of tax proceeding/investigation are referred directly from CI to DOJ
- Imminent Statute of Limitations cases: cases where SOL may expire in 8-12 months may be referred directly to DOJ by CI.
- Special processing cases
- Politicians, tax shelter cases with conspiracy charges, publicly traded companies, 501(c) organizations, companies with $10B in gross annual revenue
- DOJ Conference:
- Process: request a conference before CI refers to DOJ for review.
- If time and circumstances permit, the Tax Division generally grants a taxpayer’s written request for a conference with the Division in Washington, D.C.
- If the taxpayer makes the request for a conference after the Tax Division has forwarded the matter to the United States Attorney, the Tax Division will deny the request and suggest that the taxpayer ask the United States Attorney for a conference.
- The United States Attorney has discretion to grant or deny a taxpayer’s request for a conference. On rare occasions, the Tax Division may ask a United States Attorney to hold a conference and submit a written recommendation about whether the Division should change its decision regarding prosecution.
- Legal Authority: no requirement to agree to a conference with taxpayer. See DOJ Tax Manual, Section 6-4.214 Conferences.
- Purpose: Objective is to present evidence to DOJ showing that the case has problems – technical (e.g. SOL bar), evidentiary, etc. It is also an opportunity to raise affirmative defenses (e.g. good faith).
- Tax Division usually advises conferees of the proposed charges, the method of proof, and the income and tax computations that the IRS recommended. The Division also advises them that these may change.
- Taxpayer may present explanations or evidence for the Tax Division to consider in reaching a decision regarding prosecution.
- Available in Grand Jury Investigations too.
- No Vicarious Admissions: Unlike IRS, DOJ has stated they will not rely on this evidentiary rule that allows DOJ to introduce statements made by agent of taxpayer (lawyer) as evidence at a future proceeding (e.g. a trial).
- Process: request a conference before CI refers to DOJ for review.
- Grand Jury investigation has begun (MOST COMMON)
If a taxpayer has reason to believe that there is an IRS criminal tax investigation, he or she should contact an experienced IRS criminal investigation attorney.
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