Why Is IRS CI Investigating You or Your Business?

If you have been contacted by Special Agents from the Internal Revenue Service’s Criminal Investigation division (IRS CI), one of the first questions you need to answer is, “Why?” IRS CI investigates a broad range of both tax-related and non-tax-related offenses, and determining the specific accusations underlying an IRS CI investigation is a key preliminary step toward executing a strategic and effective defense.

10 Common Allegations Underlying IRS CI’s Criminal Investigations

If IRS CI is investigating you or your business, what allegations do you need to be prepared to defend against? Some examples of common allegations underlying IRS CI’s criminal investigations include:

1. Income Tax Evasion

Many IRS CI investigations focus on allegations of income tax evasion. Under 26 U.S.C. Section 7201, “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by [the Internal Revenue Code or the payment thereof,” is guilty of a federal felony carrying up to a $100,000 fine ($500,000 in the case of a corporation) and five years of federal imprisonment.

2. Income Tax Fraud

Income tax fraud is a common allegation in IRS CI matters as well. While tax fraud and tax evasion are closely related, they are different offenses that have different “elements” and carry different penalties. Under 26 U.S.C. Section 7206, income tax fraud is defined as “[w]illfully mak[ing] and subscrib[ing] any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which [the taxpayer] does not believe to be true and correct as to every material matter.”

3. Employment Tax Fraud

Along with income tax fraud, IRS CI also routinely targets businesses and business owners for employment tax fraud. Similar to income tax fraud, employment tax fraud can take many forms—including (but not limited to):  

• Failure to withhold employment taxes from employees’ wages or salaries
• Failure to pay the employer’s share of FICA taxes
• Failure to pay over employment taxes held in trust
• Underreporting the business’s employment tax liability
• Improperly claiming the employee retention tax credit (ERTC) and/or other employment-related tax credits

4. COVID-19 Relief Fraud

IRS CI is continuing to target individuals and businesses for all forms of COVID-19 relief fraud. This includes fraud under the Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) program and various other pandemic relief programs. IRS CI recently published a report highlighting its pandemic-related enforcement efforts, and the report makes clear that IRS CI is not planning to relent on these efforts any time soon.

5. Offshore Account Disclosure Violations

Most U.S. taxpayers that own offshore accounts have a duty to report these accounts to the Financial Crimes Enforcement Network (FinCEN) and the IRS. While unintentional offshore account disclosure violations carry civil penalties, individuals and corporate taxpayers accused of intentionally concealing their offshore accounts can face criminal charges under the Bank Secrecy Act and other federal laws.

6. Offshore Asset Disclosure Violations

In addition to disclosing their offshore accounts, U.S. taxpayers must disclose various other offshore assets to the IRS as well. These “foreign financial assets” include “non-account assets held for investment (as opposed to held for use in a trade or business), such as foreign stock and securities, foreign financial instruments, contracts with non-U.S. persons, and interests in foreign entities.” While there are some exceptions, taxpayers must carefully assess their foreign asset disclosure obligations, and those that fail to make all requisite disclosures must be prepared to deal with IRS CI.

7. Cryptocurrency-Related Tax Crimes

Cryptocurrency tax compliance has also become an enforcement priority for IRS CI in recent years. While early investors have been generating returns from Bitcoin and other cryptocurrencies for more than a decade, investing in cryptocurrency went mainstream during the COVID-19 pandemic. This, in turn, led to substantial underreporting of taxpayers’ cryptocurrency-related income—as many taxpayers failed to acknowledge the tax implications of buying and selling tokens.

Today, the IRS expects all taxpayers to understand their cryptocurrency-related tax obligations, and IRS CI is pursuing criminal investigations against taxpayers that fail to accurately report their taxable gains. Despite cryptocurrency’s anonymous nature, IRS CI is able to obtain identifying information about investors from exchanges and other third parties—and it is using this information to pursue criminal tax evasion and tax fraud charges as warranted.

8. Money Laundering

IRS CI does not solely investigate tax crimes. It investigates various financial and other white-collar crimes as well. This includes money laundering. IRS CI regularly pursues money laundering charges in connection with charges for underreporting taxpayers’ income and other tax-related violations. Under 18 U.S.C. Section 1956, money laundering carries a fine of “not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater,” plus up to 20 years of federal imprisonment.

9. Mail Fraud and Wire Fraud

Allegations of mail fraud and wire fraud are also common during IRS CI investigations. The federal mail fraud and wire fraud statutes prohibit the use of the mail, phone communication and the Internet in connection with the commission of other federal crimes—including tax fraud and tax evasion. Both of these crimes carry statutory fines and up to 20 years of incarceration.

10. Conspiracy, Racketeering and Other Federal Crimes

Along with money laundering, mail fraud and wire fraud, IRS CI targets taxpayers for numerous other federal crimes as well. This includes everything from conspiracy and racketeering to drug crimes and the receipt of stolen goods. All of these federal offenses carry substantial penalties as well, and, as a result, in federal matters involving IRS CI, it is not unusual for millions of dollars in fines and decades of imprisonment to be on the table.

Discuss Your Case with a Federal Defense Lawyer at Brown Tax, P.C.

If you have been contacted by IRS CI, or if you have concerns about facing an IRS CI investigation, it is important that you consult with a defense lawyer promptly. To request an appointment with an experienced federal defense lawyer at Brown Tax, P.C., call 817-870-0025 or tell us how we can reach you online now.