What are some Warning Signs that a Criminal Investigation Has begun?

Often you won't know that an IRS criminal investigation has started until it is too late. But sometimes there are "warning signs":

• A Revenue Officer who has been pressing you for payment suddenly disappears and won't return your phone calls. This is not necessarily a stroke of good luck. Instead, he may be back at the office writing up a referral to his friends in the Criminal Investigation Division.
• A Revenue Agent who has been auditing your tax returns disappears for days or weeks. Again, this isn't cause for celebration. The case may have been referred. When the Criminal Investigation Division is in a case, or even considering whether to accept a referral from another division, no action is taken for fear that something done by the Examination Division or the Collection Division will harm the chances of a successful prosecution down the road.
• Your bank notifies you that the Criminal Investigation Division of the IRS (using a summons), or the local U.S Attorney's Office (using a grand jury subpoena), has requested copies of your bank records. You need representation to track the IRS investigation and secure the same records the IRS gets in these cases. Knowledge is power.
• Your accountant is contacted by Special Agents or is subpoenaed to appear before a grand jury and bring your tax records. Since conversations with your accountant are not protected in a criminal investigation or prosecution, discussions you may have had in the past are fair game for questions by the IRS or the grand jury. Obviously, this means that once you know you are under investigation you should say nothing at all to your accountant, or you may someday watch him being forced to repeat the conversation from the witness stand. Accountants are an integral part of the defense team in any criminal tax matter, but only when they have been retained by counsel and thus are brought within the attorney-client privilege under U.S. v. Koval , 296 F.2d 918 (2d Cir. 1961) and other cases which have followed it. The so-called accountant-client privilege provided under state law, and even under the Internal Revenue Code itself, does not apply in a criminal case.
• You are notified by the IRS that one of your previous tax returns has been "selected" for audit, and you know that in the tax year in question there was an understatement of income or an overstatement of deductions. If the returns you filed contain either understatements of income or overstatements of deductions, you should not have any further discussions with your accountant or anyone else until you have retained legal counsel. This is often referred to as the "egg shell audit" situation. While it may at present be only a civil examination, Revenue Agents are trained to watch for "badges of fraud," and to refer potential fraud to the Criminal Investigation Division. The "accountant-client privilege" does not extend to criminal investigations, so your accountant may be forced to tell the IRS and the grand jury everything you have told him.

If any of these warning signs have appeared, please contact us by email or by filling out our online contact form.