Where civil ends and criminal begins
Most tax disagreements, even large ones, are handled civilly through audits, penalties, and interest. A matter becomes criminal when the government believes the conduct was willful, which in tax cases generally means a voluntary and intentional violation of a known legal duty. Carelessness, poor records, or an honest mistake about what the law requires usually fall short of that, while concealment and false documents are the kinds of facts that move a case toward prosecution. A genuine misunderstanding of the law can matter to willfulness, but disagreement with the tax laws or a belief that they are invalid does not. Charges are not limited to income tax returns; failing to pay over employment taxes withheld from workers can also be prosecuted.
Who investigates and who prosecutes
Federal criminal tax investigations are usually run by IRS Criminal Investigation, whose special agents are separate from civil auditors. The decision to prosecute is made within the Justice Department, which has reorganized how it handles tax prosecutions, so the office involved may not be the one older sources describe. New York State's tax department has its own criminal investigators and works with state and local prosecutors. A criminal case usually does not end the civil side: the tax, interest, and civil penalties generally still have to be resolved, sometimes in the same plea discussions and sometimes afterward. People who are not citizens should know that some tax convictions carry immigration consequences.
The decisions that come first
Early on, the most important choices concern communication: whether to speak with agents, how to respond to a subpoena, and what to tell an accountant, employee, or business partner. We review what has happened so far and what documents the government may already have. We also assess whether you are likely to be treated as a witness, a subject, or a target, since that affects strategy. If no investigation has started and you are worried about past returns, the options are different, and any correction or disclosure should be planned with counsel promptly, since some options close once the IRS makes contact. Either way, the first conversation is where we decide what should not be said or done in the meantime.
