When a tax problem becomes criminal
Federal tax crimes are investigated by IRS Criminal Investigation and prosecuted by the Justice Department, which has moved tax prosecutions out of its former Tax Division into other units. Common charges include tax evasion and filing false returns, and preparers can be charged for helping others file them. Willfulness, meaning a voluntary and intentional violation of a known legal duty, is usually the central issue, which is why honest mistakes and genuine confusion about the law can matter so much. New York's Department of Taxation and Finance also investigates state tax crimes, including sales tax and payroll tax cases. Signs that a civil examination has turned criminal include a revenue agent who abruptly stops responding or the appearance of special agents.
Protecting yourself and your records
The privilege that sometimes covers communications with a tax practitioner does not apply in criminal tax matters, so conversations with your accountant can be obtained by investigators. If you need accounting help in connection with a criminal investigation, it is usually arranged through your lawyer so that the work can be protected. Do not amend returns, move assets, or contact your preparer about the investigation before talking with counsel, since those steps can be misinterpreted. Gather copies of returns, notices, and correspondence with the IRS or the state, and preserve your financial records as they are. If special agents ask to interview you, you can politely decline until you have a lawyer.
The first decisions
We start by learning what stage the matter is in: a civil audit with warning signs, an active criminal investigation, or charges already filed. That stage affects whether options such as a voluntary disclosure remain available, since those programs generally require coming forward before the IRS has begun looking at you. We review the returns and records at issue and discuss what explanations exist for the discrepancies. For business owners, we also consider exposure for employment taxes and entity returns. The goal is to avoid steps that make the situation harder before a plan is in place.
