From the Tax Law Offices of David W. Klasing - What Should I Do If I Am Visited by an IRS Special Agent?

IRVINE, Calif., Feb. 4, 2025 /PRNewswire/ -- An unexpected visit from IRS Special Agents will be an alarming, life altering experience, where if it signals that you are the subject of a criminal tax investigation. IRS Criminal Investigation Division (CID) serves as the law enforcement arm of the IRS, focusing on identifying and prosecuting serious tax crimes, such as tax evasion under 26 U.S.C. § 7201. Understanding how to respond to such an encounter will significantly impact the trajectory of your case.

IRS Special Agents are highly trained criminal tax investigators, often traveling in pairs, who gather evidence for the sole purpose of bringing criminal tax prosecutions. If they show up at your door, it means you may have already been under criminal tax investigation for up to two years prior to their visit or have information relevant to an ongoing criminal tax investigation in the capacity of a witness. The agents might contact you at home, work, or even in public places to catch you off guard, increasing the likelihood that you will speak candidly or inadvertently provide incriminating information.

If you get nothing else out of this article, if they read you a Miranda type warning stating that anything you say can and will be used against you in a criminal tax prosecution, politely inform them that you are more than willing to speak to them but wish to have an attorney present before you do. They will try and manipulate you by stating that they are sure it's just some sort of misunderstanding and attempt to pressure you with the idea that if you are innocent, you would be willing to speak with them immediately. Understand that what they are hoping for is that you to lie which will make prosecuting you that much easier. At any subsequent trial they will put on evidence showing you lied on the tax returns they investigated and continued to lie when they questioned you on them. Most of the questions they are asking you they already know the answer to. Resist the urge to try and talk yourself out of it at all costs. 

What Happens When IRS Special Agents Knock on Your Door?

When IRS Special Agents initiate contact, it is usually unexpected. They aim to approach you when you are least prepared, such as after leaving your home, work, or a public setting. Their objective is to elicit unguarded statements or admissions that can bolster their case against you. While this can feel intimidating, it is critical to remain calm and avoid making any statements beyond confirming your identity.

The agents may introduce themselves as part of the IRS Criminal Investigation Division and mention that they are conducting a criminal tax investigation. Keep in mind that their role is not to audit you or collect taxes but to gather evidence for a potential criminal tax prosecution.

IRS Criminal Investigation Special Agents receive assignments from their managers, either as limited information items or full-scale investigations. Information item assignments involve preliminary inquiries to determine whether sufficient evidence exists to justify a full investigation. During this phase, the agent typically reviews the taxpayer's returns and related IRS documents, interviews referring employees or informants (if any), and confers with supervisors to assess the case's potential. If the case merits further investigation, it is escalated to a full-scale criminal tax probe.

Once authorized, a full-scale investigation continues until the evidence is either sufficient to recommend prosecution or it is determined that the case does not meet prosecutorial standards. If the investigation is discontinued, the taxpayer is notified, and the matter may be returned to the civil examination or collection division of the IRS which is often followed by a Reverse Egg Shell Audit.

Rules Governing Special Agents' Actions

IRS Special Agents possess broad investigative powers, including the authority to administer oaths, take testimony, examine books and records, serve administrative summonses, and execute search and arrest warrants.

• Miranda Warnings: Taxpayers placed under arrest must be given full Miranda warnings, even if the arrest is unrelated to the tax investigation. However, interviews conducted at the taxpayer's home, business, or an IRS office are typically noncustodial and do not require Miranda warnings.
  
  
• Power of Attorney Limitations: Filing Form 2848 (Power of Attorney and Declaration of Representative) does not prevent Special Agents from interviewing the taxpayer without the representative present.

If a criminal tax investigation is terminated, the taxpayer is generally notified, and the case may be referred back to the Examination or Collection Division. However, if additional indications of fraud are later discovered, the matter can be re-referred to the Criminal Investigation Division for renewed investigation.

An action for damages may also be brought against the government if it intentionally compromises the liability of a taxpayer's representative in exchange for information the taxpayer conveyed to the representative.

Why Are IRS Special Agents Investigating You?

The presence of IRS Special Agents indicates that the IRS suspects a willful/intentional violation of tax law, such as tax evasion or filing fraudulent returns. Their investigations are often thorough and include interviewing third parties, issuing administrative summonses for financial records, and conducting detailed financial analyses. They may even monitor your movements and activities following their initial contact.

Key Actions to Avoid

• Avoid Discussing the Matter with Anyone Except Your Attorney
  Conversations with accountants, tax preparers, or even family members are not protected by attorney-client privilege. These individuals could be subpoenaed and forced to testify about what you told them. A federal court's power of contempt can be used to jail or fine resistant witnesses until they cooperate.
• Do Not Alter or Destroy Documents
  Any attempt to tamper with evidence can result in additional criminal tax charges, such as obstruction of justice. Preserve all records and let your attorney guide you on how to handle them.
• Refrain from Moving Money or Making Suspicious Transactions
  After contact with IRS Special Agents, avoid actions that could be perceived as attempts to conceal assets. Such behavior could escalate the investigation and add to the allegations against you.
• Refrain from selling assets and booking a trip offshore especially if you are in the U.S. on a green card. 
  This could look like you are preparing to run and could get you arrested and detained. Your passport could also be invalidated or confiscated.

Can a Civil Tax Audit Turn Into a Criminal Tax Investigation?

Yes, but there are some rules the IRS has to abide by. For example, during the civil tax audit, the moment an IRS Auditor believes that the taxpayer might have committed a crime, they must instantly cease the civil tax audit. That's because the government can't use a civil audit to probe a criminal tax inquiry. As a side note, generally, the auditor will not tell you that they believe a crime has been committed. Instead, when you try to follow up with the auditor to obtain the tax assessment or obtain some additional information regarding the audit, you will find that the auditor has gone radio silent.

Deciding if a taxpayer should participate in an interview during a federal civil audit has become an intricate issue, especially if there's a potential criminal tax implication and IRS Criminal Investigation (CI) involvement in the background is suspected. A taxpayer is within their rights to refuse to participate in an interview. Still, if they move forward and are faced with potentially incriminating questions, they can invoke their constitutional 5th Amendment rights. Thus, having tax counsel handle all interactions with the agent to persuade the agent to gather information through means other than a taxpayer interview is often the most prudent strategy where possible. If the IRS wants to, it can subpoena the taxpayer to appear for an interview, and the taxpayer will eventually face a federal court's contempt power if they continue to refuse to cooperate.

Offshore Compliance and IRS Investigations

Increased IRS scrutiny of offshore accounts and international reporting has led to a rise in investigations involving high-income earners, foreign trusts, and passive entities. Taxpayers with undisclosed foreign accounts or unfiled international reporting forms (e.g., FBAR, FATCA) are particularly vulnerable. If you are non-compliant, programs like the IRS Voluntary Disclosure Program can help you come into compliance while potentially mitigating penalties. However, navigating these programs requires the guidance of a skilled tax attorney.

Protect Yourself with Experienced Legal Representation

At the Tax Law Offices of David W. Klasing, we specialize in defending taxpayers facing criminal tax investigations and high-risk tax audits, including eggshell and reverse eggshell audits. Our team of dually licensed Tax Attorneys and CPAs has a proven 100% track record of resolving high risk IRS and California audits before they escalate into federal and California criminal tax prosecutions. We understand the gravity of these situations and are committed to protecting your liberty, assets, and reputation. With accolades such as an "A+" rating from the Better Business Bureau and a flawless 10.0 rating on AVVO, we stand out as a premier firm for criminal tax defense. Our unique combination of legal and tax expertise allows us to offer comprehensive solutions tailored to your specific needs.

Considering the Criminal Investigations' formidable 90% conviction rate in cases they opt to investigate, having knowledgeable allies on your side is paramount. If you know or suspect that you are the target of an IRS or California criminal tax investigation, contact the dual licensed Civil and Criminal Tax Defense Attorneys & CPAs at the Tax Law Offices of David W. Klasing. If IRS Special Agents have contacted you, don't wait. Call us at 800-681-1295 or complete our online contact form here to schedule a reduced-rate initial consultation. Let us help you navigate the complexities of your case and achieve the best possible outcome.

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Public Contact: Dave Klasing Esq. M.S.-Tax CPA, dave@taxesqcpa.net

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