IRS Criminal Investigation: Tax Crime Investigation Defense

The IRS criminal investigation has been running for months - possibly years - before you know it exists. By the time special agents knock on your door, your case has already passed through multiple layers of review at the Criminal Investigation division. A supervisor approved it. The Special Agent in Charge signed off. They've talked to your bank, your business partners, maybe even your accountant. The visit isn't the beginning of the investigation. It's the end of their evidence gathering. Everything you say from this moment forward isn't explaining yourself - it's potentially adding to their case.

Welcome to Spodek Law Group. Our goal is to give you real information about what happens when IRS Criminal Investigation takes an interest in your taxes - not the sanitized version other law firm websites publish. We believe you deserve to know exactly what you're facing before you make any decisions that could affect the rest of your life.

This isn't about scaring you. It's about making sure you understand something that catches most people completely off guard: the IRS doesn't investigate tax crimes the way police investigate burglaries. There's no yellow tape. No uniformed officers at your door. For months or years, special agents work quietly in the background, building a case you don't know exists. And because of how the system is designed, the first time you learn about any of this might be the worst possible moment to learn about it.

The Investigation You Don't Know Is Happening

Heres the thing about IRS Criminal Investigation that nobody explains clearly enough. The investigation timeline isnt what you think it is. When special agents show up at your home or business, people assume thats when the investigation starts. Its not. The active investigation phase can run anywhere from six months to two years before you ever see a badge. Some clients have spent two years not knowing whether theyd be indicted or wheather the investigation would quietly dissapear.

The process works like this. First, something triggers a referral - maybe a civil auditor spotted "badges of fraud" in your returns, maybe a whistleblower contacted the IRS, maybe your transactions triggered automated detection systems. A primary investigation opens. Special agents analyze the information to determine if criminal tax fraud or some other financial crime may have occured. This is all happening while your going about your normal life, completly unaware.

If the preliminary review shows enough evidence, the front-line supervisor approves further development. Then the Special Agent in Charge - the head of the entire field office - has to sign off on opening a "subject criminal investigation." By this point, at least two layers of CI management have reviewed the material and determined theres sufficient evidence to justify a full criminal investigation. Your the subject. You just dont know it yet.

Meanwhile, special agents are using every investigative technique available. There interviewing third-party witnesses - your employees, your business associates, your banks. There conducting surveillance. There executing search warrants and subpoening records. There building a comprehensive picture of your financial life. And under current law, they have no obligation to tell you any of this is happening.

Ive seen cases were the investigation ran for eighteen months before the taxpayer had any idea. The agents knew everything - bank accounts, offshore transactions, unreported income sources - before they ever made contact. By the time they show up, there not looking for information. There looking for confirmation. There looking for you to say something that fills the gaps in what they already know.

How Civil Audits Become Criminal Traps

This is were it gets really dangerous, and its something most people dont understand until its to late. Your civil tax audit may secretly be a cover for an ongoing criminal investigation. Defense attorneys call this a "reverse eggshell" audit, and its completly legal.

Heres how it works. During a routine civil audit, the revenue agent may be assisted by a Fraud Technical Advisor. If the FTA notices certain patterns - what the IRS calls "badges of fraud" - they can refer the matter to Criminal Investigation for a closer look. But heres the part that destroys people: once a referral happens, the civil audit often continues. The revenue agent keeps asking questions. You keep answering them. You keep handing over documents. You think your cooperating with an audit.

Your actualy building a criminal case against yourself.

Under case law - notably United States v. Tweel - simultaneous civil and criminal investigations are not prohibited. The goverment has no outright duty to inform you that matters arising in a civil audit could be used in a criminal investigation. The only thing they cant do is use outright "deceit, trickery or misrepresentation." But not telling you theres a criminal investigation running in parralel? Thats not considered deception. Thats just them doing there job.

The warning signs are subtle. If the civil audit suddenly gets "suspended" without explanation, that might mean the case has been refered to Criminal Investigation. If the auditor starts asking questions about your intent - why you did something, what you knew, when you knew it - thats not normal audit territory. Those are questions designed to establish the willfulness element required for criminal charges.

If your audit feels wrong - if questions seem designed to trap rather then inform - stop talking immediately and get a tax crimes attorney involved. The stakes just changed, and you probably dont know it.

Why the 90% Conviction Rate Isnt What You Think

OK so everyone whose researched IRS criminal cases knows about the 90% conviction rate. Its splashed across every law firm website, every news article about tax crimes. What nobody explains is why that number exists - and what it actualy means for you.

The 90% conviction rate isnt becuase federal prosecutors are unbeatable trial lawyers. Its becuase IRS Criminal Investigation is extremly selective about which cases they recommend for prosecution. They dont bring cases they might loose. By the time a case reaches a prosecutor, its already been approved by multiple layers of experienced investigators who all agreed the evidence supports criminal charges. The Special Agent believed the case was worth pursuing. There supervisor agreed. The quality review team concured. The Special Agent in Charge approved. And then the Department of Justice Tax Division added another layer of review.

Todd Spodek has handled dozens of federal tax cases and seen this pattern play out repeatadly. If your being contacted by special agents, it means people with decades of combined experience have already concluded that the evidence against you is strong. This isnt a fishing expedition. This is the end game.

In FY2024, IRS Criminal Investigation initiated more then 2,667 criminal investigations. They obtained 1,571 convictions. They identified more then $9 billion in financial crimes. The average prison sentence for those convicted was 27 months in federal prison. Thats not county jail. Thats federal prison - no parole, limited early release, real time served.

The numbers from FY2025 are even more striking. CI investigators identified financial crimes totaling $10.59 billion - a 15.7% increase from the prior year. Tax fraud specifically accounted for $4.5 billion, an increase of 111.8% from FY2024. The agency dedicated nearly 64% of its investigative time to tax crimes. There not slowing down. There accelerating.

The Two-Agent Rule and Other Warning Signs

Most people dont know this, but theres a simple way to tell wheather your dealing with a civil matter or a criminal investigation. When one agent shows up at your home or business, the visit is likely regarding a civil tax matter. Two agents arriving means a criminal investigation is underway and could result in an arrest.

Criminal Investigation special agents almost never work alone. There trained investigators - many are former accountants, some are former police officers - and they operate in pairs for documentation, witness corroboration, and officer saftey purposes. If two people in suits show up asking about your taxes, this isnt an audit. This is something else entirely.

Other warning signs that your case has criminal exposure:

First, the questions shift from "what did you do" to "why did you do it." Civil auditors care about numbers. Criminal investigators care about intent. If there asking wheather you knew something was wrong, wheather you understood the consequences, wheather you were trying to hide something - those are willfulness questions. There building a fraud case.

Second, third parties start getting contacted. If your employees tell you investigators came asking questions, if your bank mentions a subpoena, if your accountant says the IRS wants your records - the investigation has expanded beyond you. There building corroborating evidence.

Third, your civil case gets mysteriously "paused." When a revenue agent discovers affirmative acts of fraud, there required to suspend there civil investigation without disclosing the reason. Radio silence - an auditors abrupt cancellation of a scheduled meeting or extended failure to respond - can signal a criminal referral.

If any of these signs appear, do not speak to anyone from the IRS without legal representation. Dont explain. Dont clarify. Dont try to fix things. Just stop and get help.

Your Accountant Can Testify Against You

Heres something that suprises almost everyone. Your accountant - the person you trusted with your most sensitive financial information - has no privilege. They can be subpoenad and forced to testify against you in a criminal tax case. There is no accountant-client privilege under federal law.

Let that sink in. Every email you sent your CPA about that offshore account. Every conversation about how to minimize your tax burden. Every spreadsheet with the real numbers versus the reported numbers. If the IRS subpoenas your accountant, all of it becomes evidence. Your accountant cant refuse to answer. They have to comply or face contempt charges themselves.

At Spodek Law Group, we structure accountant engagements through whats called a Kovel agreement - named after a 1961 case, United States v. Kovel. When an accountant is hired by an attorney to assist with providing legal advice, the attorney-client privilege extends to cover those communications. But this protection only works if the accountant is retained through the attorney, not directly by the client.

If your already under investigation and youve been communicating directly with a CPA or tax preparer, that information is probly accessible to investigators. This isnt a minor issue. Ive seen cases were the accountants testimony was the central evidence the prosecution used to establish willfulness. The client thought they were getting tax advice. They were actually creating a record of criminal intent.

This is why early attorney involvement matters so much. Once you retain counsel, communications become protected. Documents prepared at attorneys direction become privileged. The accountant becomes a Kovel accountant - working under the umbrella of legal privilege. But you have to structure this correctly from the begining. Privilege can't be retroactively applied to conversations that already happened.

The Voluntary Disclosure Trap

The IRS maintains something called the Voluntary Disclosure Practice. On its face, it sounds like an escape hatch - come forward before your caught, admit what you did wrong, and maybe avoid criminal prosecution. The reality is considerably more complicated.

To apply for voluntary disclosure, you must complete Form 14457. Part of that form requires you to check a box admitting intentional wrongdoing under penalty of perjury. If you decline to check that box, your application is automatically rejected with no appeal. But if you check it, youve just handed prosecutors sworn evidence of willful tax violations - which they can use against you if they decide to prosecute anyway.

The timing requirements are brutal. A voluntary disclosure is only timely if the IRS receives it before they've commenced a civil examination or criminal investigation, before they've received information from a third-party alerting them to your noncompliance, or before they've acquired information directly related to your specific noncompliance from a criminal enforcement action. In other words, the window closes the moment anyone - an informant, another agency, an automated detection system - tips them off.

And heres the part nobody mentions: accepting into the voluntary disclosure program doesnt mean your safe from prosecution. A voluntary disclosure may result in prosecution not being recommended - thats the exact language from IRS guidance. May. Not will. The IRS considers voluntary disclosures when determining wheather to recommend prosecution, but theres no guarentee of immunity.

If your considering voluntary disclosure, you need an attorney who understands exactly how these decisions get made. Timing matters. Presentation matters. The difference between an accepted disclosure and a rejected one - between staying out of prison and serving federal time - often comes down to how the disclosure is structured and presented.

What to Do When Special Agents Contact You

If IRS Criminal Investigation special agents show up at your home or business, you have rights. Use them.

First: you are not required to speak with them. Special agents who contact a taxpayer under investigation are supposed to warn you that there conducting a criminal investigation, that you have the right not to cooperate, and that anything you say may be used against you. Listen to those warnings. There not a formality. There telling you exactly what will happen.

Second: do not invite them inside. Do not answer questions. Do not offer to "explain" anything. Every single word you say - including "I dont know" and "I dont recall" - will be carefully documented and can become evidence. Even answers to seemingly innocuous questions can provide material information to investigators. There trained interrogators. You're not trained to be interrogated.

Third: get there names and contact information, politely decline to answer any questions, and tell them your attorney will be in contact. Then, actually call an attorney. Immediately.

Fourth: do not discuss the matter with anyone except your attorney. This is critical. Conversations with accountants, tax preparers, family members, even close friends are not protected by privilege. These people can be subpoenad and forced to testify about what you told them. The only person you can talk to safely is your lawyer.

Finally: do not destroy any documents, delete any files, or alter any records. This is obstruction of justice, and it will make your situation dramatically worse. The cover-up charges often carry higher penalties than the original offense.

Call Spodek Law Group at 212-300-5196 before you talk to anyone else. The consultation is free. The mistake of waiting isnt.

The Statute of Limitations - And Its Limits

Look, many people assume that if enough time passes, they're home free. The general statute of limitations for tax crimes is six years from the date you filed your return or the due date of the return, whichever is later. After six years, the government cannot prosecute you criminally.

But heres what most people dont understand. That six-year clock applies to criminal prosecution. Civil fraud has no statute of limitations. Under 26 USC 6501(c), if you filed a fraudulent return with intent to evade tax, the IRS can assess additional taxes and civil fraud penalties at any time. Forever. The 75% civil fraud penalty - on top of all taxes, interest, and other penalties - never expires.

And the criminal clock can be tolled in certain circumstances. If your outside the United States, the limitations period is suspended during your absence. If bankruptcy is filed, limitations are suspended. An ongoing conspiracy can extend limitations through the last overt act. For international tax crimes involving FBAR violations, different statutes apply entirely - the government has five years from the due date to bring a felony charge, but that period can be suspended for up to three additional years if foreign evidence is requested.

Read that again. The bottom line is this: time is not your friend. If you think there's exposure in your past tax returns, the question isn't whether the statute of limitations has run. The question is what the IRS knows, what there investigating, and what can be done to protect you before its to late.

Why Early Intervention Matters

The earlier an attorney gets involved in an IRS criminal investigation, the more options exist. Once an indictment is filed, you're fighting for damage control. Before an indictment, there's still a chance to influence the outcome.

Defense councel can sometimes intervene at the Department of Justice Tax Division review stage - before charges are authorized. Todd Spodek has seen cases where a proactive defense strategy throughout the investigation convinced the DOJ to decline prosecution entirely. No charges filed. Case referred back to civil. This is the best possible outcome, and it requires getting involved early enough to make it possible.

At Spodek Law Group, we don't wait for the government to make its move. We get involved before the damage is done. We structure communications to protect privilege. We coordinate with accountants under Kovel agreements. We identify weaknesses in the government's case before they become trial exhibits.

If your facing an IRS criminal investigation - or if you have any reason to believe one might be coming - call us at 212-300-5196. We've handled cases exactly like yours. The consultation is confidential, and the conversation could change everything.