This month’s congressional hearings involving Hunter Biden offered a rare glimpse into how IRS special agents go about conducting criminal tax investigations. According to two IRS whistleblowers who led the criminal tax probe of Biden, their efforts to fully investigate him were thwarted by the Department of Justice in what appeared to be political interference. In their testimony, they alleged they were prevented by the DOJ from interviewing Biden and members of his family in unannounced visits.
The thought of an unannounced visit from the IRS may send shivers down one’s spine as one conjures up hyperbolic thoughts of crippling tax bills, padlocks and even handcuffs. This article will help put some of these anxieties to rest.
But first, some background on the enforcement arms of the IRS. In broad terms, the IRS has three enforcement arms:
- Criminal investigation
Examination or Audit
The IRS examiner, more commonly referred to as an auditor, rarely initiates contact with a taxpayer via an unannounced visit. IRS management frowns upon unannounced in-person contact as this may be viewed as overly intrusive. Rather, an auditor typically commences contact with the taxpayer via an advanced written notice delivered in the form of U.S. mail. It should be noted that the IRS does not initiate contact via either email or a phone call, and if initiated in this manner, it is likely a scam.
Unless there are exigent circumstances, the IRS collection arm, like the audit arm, commences contact with the taxpayer via an advanced written notice of its intent to enforce collection action. This too is delivered in the form of U.S. mail.
That leaves us with the IRS Criminal Investigation arm. In contrast to the audit and the collection arms of the IRS, agents of the IRS’s Criminal Investigation unit commonly knock on the door of taxpayers unannounced. They do so in order to maintain the element of surprise, thereby minimizing the possibility of rehearsed, coached or fabricated responses.
So who is the IRS criminal investigator? The IRS criminal investigator is one of 2,000-plus special agents who are charged with investigating criminal violations of the tax code, more commonly referred to in nomenclature as tax evasion or tax fraud. IRS criminal investigators are also charged with investigating money-laundering crimes. And since most financial crimes have a nexus to tax evasion and money laundering, IRS criminal investigators often investigate a broad range of financial crimes, including public corruption, organized crime, identity theft, health-care fraud and corporate fraud.
As you may have surmised, the consequences of being investigated for tax evasion, money laundering or other financial crimes potentially involve prosecution and incarceration. So clearly the stakes are exceedingly high. That leads us back to the question of how to respond if the IRS comes knockingM which takes on a greater urgency if the person knocking at your door is an IRS criminal investigator.
According to IRS Criminal Investigation policy, agents are required to identify themselves and present their credentials. These credentials include a law enforcement badge and photo identification. Rather than focus your attention solely on the agent’s badge, I suggest you turn your attention to the agent’s photo identification. Also, I recommend you ask for the agent’s business card and compare it to the identification for consistency. And make sure the email address has an IRS.GOV domain name associated with it. If you have any lingering doubts, you may contact the IRS at a central IRS phone number that the public can call to verify if someone is actually employed by the IRS. The investigating agent will make this number available upon request.
Importantly, the agents will identify whether they are conducting an administrative investigation or a grand jury investigation. If it is an administrative investigation, then the investigation has not yet been referred to the Department of Justice. It is usually an indication that the investigation is in its earlier stages. However, if the investigation is identified as a grand jury investigation, then the investigation has already been referred to the Department of Justice, and this indicates that the investigation has been further developed, which increases the stakes yet higher.
The agents will also clearly identify your role in their investigation—either as the “target,” a “subject,” or as a witness. If they identify you as either the target or as a subject of the investigation, it is essential you “lawyer up” and respectfully inform the agents that they will be contacted by your attorney. It is best that you do not respond to any further questions. Any true responses may incriminate you. Any false statements may expose you to an obstruction charge, which itself is a felony. As you can see, it’s a heads-you-lose, tails-you-lose quagmire.
One additional advisory. It is imperative you do not contact your accountant. Any communications with your accountant are not privileged and therefore could expose you to the risk of making an incriminating statement. It is common for the accountant to become a government witness who may then testify against you regarding your culpability and your incriminating statements.
On another hand, the agents may identify you as a witness in their investigation, which may apply if you are connected to the investigation in myriad ways, such as being an employee, a client or vendor of the target. This is rather commonplace, and you may be compelled to cooperate if served with a summons or subpoena.
To recap: Auditors and Collection officers are likely to give you advance notice before it commences any enforcement actions, but be wary of any initial contact either via email or voicemail as this is likely a scam. And if you are visited by IRS criminal investigators as a subject or target of their investigation, the prudent approach is to “lawyer up,” since the stakes are just too high.
This article is based upon the opinions of Michael Cohen, who was an IRS auditor for 10 years. He then served as an IRS special agent conducting criminal tax and money-laundering investigations for 20 years. Michael Cohen is currently a forensic accountant specializing in such areas as fraud detection, acquisition due diligence, business disputes and tax resolution. Michael resides in Teaneck with his family. Michael may be reached at [email protected] or at [email protected]