How CID (Criminal Investigation Division) Investigates a Case

By John Ellsworth, Esq November 8th, 2011

When a case is opened, it is assigned to IRS special agents from the Criminal Investigation Division (CID) of the IRS. Usually, there is a joint investigation, utilizing revenue agents (auditors) who might already be familiar with the case as well as CID. Joint investigations usually arise from revenue agent audits that are accepted as fraud referrals by CID. In such cases, the special agent works cooperatively with the revenue agent to develop the tax fraud case.

Special agents usually perform a great deal of background work even before they make the initial direct contact with the taxpayer. By the time you get the knock on the door and the badges shoved at you, the CID has already done 85% of its work. They anticipate that taxpayers will refuse to cooperate with their investigation. The background work therefore yields information they might not otherwise get and also arms them for interviews with the taxpayer.

Here is what the CID agents have usually done by the time you hear from them: investigation of many sources of information, including IRS records, courthouse records, bankruptcy court records, other public records, government agency records, and any other public source that the agent may know of.

The next step is to make the initial contact with you, the taxpayer. The agent shows up at the taxpayer’s residence (usually, but not always–sometimes they will come to the workplace). The CID agent identifies himself to the taxpayer, states that he is a special agent of the Internal Revenue Service assigned to investigate the taxpayer, and advises the taxpayer of his Miranda rights.

You should know that under Beckwith v. United States, the recitation of these rights is not constitutionally required since the taxpayer is not in custody. However, agents advise taxpayers of these rights as a matter of policy and as the Internal Revenue Manual requires. These are issues you will want to discuss in great detail with your tax crime attorney.

The agent then asks the taxpayer to cooperate and to begin that cooperation by submitting to an interview. If the taxpayer submits to the interview, the agent will ask wide-ranging, open-ended questions intended to elicit as much general and specific information as possible about the taxpayer, his personal and business financial affairs and the like. The agent wants to get you talking. As a tax crime attorney I can tell you that it is surprising how many taxpayers–out of guilt or for other reasons–submit to the full-length questioning by a special agent merely upon presentation of the agent’s credentials. Indeed, the agent times the interview to try to catch the taxpayer when he is most vulnerable, and when he is least likely to call an attorney. At this point you should know better: KEEP QUIET, SAY NOTHING. CALL US.

In many cases, the taxpayer, by submitting to an interview, seals his own fate and, in effect, talks himself into a conviction. Even a false or misleading statement can and will haunt the taxpayer. Material false statements that are made knowingly or willfully are violations of the United States Code so you might get yourself into even deeper trouble if you give false information. There is no safe approach to any question from a special agent. Almost any answer can either impeach or convict at the very least. About the only ways a taxpayer can answer an agent’s questions in a criminal investigation without further damage are: decline to answer. Even telling the truth is unwise; you can convict yourself of a tax crime if in fact you have committed a crime.

In the third phase of the CID agent’s investigation, he solicits information from third parties. This includes banks, customers, clients, friends and relatives, and the like. If the taxpayer cooperates, the agent asks for written consents to examine bank records and other third party records that would otherwise require an exercise of the summons power. The agent also interviews every possible material witness.

The agent also interviews the taxpayer’s return preparer, obtains his workpapers, and reviews the taxpayer’s books and records when they can be found. In many cases the preparer is a key witness against the taxpayer. Prior year returns (both filed and retained copies–fraud may be indicated when the filed returns do not match the drafts or copies of the filed returns) are well within the agent’s scope of inquiry, and these are almost always examined.

As part of the interview process, the agent takes careful notes and reduces these notes to interview forms, sworn if possible, or simply memoranda to the file. If you have helped him generate these writings you are really really hurting your chances of defending yourself.

In the fourth stage, the agent writes up his recommendation for prosecution or non-prosecution, together with a carefully organized assembly of the evidence and the sources of evidence. The agent submits this package (a typical case can run to several dozen exhibits) through the Group Manager and Branch Chief.

Now the CID usually grants the taxpayer a conference at the district level. While not required by law, such a conference gives the taxpayer, in theory, the opportunity to rebut any proposed charges. In practice, CID often uses the conference to obtain more damaging admissions from the taxpayer or his attorney. The manager advises the taxpayer or his attorney of the general outline of the case, including the nature of the charges and some of the facts. Of course, the taxpayer may not obtain the special agent’s report or any other materials CID does not voluntarily disclose. However, further discovery is available during the criminal case.

A conference is also made available at the next stage of review, the Office of District Counsel of the IRS. The usual procedure is for District Counsel to approve the recommendation for prosecution after review and refer it to the Department of Justice or the United States Attorney’s office in certain cases. The Tax Division of the Department of Justice has final reviewing authority over all cases, although in some cases this is undertaken at the same time the case is referred to the United States Attorney’s office. Direct referral cases to the U.S. Attorney include cases involving excise tax fraud, withholding tax cases, failure to report more than $10,000 in cash, willfully aiding or assisting in preparing a false return, and false refund claims.

At the Tax Division, the taxpayer is also offered a conference to discuss the potential charges. Also, when the Office of District Counsel refers the case for prosecution to the United States Attorney’s Office, another conference is often granted.

Note well: Despite the stated purpose, these conferences do not afford the taxpayer the opportunity to prove his innocence and thereby avoid prosecution. The true purpose of these conferences, at whatever level, is to give the taxpayer a chance to convict himself or provide additional evidence against himself.

In these conferences, the statements of the taxpayer’s attorney are binding on the taxpayer since the attorney is the taxpayer’s agent. The government has used attorneys’ statements many times at trial, statements that the attorney made during one of these conferences. Admission of these statements usually cannot be objected to on the basis that the statement is part of plea negotiations. These are admissions of the agent of a party.

Now you have seen in a nutshell how the CID investigates and convicts for tax crimes. You have seen how the many opportunities to try to wiggle your way free are really only designed to put you away in prison. The choice should now be clear: Will you talk to the CID or talk to me, John Ellsworth, a tax crimes lawyer and a criminal defense attorney? The choice should be obvious. Give me a call today if you believe you are or may be the subject of a criminal tax investigation.

This entry was posted on Tuesday, November 8th, 2011 at 5:24 pm and is filed under tax crimes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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