The stakes are very high when an individual is under investigation for tax fraud. Conviction can bring stiff fines…and a prison sentence…and heavy sanctions, including revocation of professional licenses…and the right to vote…and loss of the right to hold public office.

Essential first step: At the first indication of a criminal investigation, the taxpayer must hire an attorney with experience in criminal tax cases. First choice: A former prosecutor-a person who is knowledgeable in IRS and Department of Justice procedures, methods of proof, IRS powers, taxpayer rights and effective defenses.


The attorney will protect rights that the taxpayer may not know he has, such as…

* The right to confidentiality of communication between the taxpayer and his spouse, clergyman and attorney.

* Fifth amendment rights-the taxpayer can’t be compelled to answer questions that would incriminate him.

* The right to question witnesses. The taxpayer has the right to speak to anyone the government speaks to including those persons who testified before the grand jury.

* The right to conferences during the investigation process with IRS officials who can make the decision not to prosecute the case. The conferences afford taxpayers their best chance to block an indictment.


Federal tax investigations move slowly through an administrative process that is advantageous to the taxpayer. At each step in the process, the taxpayer has the right to a conference before the authorities who have the power to decide not to prosecute. It’s important that conference rights not be waived. The conferences afford opportunities to avoid prosecution.
Conferences can also be used to…

* Gain insight into the government’s evidence against the taxpayer.

* Delay. Time has a way of blurring the facts. New facts can emerge with the passage of time. Government witnesses may not be available to testify.


* First step/first conference: The special agent, after completing his investigation, writes a report detailing the facts, the supporting evidence and his recommendation. After the report is reviewed by a supervisor, the taxpayer is given a conference with the agent present. The government explains the nature of its case. The taxpayer’s attorney tries to convince the supervisor that prosecution is unwarranted.

Warning: This is not the movies. No matter how strongly the taxpayer feels that he hasn’t willfully done anything wrong, he is in grave danger and should put himself completely in the hands of his attorney. If the attorney’s judgment is that he should not attend the conference, his advice should be heeded. Trap: The taxpayer may unwittingly provide the agent with a new source for investigation.

Second step/second conference: If, after the conference, the supervisor approves the agent’s recommendation for prosecution, the case is forwarded to District Counsel. This is likely to be a more favorable forum for the taxpayer. Counsel is a lawyer, not an investigator, and is more open to legal arguments. He isn’t emotionally involved in the investigation. Caution: The District Counsel’s loyalty is with the IRS. After this conference, District Counsel can either…

* Disapprove of prosecution.

* Return the case to the District Criminal Investigation Division for further investigation.

* Approve of prosecution and forward the case to the Department of Justice.

Third step/third conference: After the case is reviewed by the Criminal Tax Division of the Department of Justice, they will, upon request, granta conference. The Justice Department has just one interest-determining whether they think the case, in its present condition, can be won in court. The Criminal Tax Division of the Department of Justice can either…

* Decline to prosecute the case.

* Forward the case to the local US attorney with instructions to proceed with prosecution or to conduct a grand jury investigation.

Fourth step/fourth conference: Just before the case is presented to a grand jury, the taxpayer is given the opportunity to have yet another conference, this time with the US attorney. However, unless there is some startling new evidence, the case is surely headed for prosecution.

Negotiating trap: The government views civil and criminal matters as distinct. So the ploy of offering to pay all tax, penalties and interest in return for non-prosecution generally won’t be considered. Only in those rare cases where the taxpayer has managed to place himself and his assets beyond the government’s reach has this kind of deal been struck.


Arguing that the taxpayer got into trouble because he relied on his accountant is weak. If the accountant agrees with the IRS, he may be subject to prosecution. If he disagrees, he may end up testifying against his client. And if the accountant remains silent, it could subject the accountant to investigation by the IRS.

(The above material was published by Tax Hotline.)

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