Do You Know What an IRS Criminal Investigation is?

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The US taxes its citizens and permanent residents on their worldwide income regardless of where they live or how long they’ve lived outside of the US.  There is only one other country in the world that operates like the US – Eritrea – an African nation.  According to the IRS: “If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside”.  The integrity and fairness of the US tax system is based on the premise that all income may be taxable, and that its taxpayers will self-assess taxes owed, and comply voluntarily.   

Individuals and entities making decisions to not comply with the law could face a civil audit or criminal investigation resulting in tax penalties or prosecution and possible jail time.  There are offshore tax crimes committed by individuals, corporations, and promoters of abusive schemes.  For making a determination of whether tax code non-compliance is unintended, or Willful, the US turns to the IRS Criminal Investigation Division (IRS-CI). This division, in tandem with the US Department of Justice, investigates crimes related to violations of the Internal Revenue Code and other Money Laundering Statutes such as the Bank Secrecy Act (BSA).

Some of the information sources for an IRS-Criminal Investigation are:

  • Revenue agent (auditors) within the IRS
  • Revenue officers (collection) detecting possible fraud
  • Individuals who report possible violations through the whistleblower program
  • United States Attorney offices across the country
  • Ongoing investigations by other law enforcement agencies
  • Reciprocity under FATCA
  • Tips from “regular” people like neighbors and friends
  • Something “fishy” in the taxpayer’s previous tax returns
  • Tax treaty per case investigation requests

The Internal Revenue Manual highlights examples of conduct that may imply “the attempt to evade or defeat any tax”, such as:

1.  Keeping a double set of books

2.  Making false entries, alterations, invoices, or documents

3.  Destroying books or records

4.  Concealing assets or covering up sources of income

5.  Handling one's affairs to avoid making records usual in transactions of the kind

6.  Any conduct, the likely effect of which would be to mislead or to conceal

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