Overview of the United States Procedural Aspects of the Criminal Tax System.
Phase (1). IRS Phase
The IRS is the chief investigator of tax crimes. The IRS’s branch that investigates tax crimes is Criminal Investigation (“CI’). CI agents are referred to as “Special Agents”. Special Agents are law enforcement officers, with many powers of the powers assigned to law enforcement officers generally, such as making arrests and carrying guns. CI sometimes conducts investigations internally, without any other law enforcement agency’s involvement. Such investigations are called “administrative investigations”.
- By contrast, CI agents may be assigned to assist a federal grand jury conducting a criminal tax investigation, but such investigations are not CI investigations.
In administrative investigations, Special Agents may use the IRS administrative summons to compel testimony and the production of documents. They also may use other investigative techniques, including secretive observations, informants etc. Special Agents may also seek search warrants, with the assistance of local US Attorney, when they can show need and probable cause to believe that a crime has been committed.
CI’s significant resources include IRS counsel who are assigned to CI, much like “in-house counsel”. The Special Agent has this legal advice readily available in all phases of the investigation. Counsel is expected to be actively involved on an as-needed basis and thus assist Special Agents in avoiding some or any of the procedural and strategic problems that might be encountered because of easy access to counsel.
CI investigations are typically thorough and time-consuming, depending upon statute-of-limitations considerations. The statute of limitations for most tax crimes is six years.
CI concludes an investigation by either:
(1) declining to pursue the matter further (referred to as a declination), or
(2) forwarding the matter to the Department of Justice Tax Division (“DOJ Tax”) for criminal prosecution or for further investigation by a grand jury.
If the IRS declines the case, it will be referred back to the IRS civil or collection agents for further processing as appropriate. Forwarding to DOJ Tax is called a “referral”.
The case will be referred to DOJ Tax via a Criminal Reference Letter (“CRL”). A key component of the referral package will be the Special Agent’s Report (“SAR”), in which the Special Agent develops all known considerations relevant to prosecution and sentencing.
- The SAR is usually extremely thorough, reflecting the careful development of the case during the IRS phase of the criminal process. IRS counsel will review the SAR critically and encourage revisions where appropriate.
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