The Inside Scoop: IRS Criminal Investigations FAQs
When it comes to IRS tax crime investigations, understanding how the government approaches these cases is critical. At Milikowsky Tax Law, we regularly handle cases involving IRS criminal investigations and know the key questions business owners and taxpayers have. Here are three of the most common questions and what you need to know.
Does the IRS Need to Prove a Tax Loss to Investigate?
In most cases, yes. The IRS generally pursues tax crimes when there is a loss of tax revenue due to unreported income, inflated expenses, or other willful violations. However, not all investigations focus solely on tax loss.
For example, we had a case involving Medicare fraud, where a company was accused of defrauding Medicare of substantial funds. While the IRS was brought in to investigate financial transactions, they were not the lead agency, and tax loss was not the primary focus of the case. This shows that the IRS can still be involved in financial crimes even when the investigation is not centered around unpaid taxes.
Is Communication with a CPA Protected in an IRS Criminal Investigation?
No. Unlike conversations with an attorney, communication with a CPA, accountant, or employees is not protected under attorney-client privilege.
If you’re under IRS investigation, anything you’ve shared with a CPA could be accessed by the government. This is why speaking with a tax attorney is essential—attorney-client privilege protects legal advice and prevents the IRS from obtaining confidential discussions.
However, even with legal counsel, be cautious. A recent U.S. Supreme Court case examined situations where in-house attorneys provided business advice rather than legal advice. In those cases, the government was able to access the information because it did not qualify for attorney-client privilege.
The key takeaway: If you need to protect sensitive communications, ensure your discussions with an attorney are explicitly tied to legal advice.
If I Filed a False Tax Return, Can I Fix It by Filing an Amended Return?
No. Once a false return is filed, it is a completed act. Filing an amended return does not erase the crime and could even strengthen the government’s case against you.
That said, there are legal strategies to mitigate risk. If the IRS has not yet started an investigation, proactive legal action may help lessen the potential consequences. However, taking action without legal guidance—such as filing an amended return—could make the situation worse by drawing more attention to the original crime.
What Should You Do If You Think You’ve Committed a Tax Crime?
Do not attempt to fix the issue on your own. The best course of action is to consult an experienced tax attorney immediately. A knowledgeable legal team can assess your case, develop a strategic approach, and work to minimize risk.
At Milikowsky Tax Law, we specialize in defending businesses and individuals in IRS criminal investigations. If you’re concerned about a potential tax issue, don’t wait—get legal guidance now.
