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The Inside Scoop: How the IRS Identifies a Criminal Tax Matter

picture of handcuffs to illustrate how IRS identifies Criminal tax matters

When does the IRS consider a tax issue to be criminal? The answer lies in willfulness—the intentional and voluntary violation of a known legal duty. If the IRS suspects criminal tax fraud, they will conduct a thorough investigation, examining financial records, tax returns, and witness testimony to determine if a taxpayer has engaged in intentional misconduct.

At Milikowsky Tax Law, we work with businesses and individuals facing IRS criminal investigations. Here’s what you need to know about how the IRS builds its case—and how legal defense strategies can help.

 

What Does the IRS Look for in a Criminal Tax Investigation?

The IRS investigates criminal tax matters when there is evidence of willful violations of tax laws. This means they are not just looking at mistakes or errors—they are focused on intentional misconduct.

Some key areas they examine include:

  • Accounting records – Do they match what was reported on the tax return?
  • Tax return accuracy – Was a return filed? If not, why?
  • Bank statements and financial transactions – Do they align with the tax return?
  • Third-party statements – What do employees, accountants, and others say about the transactions in question?

The IRS has the power to subpoena witnesses and compel testimony to piece together the full financial picture. If discrepancies suggest intentional wrongdoing, the investigation can escalate into a criminal case.

Can Fixing a Tax Return Erase a Criminal Charge?

No. If an individual files a false tax return and later corrects it or pays the taxes owed, it does not undo the crime. Once the willful act is completed, the IRS considers it a criminal offense, and corrective actions do not eliminate legal exposure.

This is why having a strategic defense is critical. If the IRS has already started an investigation, taking corrective action without legal counsel could make things worse.

How Can a Tax Attorney Help?

A tax attorney’s role is to conduct a separate investigation to understand the full context of the financial transactions in question. At Milikowsky Tax Law, we:

  • Review accounting records, tax returns, and financial transactions
  • Interview key witnesses to understand their knowledge of the situation
  • Assess whether there was a true willful violation or if other factors played a role
  • Develop a legal defense strategy to present to the IRS, the Department of Justice, or the U.S. Attorney’s Office

Understanding all the facts is critical to building an effective defense and mitigating potential penalties.

If You Suspect an IRS Criminal Investigation, Take Action Now

If you believe you may be under IRS investigation, do not wait. Anything you say to a CPA or accountant is not protected under attorney-client privilege and can be used against you. Only communications with a tax attorney are protected.

At Milikowsky Tax Law, we have extensive experience handling IRS criminal tax matters. If you need legal guidance, contact us today.