Explore Cooperation Agreements in Criminal Tax Investigations

Explore Cooperation Agreements in Criminal Tax Investigations

When Should You Cooperate with IRS Criminal Tax Investigation?

Cooperation Agreements in Criminal Tax Investigations: Each year, the Internal Revenue Service Criminal Investigation Department (CI) pursues thousands of criminal tax investigations. Unlike a civil tax investigation in which the primary concern that the taxpayer is whether they will be hit with severe penalties and/or are they the potential target of a fraud investigation which may impact their employment and other business relationships and ventures. A question we receive often from Taxpayers who are under investigation (or believe they may become under investigation) is whether or not they should Cooperate with the Internal Revenue Service or not. There are various different strategies to consider, which are based on:

  • Potential seriousness of the criminal tax violations;
  • The amount of evidence the Internal Revenue Service has, and
  • The overall risk tolerance of the defendant.

Let’s review the basics of why a defendant Taxpayer in an IRS Criminal Tax Investigation may or may not want to enter into cooperation agreements with the IRS/DOJ.

Do Cooperation Agreements Deter Criminal Tax Investigations

First, it is import and to note that just because a Taxpayer is under criminal investigation by the Internal Revenue Service Special Agents does not mean they will ultimately be charged with a crime. Tax investigations tend to be detail-oriented, and important nuances such as whether there were any affirmative acts (filing false tax returns) or not (failing to file tax return) can have a significant impact on the potential charges and length of incarceration. Defendant should consult with their Board-Certified Tax Law Specialist to assess the potential charges — and whether cooperating will result in an elimination of the investigation and avoidance of criminal tax charges.

Where on the Tax Crime Food Chain is the Taxpayer?

At the end of the day, the Internal Revenue Service and US Government as a whole do not have the resources to go after each and every person for each and every criminal tax violation. Therefore, is important for taxpayers and try to determine where in the food chain they are in terms of the potential criminal tax violations — in other words, are they the ringleader or more of a passive participant.

Is a Formalized Agreement on the Table?

Sometimes, the IRS will offer an agreement to avoid prosecution if the Taxpayer will provide other information about crimes committed by other persons. Before providing the IRS with any information, its important point to consider is whether or not the Internal Revenue Service is offering a written agreement of cooperation to avoid potential charges — or if it is more of a “wait-and-see situation” to determine what information the defendant has — and how important it is to the IRS’ case as a whole. These are more common in situations in which the defendant was under criminal tax investigation but the Internal Revenue Service has their eyes set on the bigger prize — and would rather go after the bigger fish, but still requires additional assistance from the Taxpayer and may have enough information to go after them independent of the big fish.

Never Speak without an Attorney in a Criminal Tax Investigation

Oftentimes, we encounter many “too smart for their own good taxpayers.” These taxpayers are (usually) masters at getting themselves out of trouble — but it is important to note that with a criminal investigation, and information may and up being used against the Taxpayer at a later time. In addition, IRS Special Agents are trained to handle these types of complex matters and may have more information their disposal then the taxpayer may know (e.g., Reverse Eggshell Audit) — and by trying to talk themselves out of trouble, the taxpayer ends up digging themselves into a deeper hole.

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Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

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