An IRS Special Agent works for IRS Criminal Investigation, which is the law enforcement arm of the Internal Revenue Service, and CI investigates potential criminal violations of the Internal Revenue Code and related financial crimes. An example of a tax crime is tax evasion under 26 U.S.C. 7201, which is where any person willfully attempts to evade or defeat the assessment or payment of tax. See DOJ Criminal Tax Manual Section 8.03.
The first contact in an IRS administrative investigation (as opposed to a grand jury investigation) is when two IRS Special Agents travel to the taxpayer’s home and knock on the front door. The second contact often is the taxpayer’s certified public accountant or tax return preparer, where the IRS may seek to obtain copies of any documents provided to the accountant to prepare the tax returns, tax organizers, and tax returns.
After that, the agent(s) makes several third-party contacts, issue administrative summons to financial institutions to obtain bank records, and the agent essentially re-lives the taxpayer’s life for the past three to five years.
The agent works as a financial investigator and reviews the taxpayer’s bank and other records. Financial investigations are usually very document-intensive. Specifically, they involve records, such as bank account information, real estate files, motor vehicle records, etc., which point to the movement of money. The major goal in a financial investigation is to identify and document the movement of money. A special agent may attempt to prove that specific items of income are not reported, and other times, the agent will perform a net worth or bank deposit analysis.
When an IRS Special Agent shows up at a taxpayer’s door, the best course of action is to not say a word, be polite and close the door. However, what usually happens is the individual answers the agent’s questions and may fail to tell the truth about other things. Criminal Investigation’s conviction rate is one of the highest in federal law enforcement.
Individuals who have been contacted by an IRS Special Agent should promptly seek the advice of counsel. Legal counsel can try to develop defenses as soon as practicable and figure out if it makes sense to sit down and attempt to resolve the case at a SAC conference prior to a referral to the Department of Justice for criminal prosecution. There normally are several avenues to speak with the IRS in an IRS administrative case.