Any person subject to an IRS criminal investigation, or approached by IRS special agents of the IRS CI division, enjoy rights against those agents and procedural protections in the IRS criminal investigation process. Here are just a few of those.
First, any "taxpayer who is the subject of a criminal prosecution recommendation will be afforded a conference with the SAC and CT Counsel." See Internal Revenue Manual 9.5.12.3.1 (2007). Secondly, any investigation which "results in recommendations of tax and non-‐tax violations, all violations must be referred to DOJ, Tax Division." See Internal Revenue Manual 9.5.12.4 (2007). Third, "in order to expand an existing tax and/or tax related grand jury investigation to include additional subjects, tax periods or types of tax, the attorney for the government must obtain DOJ, Tax Division approval." See Internal Revenue Manual 9.5.2.3.3 (2004). Fourth, "no indictment is to be returned or information filed without specific prior authorization of the Tax Division." See Directive No. 86-59 (October 1, 1986). Fifth, even "authority to approve the initiation of grand jury proceedings which involve inquiries into possible criminal tax violations, including requests generated by the Internal Revenue Service, remains vested in the Assistant Attorney General in charge of the Tax Division" in Washington D.C. See Directive No. 86-59 (October 1, 1986).
Each rule limiting IRS special agents and IRS criminal investigations conforms to the Department's requisitions and proscriptions of Directive No. 86–58; that each taxpayer be given "a reasonable opportunity to present his case at a conference before the Tax Division." See Directive No. 86-58 (May 14, 1986). Each also conforms to the due process requirements of Constitutional constraints on the criminal process. See McNabb v. United States, 318 U.S. 332, 343 (1943); see also United States v. E. Leahey, 434 F.2d 7 (1st Cir. 1970).
IRS Directive No. 1 — the foundational cornerstone of IRS criminal investigation for every IRS special agent in IRS CI — provides: “CI employees will execute their law enforcement responsibilities by continually assessing potential risks to the public, the investigating agents, and the subjects concerned, as well as the probable impact of their enforcement activities on the image of the IRS.” See Internal Revenue Service Directive No. 1; Internal Revenue Manual 9.1.4.3 (1) (05-‐23-‐2008). This primary obligation requires “all levels of CI’s management must ensure that every enforcement operation is…continually assessed throughout an operation,” “must be reviewed for effectiveness,” and enforce this ongoing concern for the “probable impact” of the operation “on the image of the IRS.” See Internal Revenue Service Directive No. 1; Internal Revenue Manual 9.1.4.3 (05-‐23-‐2008). Notably, the first and foremost requirement of the Internal Revenue Service for its Special Agents compels they “execute their law enforcement responsibilities by continually assessing potential risks to the public, the investigating agents and the subjects concerned, as well as the probable impact of their enforcement activities on the image of the IRS.” See Criminal Investigation Directive No.1; Internal Revenue Manual 9.1.4.3(1) (05-‐30-‐2008). Indeed, “all levels of CI’s management” must continually ensure “that risks are continually assessed throughout.” See Criminal Investigation Directive No.1; Internal Revenue Manual 9.1.4.3(2) (05-‐30-‐2008).
The Assistant Attorney General for Tax acknowledged this under oath, in administration after administration, regardless of party: “it remains important that the Tax Division retain the final authority to approve tax charges,” promising under oath, you would do all you could to “strongly support the policy by which the Tax Division reviews and authorizes criminal tax charges,” rejecting the inquiry that IRS Criminal Investigations be permitted to work directly with US Attorneys instead of having DOJ Tax approval. See Questions For the Record, Kathryn Keneally, Nominee, Assistant Attorney General Tax, U.S. Department of Justice. As attested to under oath, such supervisory role remains critical and essential if fundamental tax policy, and respect for the tax laws, is to be encouraged rather than undermined further.
What the Law Requires in an IRS Criminal Investigation: Fundamental & Foundational Principles
Critically, as articulated and widely published in Internal Revenue Service Directive No.1, a directive that is the main guiding instrument governing all IRS Criminal Investigation matters, “CI employees will execute their law enforcement responsibilities by continually assessing potential risks to the public, the investigating agents, and the subjects concerned, as well as the probable impact of their enforcement activities on the image of the IRS.” See Internal Revenue Service Directive No. 1; Internal Revenue Manual 9.1.4.3 (1) (05-‐ 23-‐2008).
This primary obligation requires “all levels of CI’s management must ensure that every enforcement operation is…continually assessed throughout an operation,” “must be reviewed for effectiveness,” and enforce this ongoing concern for the “probable impact” of the operation “on the image of the IRS.” See Internal Revenue Service Directive No. 1; Internal Revenue Manual 9.1.4.3 (05-‐23-‐2008).
Thus, the first and foremost requirement of the Internal Revenue Service for its Special Agents compels they “execute their law enforcement responsibilities by continually assessing potential risks to the public, the investigating agents and the subjects concerned, as well as the probable impact of their enforcement activities on the image of the IRS.” See Criminal Investigation Directive No.1; see also Internal Revenue Manual 9.1.4.3(1) (05-‐30-‐2008). Indeed, “all levels of CI’s management” must ensure “that risks are continually assessed throughout.” See Criminal Investigation Directive No.1; Internal Revenue Manual 9.1.4.3(2) (05-‐30-‐2008).
The Criminal Investigation arm of the Internal Revenue Service is thus lawfully, ethically and professionally charged with acting “in a manner that fosters confidence in the tax system and compliance with the law,” not means and manner that undermines such public confidence in the integrity, equality and fairness of the system and its agents. See Internal Revenue Manual 9.1.1.2 (11-‐04-‐2004). Indeed, all investigations must be “identified, initiated and conducted in a manner that fosters confidence in the tax system and compliance with the law.” See Internal Revenue Manual 9.1.1.4 (05-‐30-‐2008).
This recurrent obligation – whether continued investigation and potential prosecution will aid or undermine public confidence – must remain paramount from the inception and throughout . This must be considered before each investigative action and prior to each prosecutorial choice made.
Before Criminal Referral Can Be Authorized: Notice & Opportunity to Be Heard for the Taxpayer
As noted, at each stage of this process, “a taxpayer conference will be offered as a matter of course” and “should be done before the SAC makes a referral to the DOJ, Tax Division.” See Internal Revenue Manual 9.5.12.3.2 (07-‐25-‐2007). Again, repetition is well warranted Attendees include the Special Agent, the Supervisory Special Agent, the Associate Special Agent in Charge, the Special Agent in Charge, and the Criminal Tax Counsel. See Internal Revenue Manual 9.5.12.3.3 (07-‐25-‐2007).
At this conference, the Special Agent in Charge “will give a general oral statement of the alleged violations and the facts supporting the investigation to the extent possible” including “sufficient facts and figures will be made available to the taxpayer to acquaint him with the basis, nature and other essential elements of the proposed criminal charges.” See Internal Revenue Manual 9.5.12.3.4 (07-‐25-‐2007); see also 26 Code of Federal Regulations 601.107(b)(2). This informative disclosure by the Service provides opportunity to correct the record at a preliminary stage before misapprehensions of fact or process precipitate an unwarranted referral. Notably, this conference may be recorded and a memorandum required prepared by Criminal Tax Counsel. See Internal Revenue Manual 9.5.12.3.4 (07-‐25-‐2007).
As part of their ascribed tasks, Criminal Tax Counsel and the special agents must “discuss the defenses raised” and “determine if those defenses warrant further inquiry.” See Internal Revenue Manual 9.5.12.3.4 (07-‐25-‐2007). The taxpayer is entitled to notice from the Special Agent in Charge of the results of the conferencing process within the Service, “advising on the decision of the prosecution recommendation.”
Ultimately, the IRS cannot control criminal prosecution nor can the local US Attorney’s office. Instead, “if DOJ Tax Division or the US Attorney declines to a prosecute a referral, the investigation is returned to the Special Agent in Charge.” See Internal Revenue Manual 9.5.12.4.1 (07-‐25-‐ 2007).
Timely Conferencing & Mutual Exchange of Relevant Information
Given the impact on the individual and the stress on limited resources, a special agent should “complete each investigation as expeditiously as possible.” See Internal Revenue Manual 9.5.1.2.1 (09-‐27-‐ 2011). All investigations also require being “conducted impartially and thoroughly to obtain all pertinent information and evidence, including any exculpatory evidence.” See Internal Revenue Manual 9.5.1.2.1 (09-‐ 27-‐2011). These conferences filter out relevant facts, direct agents in critical investigative previously uncharted areas of possible exculpatory evidence, present critical legal theories impacting the case, and insure the proper prioritization of law enforcement resources. The reason for the timing of conferences – within thirty days of opening any administrative criminal investigation, prior to making any recommendation of use of grand jury, search warrant or prosecutorial referral resources, and at every stage of the case – is to effectuate an expedited and just outcome to the case.
Remembering Sensitive Investigation Rules
Any investigation into “exempt organizations” is a “sensitive investigation” requiring specialized approvals and processing. See Internal Revenue Manual 9.4.1.6.3 (03-‐30-‐2012). The Director of Field Operations must personally approve any seizure investigative activity of any sensitive organizations. . See Internal Revenue Manual 9.4.1.6.3 (03-‐ 30-‐2012).
Pre-Screening Before Commencing Criminal Inquiry
Three of the critical considerations before pursuing a criminal case rather than a civil case encompass whether “returns were solicited”, “attempts were made to resolve civil issues” and whether the “IRS took prior actions” involving comparable conduct in the past with the taxpayer. See Internal Revenue Manual 9.4.1.5.1.3.2 (03-‐30-‐2012).
Relevant factors about an individual include the health history of the individual, the tax education of the individual, prior criminal conduct, prior IRS tax actions, and “any other significant information related to the investigation” that could impact the public perception of the Service. See Internal Revenue Manual 9.5.8.6.3.1.5 (09-‐24-‐2007). The focal target should be high profile, with egregious allegations, substantial deterrent effect in favor of the government from public litigation concerning the target, and any prosecution conform to the annual business plan. See Internal Revenue Manual 9.1.1.4 (1) (05-‐30-‐2008).
As the Service’s own rules recognize, an agent must prove the affirmative acts of evasion by the individual, the existence of a tax due and owing by the individual, and the proof of criminal intent and criminal willfulness by the individual. See Internal Revenue Manual 9.5.8.6.3.4 (4) (01-‐25-‐2006). Examples of a “lack of prosecution potential” include also encompass age, health, education, de minimis tax.” See Internal Revenue Manual 9.5.8.8 (01-‐25-‐2006).
The Immediate Thirty-Day Interview: Allowing for Expedited Resolution
Foremost from the inception of any criminal inquiry, the subject of the investigation should be afforded an immediate initial interview “to identify potential defenses or other weaknesses in the case before making further investigative contacts.” See Internal Revenue Manual 9.5.1.2.1.1 (3) (09-‐27-‐2011). This should occur “within the first thirty days of numbering a subject criminal investigation.” See Internal Revenue Manual 9.5.1.2.1.1 (3) (09-‐27-‐2011).
The reason for this rule reflects the importance of isolating criminal intent from civil mistakes, from misapprehension of agents to the protection of the innocent, and, parallel thereto, affording the public notice and opportunity to be heard before the criminal investigative track takes a life of its own, critical in an area of law as often confusing yet confiscatory as tax. This elemental right protects the interests of both the Service and taxpayer.
Prosecution Referral Process: Supervisory Controls Required Before Prosecution Can Even Be Recommended to the Tax Division
Before any special agent can even prepare a report recommending prosecution, the case must be reviewed for the opinions of the Supervisory Special Agent, Criminal Tax Counsel, and the Centralized Case Reviewer. See Internal Revenue Manual 9.5.8.3 (01-‐25-‐ 2006). Each of the supervisory personnel involved – the Special Agent, the Supervisory Special Agent, Criminal Tax Counsel -‐-‐ must independently and separately perform their own due diligence and review the sufficiency of the evidence as gathered, the sufficiency of the evidence in terms of scope of evidence gathered, the method of proof utilized, and the proposed recommendations under contemplation. See Internal Revenue Manual 9.5.8.3 (01-‐25-‐2006).
Any special agents report must detail sufficient facts so that any ready will “be convinced of the thoroughness and impartiality of the investigation.” See Internal Revenue Manual 9.5.8.2 (01-‐25-‐2006).
Indeed, “the facts of an investigation must be reported with fairness and impartiality.” See Internal Revenue Manual 9.5.8.4.1 (1) (01-‐ 25-‐2006). “Any distortion of the significance of the evidence diminishes the…credibility of the special agent.” See Internal Revenue Manual 9.5.8.4.1 (1) (01-‐25-‐2006). “Inaccuracies can be devastating to the value of the report and to the special agent’s credibility as a witness.” See Internal Revenue Manual 9.5.8.4.2 (1) (01-‐25-‐2006). By rule, the report cannot “attempt to conceal or omit facts that tend to be in favor of the subject.” See Internal Revenue Manual 9.5.8.4.1 (1) (01-‐25-‐2006). Point in fact, “any mitigating circumstances, exculpatory evidence or other impediments to a prosecution recommendation must also be fully addressed.” See Internal Revenue Manual 9.5.8.4.3 (3) (01-‐25-‐2006). As reiterated throughout, “the approval of the DOJ, Tax Division, must be obtained before issuing of an information” or even “seeking” the “return of an indictment on tax and/or tax-‐related matters.” See Internal Revenue Manual 9.5.2.3.1.5 (11-‐05-‐2004).
Prior to a recommended prosecution, the full tasks of the investigation must be completed, including examining any and all exculpatory information and mitigating circumstances. Once completed, the investigation must be reduced to report format, and be submitted first by the special agent to the Supervisory Special Agent. See Internal Revenue Manual 9.5.12.2.1 (07-‐25-‐2007). The Supervisory Special Agent must conduct his review, including commenting on any matter “relating to the reading/review of the prosecution recommendation report” produced by the special agent in conformity with the rule requirements. See Internal Revenue Manual 9.5.12.2.1 (07-‐25-‐2007).
Upon the completion of the investigation, a rule-‐compliant Special Agents Report and subsequent Supervisory Special Agent approval, then the report must next go to Centralized Case Review for “CCR and Criminal Tax Counsel for review.” See Internal Revenue Manual 9.5.12.2.1 (07-‐25-‐2007). As the rules reiterate, “All tax and tax-‐related prosecution memorandums…must be reviewed by CT Counsel.” See Internal Revenue Manual 9.5.12.2.1 (07-‐25-‐2007). Criminal Tax Counsel must “prepare a Criminal Evaluation Memorandum” that evaluates any defect or deficiency in the case from any of the public policy perspectives and individual impact concerns the Service must continually concern itself with in any case. See Internal Revenue Manual 9.5.12.2.3 (07-‐25-‐2007).
Subsequent to review by the special agent, the Supervisory Special Agent, Centralized Case Review, and CT Counsel, the case will either proceed or discontinued at that stage. See Internal Revenue Manual 9.5.12.2.1 (07-‐25-‐2007).
Any recommendation for prosecution must then be submitted to the Assistant Special Agent in Charge and the Special Agent in Charge for their separate and independent review. See Internal Revenue Manual 9.5.12.2.1 (07-‐25-‐2007). The Special Agent in charge must make an independent and separate assessment of the public policy effects and individual impact of any prospective prosecution. See Internal Revenue Manual 9.5.12.2.5 (07-‐25-‐2007).
Coequally and concomitantly, by Internal Revenue Service Criminal Investigation Delegation Order 9-‐6 (03-‐15-‐2006), only the “special agents in charge” retains the authority “to refer” any “criminal matter” to the Department of Justice for any “criminal investigation, criminal prosecution, or other criminal enforcement action requiring court order or Department of Justice approval.” See Internal Revenue Manual 1.2.48.7 (03-‐15-‐2006). In that capacity, the Special Agent in Charge must “execute their law enforcement responsibilities by continually assessing potential risks to the public, the investigating agents and the subjects concerned, as well as the probable impact of their enforcement activities on the image of the IRS.” See Criminal Investigation Directive No.1; Internal Revenue Manual 9.1.4.3(1) (05-‐30-‐2008). Indeed, “all levels of CI’s management” must continually ensure “that risks are continually assessed throughout.” See Criminal Investigation Directive No.1; Internal Revenue Manual 9.1.4.3(2) (05-‐30-‐2008). The Special Agent in Charge has an independent obligation to decline the prosecution recommendation report whenever those goals and objectives are not met with reasonable certainty. See Criminal Investigation Directive No.1; Internal Revenue Manual 9.1.4.3(2) (05-‐30-‐2008); See Internal Revenue Manual 9.5.12.2.5 (07-‐25-‐2007).
The process continues with the Director of Field Operations in any case “involving sensitive investigations” and must separately concur or decline the prosecution. See Internal Revenue Manual 9.5.12.2.6 (07-‐25-‐ 2007). The reason for the Director’s involvement in sensitive investigations is their unique role in understanding how such investigations, investigative tactics, and prosecutorial actions could adversely impact public confidence in the Service.
So, a recap: first, the means by which an agent opens up a case concerning a taxpayer must conform to certain investigative requirements, privacy protections, and due process concerns; second, the agent must afford the individual the opportunity to present exculpatory evidence, and to have their advocate or attorney conference with the agent; third, the supervisory special agent must confer in any tax evasion referral, and also must afford a criminal tax attorney the opportunity to conference; fourth, the criminal tax counsel for the IRS should confer in the process, and also should participate in a conference with the individual’s criminal tax lawyer; fifth, the Tax Division at the Department of Justice in Washington D.C., must review any IRS criminal investigation referral, can reject any IRS criminal investigation referral, and should also afford a criminal tax attorney the opportunity to conference. At each supervisory stage and conferencing opportunity, the IRS special agents should show how they sought out and reviewed evidence helpful to the individual (“exculpatory evidence”), vetted possible defenses, addressed potential evidentiary and legal weaknesses in their case, considered the public impact of any IRS criminal investigation on the individual, protect the individual’s rights in the process, not target or discriminate due to the individual’s political views, religious affiliations, or other protected status, and weigh all the factors relevant to converting, or declining, an IRS criminal investigation.
A knowledgeable tax evasion lawyer can assert, help enforce, and guard your rights in the IRS criminal investigation process at many stages of the case before it gets too far. While the past cannot guarantee the future, it is a resume worth knowing when choosing your tax defense lawyer. Barnes Law enjoys a 90% success in preventing the government from imprisoning its clients even when only hired after a fraud audit or IRS criminal investigation has commenced. Choose wisely: your freedom, your future, and your finances often depend upon it.
