CID can also investigate Title 31, Money and Finance, violations, including violations of the laws regarding currency transaction reports, certain customs forms, and reports of foreign and financial accounts.

Since CID has limited resources, it focuses on cases involving the highest priority, including cases involving organized crime, narcotics trafficking, public corruption and white collar crimes. For the year 2000, the IRS is concentrating on abusive foreign and domestic trusts.

CID begins about 7,000 investigations each year, of which about one-half result in recommendations for criminal prosecution. Of those, most result in convictions either by plea or trial. Because of these limited resources, CID tries to concentrate on cases that have a high deterrent value, or as it likes to put it, cases that are most likely to result in voluntary compliance with the revenue laws on the part of the public. This policy of maximum deterrence is very prominent in case selection, and as a result, CID often takes cases that do not have high dollar value but still have a great deterrent impact. In the past CID has recommended prosecution not just of corporate executives but also of blue collar workers.

In many cases, however, CID looks for substantial taxes owed, a clear duty on the part of the taxpayer to pay those taxes, and a relatively straightforward or uncomplicated case from the perspective of evidence and prosecution. Matters such as the health of the taxpayer do not prevent prosecution and only deter CID in cases in which the taxpayer’s poor health might evoke sympathy from a jury and therefore undermine the attractiveness of the case for prosecution.

When a case is opened, it is assigned to one or more special agents. Often, there is a joint investigation, using the services of revenue agents of the Examination Division as well as CID. Joint investigations usually arise from revenue agent audits that are accepted as fraud referrals by CID. In such cases, the special agent works cooperatively with the revenue agent to develop the fraud case.

Special agents usually perform a great deal of background work even before they make the initial direct contact with the taxpayer. They anticipate that the target will refuse to cooperate with an investigation. The background work therefore yields information they might not otherwise get and also arms them for interviews with the taxpayer.

The background work includes investigation of many sources of information, including IRS records, courthouse records, bankruptcy court records, other public records, government agency records, and any other public source that the agent may know of.

The next step is to make the initial contact with the taxpayer. The agent identifies himself to the taxpayer, states that he is a special agent of the Internal Revenue Service assigned to investigate the taxpayer, and advises the taxpayer of his Miranda rights.

CID agents have a wide variety of voluntary and compulsory investigative tools. Perhaps the most important of these is the summons power. A summons is an administrative subpoena that commands the summoned person to appear, to testify, and to bring books and records. There are very few limits to the IRS’s summons power. Special agents may use the summons power in aid of a criminal investigation, and as long as the information they seek may be relevant to that investigation, a standard that has been interpreted extremely broadly by the Supreme Court, they may obtain summoned records.

The legally recognized defenses to an IRS summons are:
(1) lack of possession of the records;

(2) attorney-client privilege or work product doctrine;

(3) a number of technical statutory defenses such as second inspection, impermissible church inspection, improper purpose (narrowly construed) and a few others, and;

(4) Fifth Amendment privilege against self-incrimination and other Constitutional challenges.

This leaves the field wide open for CID to obtain almost all of the taxpayers books and records, as well as third party information such as that from banks, brokers, accountants, and the like.

One of the most important of the agent’s investigative tools is his own ability to go out and get witnesses’ statements. Agents may also use informants, conduct surveillance, use pen registers (to record telephone numbers dialed from a particular number), obtain postal covers (to obtain names and addresses of the taxpayer’s business associates) and occasionally perform undercover roles. CID has legal authority to request electronic surveillance, but it is rarely if ever invoked as a policy matter. The IRS is prohibited from nonconsensual monitoring of telephone or other conversations.

DEFENSES AND STRATEGIES – HOW WE DO IT
Taxpayers can ask attorneys to become involved in CID cases at virtually any stage. It is critical for accountants and other return preparers to recognize the signs of a potential fraud referral and refer the client to a tax attorney experienced in these matters at the earliest possible stage. Unfortunately, in many of these cases, attorneys are advised of the investigation only after it is too late, that is, after the taxpayer has confessed to the special agent, or the recommendation for prosecution has gone forward, or some other irretrievably damaging action has occurred.

Therefore, the first and possibly best defense to any CID investigation is to make sure that the taxpayer remains silent from the very first contact. Special agents understand the taxpayer’s right to consult an attorney and do not take it as an admission of guilt. Moreover, there is always plenty of time to open up by cooperating later, after and upon the advice of counsel.

Therefore, every taxpayer should be advised to say nothing to the special agent except, “I do not wish to be interviewed and I would like to consult my attorney.”

The client should then immediately call his attorney.  Tax fraud investigations make this step so extremely important.  Often clients are inclined to call their return preparer. This is a serious mistake, since preparers do not have a client privilege, are not trained in evidentiary issues and ordinarily lack the criminal defense instincts and training to be able to deal effectively with CID. Even when the preparer may have a privilege, such as when he aids the attorney, it is a narrow one, easily breached.

If you are the subject of an investigation by the CID of the IRS, do not hesitate to call John Ellsworth today. John Ellsworth offers 35 years of experience defending criminal cases of all manner and from all walks of life. His tax experience is extensive and will work toward assuring that you have an acceptable result from any such investigation.