A criminal tax investigation is a staged, evidence-building process that moves through several independent review levels before prosecution is authorized.

The investigation begins with a referral or CI-developed lead. A special agent gathers records and interviews the subject and third parties, assembling the evidence into a Special Agent's Report. That report moves up through CI supervision and IRS Criminal Tax Counsel. If it survives, it goes to the Department of Justice Criminal Division, Tax Section, which must authorize criminal charges. Only then does a United States Attorney's Office prosecute, typically through a grand jury indictment. For criminal tax defense representation, Chase Counsel accepts selected federal criminal investigations.

At several of those stages the case can be declined. Many are. There are real opportunities to affect the outcome before charges exist, and those opportunities close in sequence.

How Matters Begin

Criminal tax matters reach CI from several directions.

A civil examination can generate a fraud referral when the examiner develops firm indications of fraud. The examiner does not announce this. Under IRM 25.1, the visible signal to the taxpayer is usually an examination that stalls: information requests stop, calls are not returned, and the case appears dormant.

Other sources include CI's own program work in employment tax, abusive schemes, and cryptocurrency; information from law enforcement agencies and United States Attorneys' offices; whistleblower reports; currency transaction and suspicious activity reports; and evidence from unrelated investigations of business partners, customers, promoters, or payroll providers.

A significant number of tax investigations begin as investigations of someone else entirely.

The Subject Investigation

Once the investigation opens, the special agent's task is to prove willfulness. The tax numbers are usually the easier part; intent is the case.

Agents build that proof from documents and from people. They obtain bank records, credit card statements, loan applications, escrow files, and accounting records, often by administrative summons under I.R.C. section 7602, with third-party notice under section 7609. They interview employees, bookkeepers, return preparers, customers, vendors, bankers, and former spouses and business partners.

Loan applications are a recurring source because a taxpayer who reported modest income to the IRS and substantial income to a lender has created the government's proof.

Where records are inadequate, the government proves income indirectly: a bank deposits analysis, a net worth and expenditures method, a cash expenditures method, or a percentage markup analysis. The appearance of these techniques signals where the matter is headed.

Section 7602(d) bars issuing or enforcing a summons while a Justice Department referral is in effect for that person. This is a bright-line rule that replaced the institutional-intent inquiry of United States v. LaSalle National Bank, 437 U.S. 298 (1978).

Grand jury material is subject to Rule 6(e). Justice Manual 6-4.126 restricts disclosing it to the IRS for civil use.

Witness, Subject, Target

These terms describe how the government currently views a person, and they matter because they determine what advice makes sense.

A witness has information but is not believed to have committed the offense under investigation. A subject is a person whose conduct is within the investigation's scope. A target is a person as to whom the prosecutor has substantial evidence of criminal conduct and who, in the prosecutor's judgment, is a putative defendant.

The labels are not always communicated. In an administrative CI investigation they may never be stated. Formal target letters are associated with grand jury practice and are not issued in every case.

The designation is fluid: witnesses become subjects, and subjects become targets, as evidence develops and as people give interviews.

Assuming you are a witness because no one has said otherwise is not a strategy. That assumption is what produces the interviews that convert witnesses into subjects.

Interviews

The subject interview should not be assumed to come late. Current IRM 9.4.5 directs special agents to interview the subject expeditiously after initiation unless there is a documented reason to delay. Timing therefore varies.

When the interview occurs, the agent may already possess substantial documentary and third-party evidence. The requested interview can be used to test the subject's statements against the existing record.

Special agents give a non-custodial administrative warning at the outset of a first interview with a subject, under IRM 9.4.5.8.3.1.1. They identify their function as investigating possible criminal violations, advise of the Fifth Amendment right to decline, state that anything said may be used in a criminal proceeding, and advise of the right to consult an attorney.

There is no constitutional requirement for warnings in a non-custodial setting. Beckwith v. United States, 425 U.S. 341 (1976). The warning is the IRS's own administrative practice.

Custodial interviews require full Miranda warnings under IRM 9.4.5.8.3.2.1. Third parties receive no warning, because none is owed to them.

Two Paths: Administrative and Grand Jury

An administrative investigation proceeds under the IRS's own summons power. The agent produces the Special Agent's Report with exhibits. CI prepares a memorandum addressing the offenses, evidence, legal issues, anticipated difficulties, and the recommendation. Justice Manual 6-4.110.

A grand jury investigation uses subpoenas and the compulsory process of the court. It requires prior Criminal Division, Tax Section authorization under Justice Manual 6-4.120 and 6-4.121. CI requests grand jury authority where it cannot complete the investigation administratively or cannot feasibly gather evidence through the administrative process.

The difference is visible from outside. Grand jury subpoenas, rather than IRS summonses, mean the matter has already cleared a review layer.

Review, Conference, and Authorization

This is the part of the process least understood by people who are in it.

Within the IRS, the report moves through the Supervisory Special Agent, the Special Agent in Charge, and IRS Criminal Tax Counsel. Whether counsel for the subject can be heard at this stage varies, and no published provision guarantees a conference. Where available, it is an opportunity to present legal and factual arguments to people who can end the matter, and it should be pursued.

At the Department of Justice, Justice Manual 6-4.200 requires the Criminal Division's Tax Section to approve any criminal charge a United States Attorney intends to bring for conduct arising under the internal revenue laws. Justice Manual 6-4.210 extends this to tax-related mail, wire, and bank fraud, RICO, and money laundering charges. This centralized-review requirement exists because of a policy judgment about uniform tax law enforcement.

Under Justice Manual 6-4.214, if time and circumstances permit, the Criminal Division's Tax Section generally grants a written request for a conference in Washington. The Division will generally advise of the proposed charges, method of proof, and income computations, all subject to change.

At the conference, the taxpayer may present explanations and evidence but cannot explore the government's evidence. Statements made at the conference may be used not only to evaluate the matter but in any court proceeding.

A conference request made after the Division has already forwarded the matter to the United States Attorney's Office will be denied.

The standard applied is the Principles of Federal Prosecution, together with uniformity, balanced enforcement goals, and Department and IRS priorities. Justice Manual 6-4.211.

Charge, Plea, or Declination

If authorized, the case is prosecuted by the United States Attorney's Office, typically by indictment. Most federal criminal cases, including tax cases, resolve by plea.

Sentencing is driven by the Sentencing Guidelines, in which the tax loss is the principal driver, along with adjustments for sophisticated means, obstruction, role, and acceptance of responsibility. Section 7201 also carries a mandatory obligation to pay the costs of prosecution.

Declination is a real outcome. A matter may be declined at CI, at Criminal Tax Counsel, at the Criminal Division's Tax Section, or at the United States Attorney's Office.

Declination is not exoneration. The civil case usually remains, and often returns with a civil fraud penalty under section 6663 and an unlimited assessment period under section 6501(c)(1).

The Civil Case Runs Alongside

A criminal investigation does not suspend civil exposure. The government's stated policy is to use all available remedies. Justice Manual 6-4.400; see United States v. Kordel, 397 U.S. 1 (1970).

Statements and documents provided in the civil examination are available in the criminal matter. A conviction under section 7201 establishes fraud for civil purposes by collateral estoppel. Section 6501(c)(1) leaves the assessment period open indefinitely for a fraudulent return.

Cases resolved criminally are frequently followed by civil assessments across many years.

Coordinating the civil and criminal matters is a specific competence. Cooperating civilly while a criminal matter develops, without that coordination, is how defendants supply the government's proof.

What This Means Practically

The timing of subject contact varies. Current IRM 9.4.5 directs special agents to interview the subject expeditiously after initiation unless there is a documented reason to delay. Even so, documents and third-party evidence may already be in the file when the subject is contacted.

The requested interview should be treated as an investigative event, not as an informal opportunity to explain.

The opportunities to influence the outcome are sequential and they close. A legal argument presented at the CI stage is heard by people who can end the matter. The same argument presented after indictment is a motion.

The decisions that determine the outcome are made in the first days: whether to be interviewed, how documents are preserved and produced, whether the accountant continues in the same role, and whether any disclosure route remains open.

A criminal tax investigation moves through review layers that offer real opportunities to be heard, and those opportunities close in order. Chase Counsel accepts selected federal tax controversy matters and can be reached for an initial case screening. Learn more at www.ChaseCounsel.Com/federal-tax-controversy.

This article discusses federal tax procedure generally and is not legal advice for any particular taxpayer. It describes the general structure of criminal tax investigations and does not address the merits of any potential defense.