A special agent is a member of the Criminal Investigations department of the IRS. They usually start communicating with a taxpayer when the IRS suspects that the taxpayer has committed a crime. Thus, you should be very wary if an IRS special agent contacts you. The first contact with a taxpayer is usually unscheduled in an effort to catch the taxpayer while they are unprepared and unrepresented by an attorney. Once they have had time to prepare for an investigation and hire legal counsel, the taxpayer will be less likely to divulge incriminating information. The special agents will try to coax as much information as possible from the taxpayer early in the process.
Ultimately, IRS special agents help decide whether to refer a case for criminal prosecution. They do not actually charge a taxpayer, but they discuss the results of the investigation with their supervisor and determine whether the matter should be dropped or whether a formal criminal investigation should start. (Many investigations are dropped based on inadequate evidence or inaccurate reports.) If the case moves forward to a formal investigation, criminal tax attorneys at the IRS will decide whether to transfer the case to the Tax Division of the Department of Justice for prosecution. If evidence surfaces of other crimes that are not related to taxes, the IRS might refer the case to the U.S. District Attorney’s Office instead.
You should try to avoid talking directly to IRS special agents, even if you are confident that you have not committed any crime. Most taxpayers are not thoroughly familiar with the nuances of the Internal Revenue Code and all of the potential crimes for which they might be investigated. The special agents are actively trying to collect evidence that may incriminate you, so you should view them as a hostile party even if they seem friendly. You should promptly consult a tax attorney if you have been contacted by special agents or if you believe that you may be under investigation for a tax crime.
In theory, special agents should read a taxpayer’s Miranda rights to them, but they do not always do so. A taxpayer does not have a right to a free attorney during this investigation, and they have not been charged or taken into custody. Even though a court will not appoint an attorney for them, though, they should make sure to contact a private attorney.
A civil audit that has a strong probability of turning into a criminal investigation is often known as an eggshell audit. The IRS can turn a civil audit into a criminal investigation, as long as the auditor stops the audit as soon as they come across information suggesting that the taxpayer may have committed a crime. IRS rules prohibit auditors from using a civil audit to collect evidence for pursuing a criminal investigation. However, the auditor is not required to warn the taxpayer about the potential for criminal prosecution. They simply will stop communicating with the taxpayer about the audit. If you find that the auditor stops responding to you, this may be a red flag that the IRS suspects criminal activity.
