The Department of Justice Tax Division announced a joint IRS-FBI investigation that resulted in a prosecution and 36-month sentence for wire fraud and tax fraud. The defendant, a California resident, was involved in a scheme to defraud involving false letters of credit that were provided to banks to secure loans.
The wire fraud statute, 18 U.S.C. §1343, makes it illegal to devise a scheme to defraud by means of false and fraudulent pretenses, representations or promises. If a defendant uses television, radio, internet or any other form of interstate or foreign communication for the purpose of executing the scheme to defraud, the crime of wire fraud is committed. The maximum sentence provided for each instance of wire fraud is 20 years in prison. The government often charges several counts of wire fraud based upon multiple false communications in furtherance of the scheme.
It is not unusual in a federal investigation involving fraud for the IRS and FBI to work together. The result will be an indictment that charges both wire fraud and income tax fraud. The tax crimes routinely charged in these kinds of cases include 26 U.S.C. §7201, commonly known as tax evasion. The prosecution usually charges 3 or more counts of tax evasion; each charge relates to a separate tax year. The crime of tax evasion is punishable by a maximum of 5 years in prison. The second tax crime normally charged in these kinds of cases is 26 U.S.C. §7206. This statute makes it a crime to willfully sign a U.S. income tax return that the defendant does not believe to be true and correct as to every material matter.
Our lawyers have represented many people who were under investigation by the Internal Revenue Service. Many mistakenly believe that the IRS brings criminal tax cases only against those who are violating some other criminal law. This belief is incorrect.
The IRS investigates crimes, including those set forth in the IRS Code. The branch of the IRS that investigates criminal violations is called Criminal Investigation and the investigators are called special agents. IRS special agents have arrest power, are authorized to carry firearms, and are experienced investigators of tax and financial crimes.
IRS special agents are not limited to investigating tax crimes committed by individuals violating other federal criminal laws. The IRS assigns a percentage of its criminal investigators to “legal source” income tax investigations. These are investigations that involve individuals who have violated no criminal law except that they have committed fraud on their tax returns by attempting to evade taxes by, for example, falsely underreporting income, interest, dividends and or claiming false deductions.
An IRS criminal investigation involving “legal source income” is initiated for various reasons, including: (1) a civil audit during which the IRS auditor detects false statements or other acts of fraud and refers the case the IRS special agents; (2) a business owner cheating on taxes may be reported by a disgruntled employee to the IRS; (3) a friend, family member, or spouse, may report tax fraud in the hopes of getting a reward or because of spite, divorce, or revenge; and (4) an investigation into certain businesses based upon a belief that tax fraud may be rampant in a particular industry.
Any individual dealing with the IRS, whether a civil or criminal matter, has a right to be represented. It is important for anyone under a civil audit or criminal investigation to hire an experienced CPA or attorney. If there is an issue which is questionable, it must be remembered that an IRS civil agent may look upon such conduct as indications of fraud. In those circumstances, or in any case in which the IRS may perceive the presence of fraud, it is imperative that an individual be represented by a criminal defense attorney experienced in defending criminal tax cases.
