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What role does the IRS play in a fraud investigation?

There are aspects of paying taxes that may reveal illegal activities, and if your tax return prompts questions, you could find yourself the subject of an IRS investigation. According to the IRS, the federal agency conducts investigations, not only into possible tax fraud, but also when there is a suspicion of money laundering and other fraudulent activities.

Your tax returns may not be the trigger of an investigation. The IRS also investigates based on information provided by the public, by law enforcement agencies and by U.S. Attorneys offices all over the country.

Before an official federal criminal investigation is launched, the agency requires certain steps to be taken. A special agent analyzes relevant information during a primary investigation. Next, the special agent’s supervisor evaluates the results of the preliminary investigation and approves or declines a further investigation. If approved, the information goes before the head of the office, who may then approve a criminal investigation.

Further facts and evidence are gathered by the special agent to prove that criminal activity occurred. He or she may gather these in the following ways:

  • Interviewing witnesses
  • Obtaining and executing search warrants
  • Conducting surveillance
  • Subpoenaing bank records
  • Reviewing financial information

Based on the results of these activities, the special agent and the supervisor may discontinue the investigation into your case due to insufficient evidence of criminal activity. On the other hand, if the evidence is substantial enough to support prosecution, the agent creates a report and submits it to the supervisor, to the IRS Criminal Investigation Department and to a Centralized Case Review team. Following a review of the report, the CI department forwards a recommendation of prosecution to the Tax Division of the U.S. Department of Justice, or to the U.S. Attorney if it is not a tax investigation case.

This information about the IRS’s role in a fraud investigation is general in nature, and should not be interpreted as legal advice.

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