The IRS will gladly use scare-mongering to submit regular taxpayers into compliance. And while a majority of tax infractions are described as crime, criminal investigations are reserved only for the worst offenders.
Tax fraud is a broad term, describing any willful forgery of official records and documents in an effort to defraud the IRS and avoid paying your taxes.
Small infractions often get the benefit of the doubt, meaning the tax auditor will adjust the examination report to discount them and perhaps add a small fine – around 20% over owed taxes.
Obvious fraud cases get slapped with a civil penalty up to 75% over the tax originally owed with interest being added to the whole sum.
Usually, tax auditors are trained to look for and spot these issues and refer you up to the CID. In reality, only the most unscrupulous cases, where tens of thousands of dollars are involved, reach the Criminal Investigation Division. If a tax auditor suspects an outrageous criminal operation, they will refer you up to the CID.
CID IS A FORCE YOU DON’T WANT TO RECKON WITH
The Criminal Investigation Division is a unit of 4,500 IRS employees. Consider them as the police department of the IRS. CID special agents are highly trained by the IRS and FBI. They are real-world detectives with badges and guns.
If a tax auditor or an informant refers your case to the CID with a fine sample of dirt attached, you can bet a pair of special agents will find their way to your doorstep.
Special agents are skilled interrogators. A few innocent background questions will quickly grow into a whole barrage forcing you to either tell them everything or lie blatantly. Neither will help your case and, in fact, every word you say will be digging your grave a little deeper.
So, if it comes to this point, the best thing to do is avoid the encounter. You should not try to defend yourself or reason with the agents. Just tell them you will get back to them and call your lawyer immediately. The special agents will go about their business either way. They have access to unprecedented resources and will dig up more details than you can imagine.