Criminal Defense Lawyers

Federal Tax Evasion

The silence is the signal. When your tax audit suddenly goes quiet – the revenue agent stops calling, your requests for updates go unanswered, weeks turn into months with no contact – most people assume the IRS lost interest. That’s the opposite of what’s happening. The silence means your case has been referred to IRS Criminal Investigation. A “hold” has been placed on your civil audit while special agents build a criminal case against you. By the time you find out you’re a target, they’ve been investigating for months or years. They’ve talked to your accountant. They’ve summoned your bank records. They’ve interviewed your business partners, your family, your friends. The 90% conviction rate exists because when IRS-CI decides to charge someone, the investigation is already essentially complete.

Here’s what most people don’t understand about tax evasion: you don’t go to prison for owing taxes. You go to prison for hiding them. Under 26 USC 7201, tax evasion requires an “affirmative act” – filing a false return, concealing income, maintaining double books, hiding assets offshore. Simply failing to file or failing to pay is a different crime with different consequences. The distinction between “I couldn’t pay” and “I tried to hide it” is the difference between civil penalties and criminal prosecution. Al Capone wasn’t convicted because he owed taxes. He was convicted because he concealed his income. That’s still how it works.

The numbers tell the story. In fiscal year 2024, IRS-CI initiated 2,667 criminal investigations, obtained 1,571 convictions, and maintained a 90% conviction rate. The average sentence is 15-16 months. But those numbers hide the most important fact: IRS-CI only prosecutes cases they know they can win. If you’ve been charged, they’ve already decided you’re going to prison. This isn’t a system where you fight and might win. This is a system where the fight was over before you knew it started.

The Silence Is The Signal – How Criminal Investigations Actually Begin

Heres the thing about IRS criminal investigations that terrifies people once they understand it. Criminal investigations dont start with a knock on your door or a phone call from an agent. They start in silence. They start with your civil audit going quiet. And by the time you realize something is wrong, the investigation has been running for months.

When a revenue agent conducting a civil audit finds what the IRS calls “badges of fraud” – indicators of possible criminal activity – theyre required to stop the civil audit and refer your case to Criminal Investigation. But heres the critical part: the IRS has no obligation to tell you this has happened. You can ask your revenue agent wheather your under criminal investigation. They dont have to answer. And according to the IRS’s own handbook, they cant give you a response that would “deceive” you – but silence isnt deception. They just stop communicating.

This creates a dangerous information gap. Your sitting there thinking the audit is over or stalled. Meanwhile, IRS special agents are conducting what they call a “primary investigation” – gathering preliminary information to determine if criminal prosecution is warranted. If their supervisor approves, it escalates to a “subject criminal investigation” with you as the target. At least two layers of CI management have reviewed your case and determined there is sufficient evidence to investigate. This all happens without your knowledge.

OK so what triggers a criminal referral? Revenue agents are trained to look for specific “badges of fraud”:

• Omissions of line items or sources of income
• Concealment of accounts or property
• Failure to file returns despite having income
• Overstatement of deductions
• Failure to keep accurate records
• Maintaining two sets of books
• False statements to auditors

If the revenue agent finds a “firm indication of fraud,” they must suspend the civil investigation and refer to CI. Thats not discretionary. Its mandatory.

What IRS-CI Is Actually Looking For – The Badges of Fraud

The government dosent accidentally stumble onto tax crimes. IRS Criminal Investigation special agents are specifically trained to identify criminal tax activity, and they follow a methodical process to build cases. Understanding what theyre looking for is the first step in understanding how these cases develop.

The “badges of fraud” that trigger criminal referrals include specific patterns of conduct that suggest intentional wrongdoing. Heres what revenue agents are trained to flag: substantial understatement of income in consecutive years, keeping two sets of books, making false entries in books and records, claiming fictitious or inflated deductions, hiding bank accounts, using nominees to conceal assets, failing to file tax returns when required, concealing sources of income, and making false statements during an audit.

But the investigation goes far beyond your tax returns. IRS-CI special agents conduct what they call a “financial investigation” that examines your entire life. They will interview your family members, your friends, your business associates, your employees, your bankers. They will summons your bank records – not just the accounts you disclosed, but accounts you may have thought were hidden. They will review your lifestyle – the house you live in, the cars you drive, the vacations you take – and compare it to the income you reported. If theres a mismatch, thats evidence of unreported income.

Heres what nobody tells you about the investigation phase: it can take years. IRS-CI investigations routinely run for 2-4 years before charges are filed. During that entire time, you may have no idea your being investigated. The agents are patient. There methodical. There not in a rush. And by the time they contact you – if they contact you at all before indictment – theyve already gathered most of the evidence they need.

The 90% Conviction Rate – Why Your Not Going To Beat This

The statistics are devastating and you need to understand what they actualy mean. IRS Criminal Investigation maintains a 90% conviction rate. Over the three-year period from FY 2022-2024, adjudicated cases resulted in a 97.3% conviction rate. These numbers exist becuase IRS-CI dosent bring cases unless theyre confident of winning.

Think about what this means practicaly. Out of thousands of potential tax crimes, CI initiates about 2,600 investigations per year. Of those, about 1,800 get referred for prosecution. Of those, about 1,500 result in convictions. The funnel is extremely narrow, and the selection process is extremely rigorous. By the time your case makes it through primary investigation, subject criminal investigation, special agent review, supervisory review, Chief Counsel review, and DOJ Tax Division review, everyone along the way has concluded that you can be convicted. These arent guesses. These are professional judgments by experienced criminal tax prosecutors.

The conviction rate also reflects the nature of the evidence. Tax cases are document-intensive. The government has your tax returns, your bank records, your financial statements, communications with your accountant. They can reconstruct your income and your expenses with precision. Unlike cases that depend on witness testimony or circumstantial evidence, tax cases often have a paper trail that makes the facts hard to dispute. The question isnt usualy what happened – the records show what happened. The question is wheather you did it willfully.

Heres the uncomfortable truth: if IRS-CI has decided to charge you, the investigation is basicly over. The case has been built. The evidence has been gathered. The legal analysis has been done. Your fighting on a battlefield that was prepared long before you arrived. This is why tax defense attorneys focus heavily on intervening BEFORE charges are filed – becuase once the indictment comes down, the options narrow dramatically.

The Three Elements: Deficiency, Willfulness, Affirmative Act

To convict you of tax evasion under 26 USC 7201, the government has to prove three things: a tax deficiency existed, you acted willfully, and you committed an affirmative act of evasion. Understanding these elements is critical becuase the defense in almost every tax evasion case focuses on one of them.

First: tax deficiency. The government has to prove you owed more taxes then you reported. But heres something many people dont realize – they dont have to prove the exact amount. They just have to prove the deficiency was substantial. This is usually the easiest element to prove becuase the tax returns and financial records establish what was reported and what should have been reported.

Second: willfulness. This is were most tax evasion cases are won or lost. “Willfulness” means you voluntarily and intentionally violated a known legal duty. It dosent mean you made a mistake. It dosent mean you were careless. It means you knew what the law required and deliberately chose to violate it. If you genuinly misunderstood complex tax law, even if your misunderstanding was unreasonable, thats not willfulness. A good-faith belief that your conduct was lawful – even if that belief was wrong – defeats the willfulness element.

Third: affirmative act. This is what separates tax evasion (7201) from willful failure to file (7203). Tax evasion requires some affirmative act of evasion – not just failing to comply, but actively doing something to evade. Filing a false return is an affirmative act. Concealing income is an affirmative act. Keeping double books is an affirmative act. Simply not filing a return, even willfully, isnt enough for tax evasion. The government has to prove you did something to evade, not just that you failed to comply.

This distinction matters enormously for sentencing. Willful failure to file is a misdemeanor with a maximum of 1 year per count. Tax evasion is a felony with a maximum of 5 years per count. The same underlying tax debt can result in dramaticaly different criminal exposure depending on wheather the government can prove affirmative acts of evasion.

From Capone to the Chrisleys – How Tax Evasion Cases End

The named examples tell you everything about how the federal government uses tax law against people. These cases span almost a century, but the pattern is consistent: the IRS eventualy catches up, and when they do, the consequences are severe.

Al Capone remains the most famous tax evasion case in history. The federal government couldnt convict him of racketeering, murder, or bootlegging. But in 1931, they convicted him of 5 counts of income tax evasion. He got 11 years. The lesson that case taught prosecutors – and taxpayers – is that the IRS can reach conduct that other law enforcement cant touch.

Walter Anderson holds the record for largest individual tax evasion in US history. He evaded over $200 million in taxes through offshore corporations. In one year, he reported $67,939 in income and paid $495 in taxes – while actualy earning at least $126 million. He got 9 years in federal prison.

Wesley Snipes, the actor, was convicted of willfully failing to file tax returns for three years. He owed approximately $7 million. He got 3 years. Note that Snipes was convicted of failure to file (7203), not tax evasion (7201) – the government couldnt prove the affirmative acts required for evasion. He still served significant prison time.

Todd and Julie Chrisley, the reality TV stars, were convicted of conspiracy to commit tax evasion, bank fraud, and wire fraud in 2022. Todd Chrisley received 12 years. Their case shows how tax evasion is often charged alongside other federal crimes – the same conduct that evades taxes often also constitutes fraud.

Paul Daugerdas, a tax attorney, got the harshest sentence of any tax crime defendant in recent history – 15 years. He created fraudulent tax shelters that generated $7 billion in fictional losses and cost the government $1.6 billion in lost revenue. His case shows that tax professionals face the most severe consequences.

The 6-Year Statute of Limitations (And All The Ways It Extends)

The statute of limitations for criminal tax evasion is 6 years. That sounds like protection – if they dont charge you within 6 years, your free. But the reality is more complicated, and understanding the exceptions can be the difference between thinking your safe and getting charged.

The 6-year clock starts running from the date the tax return was filed, or the date the return was due, whichever is later. For a 2018 return filed on April 15, 2019, the statute would normally expire on April 15, 2025. But the government can charge multiple years of evasion in a single indictment, and if they can prove the affirmative acts continued – like filing a false amended return covering multiple years – the clock may start later then you think.

Heres what most people dont know about the statute of limitations. Going outside the United States tolls the statute. Under 26 USC 6531, if your outside the country – even on vacation with no intent to flee – the clock stops. A two-week vacation overseas extends the limitations period by two weeks. Extended time abroad can extend it significantly. This catches people who assume years of international travel have run out the clock.

Bankruptcy also tolls the statute. The automatic stay that prevents collection actions also pauses the criminal statute of limitations. If you filed bankruptcy during the limitations period, that time dosent count.

And heres the most important thing: civil tax fraud has NO statute of limitations. The IRS can pursue civil fraud for any year, forever. The 6-year limit only applies to criminal prosecution. So even if you escape criminal charges, the civil tax liability – with penalties that can reach 75% of the tax owed – never goes away.

What To Do If IRS Criminal Investigation Contacts You

If your reading this becuase IRS-CI has contacted you – or becuase your civil audit went quiet and your worried – heres what you need to understand right now. The decisions you make in the next few days will determine wheather you spend years in federal prison.

First: stop talking. If IRS-CI special agents contact you, you have the right to remain silent. USE IT. Anything you say will be used against you. You cannot talk your way out of a criminal investigation. You can only talk yourself further into one. Politely decline to answer questions without an attorney present. This is not obstruction – this is exercising your constitutional rights.

Second: get a criminal tax defense attorney immediatly. Not your regular accountant. Not the attorney who handles your business matters. A lawyer who specializes in IRS criminal cases and has experience with CI investigations. The earlier you get representation, the better your options. Pre-indictment intervention – where your attorney engages with CI and DOJ before charges are filed – is often the best opportunity to avoid prosecution entirely.

Third: preserve all documents but dont destroy anything. Destroying documents after an investigation begins is obstruction of justice, which is a separate federal crime. Even if documents look bad, destroying them is almost always worse then whatever they contain.

Fourth: understand the voluntary disclosure option. If you have unreported income, undisclosed offshore accounts, or unfiled returns, there are formal IRS programs that allow you to come forward before a criminal investigation begins. Voluntary disclosure dosent guarantee immunity from prosecution, but it significantly reduces the risk. This option closes once CI contacts you – so if your thinking about it, the time is now.

The IRS criminal tax system is designed to maximize convictions. The 90% conviction rate isnt an accident – its the result of a rigorous selection process that only brings cases the government expects to win. Average sentences are 15-16 months, but restitution is mandatory and can exceed the original tax debt by 200-300% with penalties and interest. And the criminal conviction is just the beginning – you still owe everything you evaded, and that debt never goes away.

Fifth: understand the cooperation calculus. In some cases, cooperating with the investigation and pleading guilty may result in a significantly lower sentence then fighting and losing. The acceptance of responsibility reduction under the sentencing guidelines can shave 2-3 levels off your offense level. But cooperation also means admitting guilt and accepting a felony conviction. Your attorney needs to evaluate wheather cooperation makes sense based on the strength of the governments case, your sentencing exposure, and your personal circumstances.

Sixth: know what your facing in terms of collateral consequences. A federal tax evasion conviction dosent just mean prison time. It means a felony record that will follow you forever. It means potential loss of professional licenses. It means difficulty finding employment. It means mandatory restitution that will be collected through wage garnishment, asset seizure, and tax refund intercepts for years or decades. The criminal case is just the beginning of a long relationship with the consequences of conviction.

The Timeline of a Federal Tax Investigation

Understanding how long these cases take can help you prepare for what your facing. Federal tax investigations are not quick. They follow a deliberate process that can stretch over years.

The primary investigation phase – where IRS-CI gathers preliminary information – can take several months. If approved, the subject criminal investigation phase typically runs 1-3 years. During this entire time, agents are interviewing witnesses, summoning records, and building the case. You may have no idea this is happening.

After the investigation is complete, the special agent prepares a written report recommending prosecution. This report goes through multiple levels of review – the agents supervisor, the special agent in charge, the Chief Counsel for Criminal Tax. Each level can approve, modify, or decline the recommendation. If approved, the case is referred to DOJ’s Tax Division.

The Tax Division conducts its own review and decides wheather to authorize prosecution. If authorized, the case goes to a grand jury for indictment. Only then – after years of investigation and multiple layers of review – do you find out your being charged.

From indictment to resolution typically takes another 1-2 years. Pretrial motions, discovery, plea negotiations or trial preparation, and sentencing all take time. A tax investigation that began in 2022 might not result in sentencing until 2028 or later. The federal tax system moves slowly – but it moves steadily toward conviction.

If your civil audit has gone quiet, if your accountant has been contacted by special agents, if your bank has reported a subpoena – those are warning signs. The investigation may already be well underway. Getting representation early, understanding your options, and making strategic decisions now is the difference between potentially avoiding prosecution and serving federal time.

Remember: the 90% conviction rate means that once your charged, the outcome is almost predetermined. The time to fight is before charges are filed, not after. Pre-indictment intervention – where your attorney engages with CI and DOJ to present mitigating information and potentially convince them not to prosecute – is often the most valuable thing a tax defense lawyer can do. But that window closes once the indictment comes down.

Dont wait to find out how bad it can get.