IRS Special Agent Showed Up About My ERC Claim – What To Do

IRS Special Agent Showed Up About My ERC Claim – What To Do

Two people are standing at your door. They’re wearing suits. They show you gold badges and identify themselves as special agents with IRS Criminal Investigation. They want to talk to you about your Employee Retention Credit claim. They’re friendly, professional, and they’re telling you this will only take a few minutes. They just have some questions. They’re sure you can clear everything up.

This is the most dangerous moment of your life.

What happens in the next few minutes will determine whether you face federal prison or whether you preserve your rights and your future. Most people, in this moment, do exactly the wrong thing. They try to explain. They try to cooperate. They think that talking will help. It almost never does. The words that come out of your mouth in this conversation can and will be used against you in a federal criminal prosecution, regardless of how innocent you believe you are.

This article explains what IRS special agents are, why they’re at your door, what your rights are, and exactly what you should do and say. The gold badge changes everything.

The Gold Badge Means Criminal Investigation

If the people at your door have gold badges, you are not dealing with a civil tax matter. You are not being audited. You are not speaking with revenue agents who want to review your documentation. The gold badge identifies the holder as a special agent with IRS Criminal Investigation – the law enforcement division of the IRS.

Heres what most people dont understand about this distinction. Special agents are the only armed employees of the IRS. They are federal law enforcement officers. There job is not to collect taxes. There job is to investigate crimes and gather evidence for federal prosecution. They carry guns, they can make arrests, and they can execute search warrants. This is not an accounting department. This is law enforcement.

The fact that special agents are at your door means one of two things:

• Either your already the target of a criminal investigation into your ERC claim, or
• The IRS beleives you have information about someone else’s criminal activity

In either case, this is serious. The agents didnt drive to your location to have a casual conversation. There here becuase an investigation has reached the point were they need to talk to you.

IRS Criminal Investigation has a conviction rate above 90%. They dont bring weak cases. They dont show up unless they have something. If there talking to you, its becuase there investigation has developed to the point were your involvement is relevant – either as a target or as a source of evidence against someone else.

Why Special Agents Travel In Pairs

You’ll notice there are two of them. This isnt coincidence. Special agents are trained to travel in pairs. One conducts the interview. The other takes notes. Those notes become a record of everything you say, and that record becomes evidence if the case goes to trial.

Heres the irony of this setup. The agent who talks to you will seem friendly, even sympathetic. There trained in interview techniques designed to put you at ease. Meanwhile, the other agent is writing down every word you say:

• Every inconsistency
• Every nervous correction
• Every statement that might later contradict a document or another witness

Your being professionally documented while feeling like your having a conversation.

The presence of a second agent also serves as a witness. If you later claim you never said something, two federal agents will testify that you did. If you claim the interview was coercive, two agents will testify that it was voluntary and friendly. The pair system protects there version of events.

This is why silence protects you more then explanations. Your words become evidence. Your silence cannot. The Constitution gives you the right not to speak, and that right exists for exactly this situation – when trained law enforcement officers want to record your statements and use them against you.

They Already Know The Answers

One of the most dangerous mistakes people make is assuming the agents need there help to understand the facts. They dont. By the time special agents show up at your door, theyve often been investigating for one to two years. Theyve already gathered bank records. Theyve already interviewed third parties. Theyve already obtained documents from your ERC preparer. They may have already spoken to your employees, your accountant, or your business partners.

Heres the uncomfortable truth that should change how you think about this interview. Many of the questions there asking you, they already know the answers to. There not asking becuase they need information. There asking to see if youll tell the truth. If your answer contradicts what they already know, youve just demonstrated consciousness of guilt. If your answer is false, youve just committed a new federal crime – making false statements to federal officers under 18 USC 1001.

People go to prison not for the original conduct, but for lying about it. Think about Martha Stewart. She wasnt convicted of insider trading. She was convicted of lying to federal investigators about allegations she was eventually aquitted of. The lie became the crime. This pattern repeats constantly in federal prosecutions:

1. The initial investigation finds something
2. The person tries to explain there way out of it
3. The explanation contains inconsistencies or falsehoods
4. Now there facing obstruction charges on top of whatever they were originally suspected of

Target vs Witness – The Ambiguity Is Intentional

The agents might tell you that your just a witness. There not investigating you – there investigating someone else, and they just need information. This might be true. It might also be a technique.

Heres the hidden connection that makes this dangerous. The IRS uses three classifications:

• Targets – people the investigation is focused on
• Subjects – people whose conduct is within the scope of the investigation
• Witnesses – people who have information but arent suspected of wrongdoing

The problem is that your status can change based on what you say.

Walk into an interview as a witness. Answer questions about your ERC preparer. Reveal that you knew the claim was problematic when you signed it. Congratulations – your now a target. The very information you provided, trying to be helpful about someone else, became evidence against you. Your status changed becuase of your own statements.

Even if the agents genuinly beleive your a witness at the start of the conversation, that classification isnt permanent. Anything you say that implicates yourself can shift there focus. The ambiguity about your status is intentional. It keeps you talking longer then you would if you knew you were the target.

The Investigation Has Been Running For Months

Most people assume that the special agent visit is the beginning of the investigation. It isnt. Its often one of the final steps.

Criminal tax investigations typicaly run one to three years before charges are filed. During that time, CI special agents are gathering evidence, interviewing witnesses, obtaining records, and building their case. The investigation is well underway before you ever know it exists. By the time agents show up at your door, they may have interviewed a dozen other people. They may have years of bank records. They may have copies of every email you sent your ERC preparer.

Heres the consequence cascade that led to this moment:

1. Your civil ERC audit went quiet
2. The auditor stopped returning calls
3. You thought that was good news
4. In reality, the auditor had identified fraud indicators and made a criminal referral
5. The case was transferred to IRS Criminal Investigation
6. CI opened a subject criminal investigation
7. For months, maybe longer, agents worked the case
8. They gathered evidence from every direction
9. They interviewed people who knew about your business
10. They built a timeline, identified documents, and prepared for interviews
11. Now there ready to talk to you

Your not at the beginning of this process. Your near the end.

What They Want You To Believe

The agents will tell you this is just a routine matter. There sure its all a misunderstanding. If your innocent, you shouldnt mind answering a few questions. Only guilty people need lawyers. Lets just talk and get this sorted out.

Every one of these statements is a technique designed to get you to talk.

Heres the inversion that should guide your thinking. Talking dosent help you – it helps them. Innocent people get convicted becuase they tried to explain there way out of suspicion. Smart people, guilty or innocent, ask for lawyers. Asking for a lawyer dosent make you look guilty. It makes you look like someone who understands how federal criminal investigations work.

The “just a misunderstanding” framing is particuarly dangerous. It implies that a brief conversation will clear everything up. It wont. If CI has opened an investigation, assigned special agents, and sent those agents to interview you, the investigation is not going to be resolved by your explanation. There past the point were your story could make this go away. There at the point were there testing your story against evidence they already have.

Your Constitutional Rights

Even though your not formally detained, you have constitutional rights that protect you in this moment.

The Fifth Amendment protects your right to remain silent. You cannot be compelled to give testimony against yourself. This right applies whether or not the agents have read you Miranda warnings. In fact, one of the paradoxes of this situation is that agents may not read you Miranda becuase your not technically in custody – your free to walk away. But that dosent mean your statements are any less usable against you. Everything you say voluntarily can be used at trial.

The Sixth Amendment protects your right to counsel. You have the right to have an attorney present during questioning. Unlike the right to a public defender after arrest, this right at the investigation stage means the right to retain your own lawyer. The agents cant stop you from calling a lawyer. They cant proceed with questioning over your objection once youve invoked the right.

Heres what the IRS’s own Internal Revenue Manual says. Special agents are supposed to warn you “in clear and unequivocal terms” of your right to remain silent, that any statements can be used as evidence against you, and your right to request the presence of an attorney. Even if they dont give this warning, you still have these rights. You dont need permission to exercise them.

The One Thing You Must Say

If IRS special agents contact you – whether at your door, at your business, at your car, anywhere – there is one response that protects you:

“I want to speak with an attorney before answering any questions.”

Thats it. Thats all you say. You dont explain why. You dont apologize. You dont promise to cooperate later. You dont provide background context. You dont answer “just this one question.” You say you want a lawyer and you stop talking.

Ask for there business cards. Get there names and contact information. Be polite but firm. Then end the conversation. You can verify there identities later using the IRS Employee Verification Tool. But in the moment, the only words that should come out of your mouth are a request for counsel.

Heres the inversion that most people get wrong. Asking for a lawyer dosent make you look guilty. It makes you look informed. Defense attorneys represent innocent people all the time. Federal agents expect sophisticated people to ask for lawyers. What surprises them – what builds there case – is when people try to talk there way out of trouble and end up making it worse.

The Statistics That Should Scare You

The numbers around ERC criminal enforcement should eliminate any doubt about how serious this is.

IRS Criminal Investigation has initiated 545 ERC fraud investigations. Of those, 75 have resulted in federal charges. 38 defendants have already been convicted. The average prison sentence for ERC fraud is 21 months – almost two years in federal prison.

For COVID fraud more broadly, the conviction rate is 97.4%. Let that number sink in. If you are charged with COVID-related fraud, you have less then a 3% chance of aquital. Federal prosecutors dont bring cases they arent confident they can win. By the time your indicted, theyve assembled overwhelming evidence. Fighting at trial with those odds means choosing to lose.

IRS CI has launched over 2,000 COVID fraud investigations totaling $10 billion in suspected fraud. This isnt a small enforcement effort. This is a major federal priority with significant resources behind it. The agents at your door are part of a coordinated nationwide crackdown that has already resulted in hundreds of indictments and will result in hundreds more.

What Happens After You Ask For A Lawyer

Once you invoke your right to counsel, the agents should stop questioning you. There trained to respect this invocation – continued questioning after you’ve asked for a lawyer can result in suppression of any statements they obtain.

The next step is to actualy get a lawyer. Not your regular accountant. Not your business attorney. You need a criminal tax defense attorney with experience handling IRS CI investigations. This is a specialization. The lawyer who handled your divorce or your commercial lease is not equipped for this.

Your attorney will contact the agents and begin gathering information:

• What is your status – target, subject, or witness?
• What is the investigation about?
• What evidence has the government obtained?

These questions can sometimes be answered through communication with the agents, though CI is not required to disclose everything.

If your a witness and not a target, your attorney may advise you to cooperate – but only with proper preparation and protection. If your a target, the strategy becomes about minimizing exposure and, if possible, resolving the matter before indictment. Every decision from this point forward needs to be made with full understanding of the risks.

If You Already Talked

Maybe your reading this too late. The agents already came. You already talked to them. You answered questions, tried to explain, maybe said some things that werent entirely accurate. Now your wondering if youve destroyed your case.

Heres the reality. Talking to agents without a lawyer was a mistake, but its not necessarily fatal. The damage depends on what you said, how it compares to the evidence they have, and what happens next. Some people talk to agents and say nothing incriminating. Others make statements that become central to the prosecution’s case. You wont know which category your in until you consult with a lawyer who can evaluate what you said in context.

What you absolutely cannot do is compound the mistake:

• Dont try to contact the agents again to “clarify” or “correct” what you said
• Every additional conversation creates additional evidence
• Dont contact witnesses to coordinate stories
• Dont destroy documents

Any of these actions, taken after your initial conversation, create new criminal exposure beyond whatever the original investigation was about.

Get a lawyer now. Tell the lawyer exactly what you told the agents. Dont minimize or leave things out. Your lawyer needs the full picture to assess your situation and develop a strategy. Attorney-client privilege protects this conversation. Nothing you tell your lawyer can be used against you.

Dont Make These Mistakes

The mistakes people make when contacted by CI agents follow predictable patterns.

First mistake: talking at all. Every word is evidence. The urge to explain is overwhelming. Resist it. You cannot talk your way out of a federal investigation.

Second mistake: lying. If you do talk and you lie, youve committed a new federal crime. Making false statements to federal officers carries its own prison sentence. Now your facing two charges instead of one.

Third mistake: contacting witnesses. After the agents leave, your instinct might be to call your accountant, your business partner, or anyone else who might be involved. Dont. Those calls can be construed as witness tampering or obstruction of justice. Talk to your lawyer first about what contact is appropriate.

Fourth mistake: destroying evidence. Once you know an investigation exists, destroying documents related to your ERC claim is obstruction of justice. This is another crime that can be prosecuted independently of whatever the original investigation was about. Preserve everything.

Fifth mistake: waiting. Every day that passes without legal representation is a day were you might make additional mistakes. The investigation continues whether or not your prepared. Get a lawyer immediately.

The gold badge at your door means everything has changed. What you do in the next few hours – not days, hours – will shape the rest of this process. The time to protect yourself is now.