The Internal Revenue Service may initiate a tax fraud investigation when the agency suspects a business of fraud. This investigation goes above the level of a tax audit to attempt to build a federal fraud case.
Understanding the process of a tax fraud investigation can help business owners defend their livelihood from these allegations.
Types of investigations
The IRS recognizes and investigates various categories of business tax fraud, such as:
- Submitting false business tax returns
- Falsifying payroll tax records
- Paying employees in cash “under the table”
- Running illegal gambling or gaming operations
- Using foreign accounts to bypass U.S. tax regulations
- Committing public corruption, including embezzlement, bribery or extortion
When an IRS agent detects possible fraud, he or she initiates a criminal investigation. A special agent will then perform a primary investigation to determine the likelihood of fraud. After he or she develops a case, the criminal investigations supervisor can approve or deny an in-depth investigation.
The special agent and the IRS criminal tax attorneys gather evidence to support the investigation. They may review financial documents and bank records, search the business premises, surveil the property, interview witnesses, and use other techniques to build a case.
Upon analyzing the evidence, a committee will decide whether to forward the case for prosecution or discontinue the investigation. The Department of Justice, Tax Division will investigate and prosecute claims of IRS fraud.
The IRS prosecutes approximately 3,000 tax fraud cases every year. Defendants have the right to attorney representation and may have the opportunity to make a plea to settle the case if found guilty.