A Comprehensive Guide for Concerned Taxpayers

The U.S. Department of Justice (DOJ) sometimes gets involved in tax cases. DOJ involvement usually indicates that you have a serious tax problem that could result in property seizure, massive monetary penalties, and/or criminal charges. The rest of this blog post goes into greater detail about what to expect if the DOJ gets involved with your tax problem.

Note that DOJ involvement is relatively rare – In the vast majority of tax disputes and legal actions, it’s the taxpayer versus the IRS. One reason for this is that most tax disagreements don’t end up in court. Instead, they’re usually settled after negotiations or alternative dispute resolution processes. Another reason is that if it does end up in court, the two litigants are usually the IRS Commissioner and the taxpayer.

When the IRS escalates the case to the DOJ, the issue is serious, and you should seek legal counsel. To get help now, contact us at the Law Offices of Stephen B. Kass today.

Key Takeaways

• The U.S. Department of Justice (DOJ) is the primary law enforcement arm of the federal government.
• In most civil tax disputes, the taxpayer will face the IRS, not the DOJ. This is because most civil tax cases that end up in court go to the U.S. Tax Court.
• The DOJ sometimes handles civil tax cases, but only if they’re brought outside of the U.S. Tax Court.
• The DOJ is more likely to become involved in a tax case if the government brings criminal charges against the taxpayer.
• Facing the DOJ in criminal court could potentially result in hefty fines, property seizure, and/or prison time.

Jurisdiction of the U.S. Department of Justice

The DOJ is the primary law enforcement organization for the United States federal government. Part of the executive branch, it consists of law enforcement officers (such as those from the FBI and the U.S. Marshals Service) and court officers (like those from the U.S. Attorneys’ Office and various legal divisions, such as the Tax Division).

Tax Cases Handled by the DOJ

The DOJ handles civil and criminal cases related to enforcement of the tax laws of the United States. The DOJ’s Trial Division handles or supervises the vast majority of civil tax litigation in federal and state courts.

If the Tax Division isn’t handling the case, they’re likely supervising the U.S. Attorney’s Office who’s trying the case themselves. If a tax lawsuit isn’t handled by the U.S. Attorney’s Office or the DOJ’s Tax Division, then it’s probably the IRS litigating a case in the U.S. Tax Court – the Tax Division of the DOJ doesn’t handle cases in the U.S. Tax Court.

Why Would the DOJ Get Involved In My Tax Case?

The answer depends on whether it’s a civil or criminal matter. One thing to keep in mind is that regardless of which type of legal matter your case is, it’s very unlikely your case will actually get to trial. Almost all tax-related litigation (and litigation in general) settles before the day of trial.

That being said, most civil or criminal tax cases with DOJ involvement typically involve one or more of the following issues:

• A large amount of unpaid taxes, typically $100,000 or more.
• Allegations of criminal tax evasion, especially involving offshore accounts.
• A taxpayer’s failure to cooperate with the IRS.
• A tax balance relating to trust fund or payroll taxes.
• Tax fraud, especially relating to corporate, identity theft, and healthcare.

Civil Cases

Most civil tax cases that go to court are started by the taxpayer. What typically happens is that the IRS conducts an audit or sends you a tax collection notice. You might disagree with the auditor’s conclusion or the IRS’ tax assessment. In some cases, the IRS might even accuse you of civil tax fraud and impose heavier-than-expected penalties.

You express your disagreement by sending a few letters or making a few phone calls to the IRS to discuss the disagreement. If those don’t work, you might file an appeal with the IRS Independent Office of Appeals. If still no agreement can be reached, your case might go to mediation. If this form of alternative dispute resolution doesn’t result in an agreeable solution, then you might choose to go to court. When bringing a civil suit regarding your taxes, you usually have three federal courts to choose from:

• U.S. District Court
• U.S. Court of Federal Claims
• U.S. Tax Court

If you’re like most other taxpayers looking to take the IRS to court, you’ll likely file a petition in the U.S. Tax Court because you aren’t required to first pay your tax bill before filing suit. If you want to bring your case to the Court of Federal Claims or District Court, you’ll have to pay your contested tax bill first, then sue for what is effectively a refund from the IRS. As you can imagine, most taxpayers file their cases in the U.S. Tax Court. Only if you file suit in the District Court of the Court of Federal Claims are you likely to encounter the DOJ in a civil case.

Criminal Cases

DOJ involvement in tax cases is most likely if your matter involves the potential for criminal charges. Yet the IRS handles mostly civil matters, so how does your tax case get from the IRS and to the DOJ? It usually begins with the IRS conducting a criminal investigation into you.

The IRS Criminal Investigation Division (CID) is the main section of the IRS that investigates criminal violations of the Internal Revenue Code (IRC). A criminal case begins when the IRS CID receives information from an IRS revenue agent, IRS revenue officer, member of the general public, or a member of another government agency (such as a law enforcement agency or the U.S. Attorney’s Office) about a possible criminal tax violation.

An IRS CID special agent will conduct a preliminary investigation to determine if criminal tax evasion has occurred. The special agent’s supervisor reviews the information to decide if further investigation is warranted. If so, a formal criminal investigation is opened. This may involve obtaining search warrants, interviewing witnesses, and subpoenaing financial records.

After the investigation is complete, various officials of the CID will decide if there’s enough evidence to bring criminal charges. If so, the case may be forwarded to the Tax Division of the DOJ who then takes over the matter and confirms if criminal charges should be levied against the taxpayer. Additional investigation may occur or the criminal prosecution may begin. Most of the time, if criminal charges are filed, they’re usually handled by the U.S. Attorney’s Office, not the Tax Division.

What the DOJ Does When Handling Tax Cases

In a civil case involving the DOJ (outside of the U.S. Tax Court), you can expect the Tax Division to represent the U. S. government. Your case will proceed like most other civil lawsuits, with pleadings and motions getting filed, discovery being exchanged, and then trial preparation. And as is the case with the vast majority of civil litigation, your case is likely to settle before the trial. This could mean you and the DOJ reach an agreement on the amount of your tax bill, perhaps with the help of an installment agreement or offer in compromise.

In a criminal case, things will be a bit different. Before you’re formally charged, your case will most likely go before a grand jury that decides if probable cause exists to charge you with a tax crime. A grand jury is also sometimes used as part of the criminal investigation, as it has the power to compel individuals to appear before them to testify or produce documents.

If the jury determines probable cause exists, they will issue an indictment. After the indictment, you may be arrested. After your arrest, you’ll have an initial hearing or arraignment where you’re formally charged and where you’ll likely enter your plea of guilty or not guilty to the charges. If you meet the requirements for bail, you may be released before trial. There may also be a preliminary hearing, which is where the prosecutor must show they have enough evidence to charge you with a crime. If they can’t meet this burden, the judge may dismiss the charges against you.

Before the trial, a lot will happen. One of the most important will be the prosecutor providing you (or more likely, your attorney) with discovery. This will be evidence they plan on using against you at trial. This is also the time when you might file pre-trial motions to dismiss the case against you or keep certain evidence from being used against you at trial. Finally, this is when plea bargaining usually takes place. You and your attorney might negotiate with the prosecutor for you to plead guilty but for a more lenient sentence. Even if an agreement is reached, the judge must approve it.

Just like with civil cases, most criminal cases never make it to trial and instead settle (with a plea bargain). If you decide not to plead guilty as part of a settlement deal with the prosecution, you will have your trial before a judge and jury (or just a judge, if you so choose). If you lose at trial, you’ll have the right to file an appeal.

Tax Case Outcomes with the DOJ

Being found guilty in a criminal trial could result in asset seizure, fines amounting to hundreds of thousands of dollars, and/or one or more years in prison. If you lose your civil trial, you can expect to have to pay the tax bill you fought so hard to avoid. If you can’t pay, you can expect tax liens and levies which could cause significant financial hardship on you.

Avoid Having to Deal with the Department of Justice

This is another example of how the best strategy revolves around prevention. The best way to avoid facing the U.S. Department of Justice is to avoid having your tax problems escalate. This means not ignoring IRS letters and notices and working with them sooner rather than later to resolve your tax issue.

If you aren’t confident in doing this on your own, or question the legal basis for the IRS’ actions, seek the guidance of a tax professional. If you think you might have broken the law (or believe the IRS thinks this), then you want your tax professional to be a tax lawyer. They’ll have the skills and experience to identify key facts to support your defense and help you negotiate a fair settlement and your communications with them will also be protected by attorney-client privilege. They’ll also advise you on other options, whether it’s filing for bankruptcy, finding another way to pay your tax debt using a plan you can afford, reducing your tax bill, or challenging the validity of your tax liability.

One of the most important things a tax lawyer will do for you is to help avoid self-incrimination. This is critical during the IRS CID investigation phase, as you’ll likely be asked to provide information to the IRS’ investigators. Ideally, you want to comply with these requests, but if doing so could incriminate you, you’ll want a lawyer to help you decide how to best respond to minimize your risk of criminal prosecution (and civil liability) as much as possible.

Get Help Avoiding the DOJ

If your tax problems are bad enough that the DOJ could get involved, you need to get professional tax assistance as soon as possible. If you don’t, you can risk losing your home, car, and even your freedom. If the IRS suspects you of tax evasion or you’ve so far been unsuccessful in stopping the IRS’ tax collection efforts against you, contact the Law Offices of Stephen B. Kass, P.C. The sooner you get in touch, the more we can do for you.