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To the Public-At Large there is a remote acknowledgment that the Internal Revenue Service possesses a robust and rapidly growing department dedicated to issues involving tax crimes. This department is called the Criminal Investigation Division. In my earlier Article, I drew your attention to the Volaw case that came out of the Isle of Jersey wherein a Dutch citizen was facing tax crimes at the civil level and the Dutch Government was requesting information from Volaw. Initially, the Court in the Isle of Jersey refused to enforce the judgment since the crime was a civil claim and not as a criminal issue. The Dutch Government and mended their requests under the Tax Information Exchange Agreement in seeking any and all information under the criminal complaint. The Isle of Jersey Court therefore complied and ordered that any and all information on the Dutch citizen be transferred immediately to the Dutch Government. What other traits, including the states, to learn from this is to seek international cooperation under the Tax Information Exchange Agreements with the claim of criminal rather than civil.

It is a relatively simple step to presume that the Internal Revenue Service will totally bypass any offshore-compliance-articleeffort for a civil level resolution and proceed immediately to a criminal charge against individual Taxpayers. I envision that Criminal Investigation of Division, CID, will become even more robust and a force to be reckoned with even by the most seasoned and experienced Defense Attorneys. If you, as a United States Taxpayer, because of dual citizenship, Green Card holder, Visa holder, or spend more than 183 days in the name states over a three-year formula; you are at significant peril to be, one of the unfortunate Taxpayers who will be turned over by the Internal Revenue Service to their highly efficient Criminal Investigation Division.

In 2014, there will be hundreds of millions of tax returns filed with the Internal Revenue Service. Although small in number, first time filers of the above mentioned dual citizens, Green Cardholders, Resident U.S. Taxpayers, (the 183 day rule over 3 years) will be systematically pulled out of the hundreds of millions and prepped for examination by the IRS because of non-filing for past years. If you are picked for an examination, you will lose your major benefit of claiming the Voluntary Amnesty Program which limits the harsh financial penalties (civil penalties). However, even if your chose Amnesty, there is no guarantee that the IRS will not transfer your filed to CID for criminal prosecution. This is also true for not filing past and current Foreign Bank Account Reports, now form 114 that is due June 30, 2014 with not extension allowed and only filed over the internet. This means that the IRS can use its computer programs designed to pull you out of millions of filers because you did not file past years forms for the Foreign Bank Account Reports! Now you are right back to being before the CID, a place you really do not want to be!

The statistics for 2013, issued by the IRS, are not really as comforting as you may first believe. The IRS reports that a mere 3,311 individuals were convicted of tax crimes in the government’s fiscal year for 2013. Remember that these 3,311 convictions took years to secure. So, the 3,311 individuals were discovered years ago well before the specially designed detection systems were developed and honed to near perfection by the IRS. Here is what this number does not show for 2013:

CID began 5,314 new criminal investigations;

Working cases from past years evolved into 3,865 Indictments;

2,812 individuals were imprisoned from cases work on that began years ago.

What you must conclude is that the CID has a very high rate of investigation, indictment, conviction and imprisonment.

The CID usually obtains its cases as transfers from civil tax examiners. During this “transfer” the CID agent will quite simply sown up during the civil audit with no real announcement by the civil tax examiner. You need to be quite skilled to realize that the additional person is a CID agent. Whenever this occurs, the individual Taxpayer or its representative tax preparer that is representing the individual under audit should stop the examination immediately and seek competent legal tax counsel.

There are the ever increasing Berie Madoff type crimes and investor’s are being bilked out of millions. Others are using these schemes to avoid taxation in part or entirely are still being taken in by schemes to avoid taxation by passing it through offshore entities. A South Dakota surgeon was sentenced to 60 months after a jury trial verdict. He had avoided about $1 million in taxes on income diverted to Ireland and Nevis.

Criminal charges are being brought against persons who attempted to hide their cash in offshore bank accounts. One businessman was sentenced to 12 months and another to 19 months for undeclared foreign bank accounts.


Most individuals being examined by the IRs will not be transferred to the CID. But now with the growing numbers of agents in CID and the lessening of civil examining agents, statistics bear out that your chances of a “transfer” is high and the results will be sobering and tragic. Civil tax examiners are not supposed to do criminal investigations, but they are supposed to keep their eyes and ears open for signs of tax fraud. Individual Taxpayers are required to cooperate with the IRS in determining their tax liability, but are not required to incriminate themselves. If a civil tax audit seems to be turning into a criminal inquiry, the Individual Taxpayer should immediately seek and obtain seasoned and competent legal counsel.

Michael Nelson

Michael has great depth of experiences and skills that evolved from over 35 years of representing international businesses, executives, expatriates and multi-national families. From these years of successful legal representations of CEOs of Fortune 500 Companies to family clients with needs from complex estate planning to international trusts and private foundations. He is committed to his clients, always finding better alternatives or options for his clients. Dedication to the client is synonymous with his name.