Basic Defense Strategies to Use in Criminal Tax Cases

Representing clients who are being investigated for criminal tax fraud or have already been charged with a tax crime can be a complicated proposition. The overall defense strategy may change based on the nature of the offenses, the client’s ability to commit resources to legal fees and expenses, the likelihood of prosecution and conviction, and case development.

Avoiding Other Federal Crimes

One of the most important tactics a taxpayer and attorney should keep in mind is to avoid steering prosecutors toward non-tax federal crimes. Regardless of whether a Criminal Investigation Division process leads to a prosecution or not, the fact that CI has interest in a taxpayer could lead to the discovery of evidence to support other non-tax federal crime prosecutions. Counsel should be aware of this possibility and should take particular care to avoid steering the investigation away from the tax offense but toward a non-tax easily prosecuted federal criminal charge. Some crimes related to tax crimes are conspiracy, aiding and abetting, and others. As such, special agents and prosecutors of tax crimes typically focus on these related crimes when making a prosecution recommendation to a non-tax crime.

The Use of Collateral Estoppel in Criminal Tax Cases

A prosecution for a tax crime is often followed by a civil tax deficiency contest or forfeiture proceeding. These civil proceedings typically involve the same basic facts as the underlying tax crime prosecution. Due to the similarity of issues and evidence, the government will almost always seek to apply the doctrine of collateral estoppel to aid in its civil case against the taxpayer. Depending on the underlying tax crime and the outcome of the plea hearing or sentencing, the effect of collateral estoppel in a civil proceeding can be severe for the taxpayer.

One potentially effective tactic to avoid the imposition of collateral estoppel can be used when negotiating a plea deal in tax crimes cases. In a tax crime case, counsel will sometimes seek to plea to a charge that does not preclude the taxpayer from contesting the civil fraud penalty after the conclusion of the criminal case. For example, when negotiating a plea deal in a prosecution for money-laundering, counsel should try to avoid any agreement with respect to the tax intent money-laundering provision. As another example, in a plea to a conspiracy charge, counsel should try to avoid admitting to any overt acts that do not help the taxpayer estop the civil tax fraud penalty. Thus, when negotiating a plea deal in a tax crime prosecution, counsel and the taxpayer should carefully consider how any admissions might impact a later civil tax deficiency contest. The key to successfully negotiating in this fashion involves making the necessary guilt acceptance statements while refraining from admitting anything which might defeat or confuse the goal of avoiding collateral estoppel.

Educating the Client about Criminal Tax Prosecution

An important defense strategy involves educating the taxpayer about the ins and outs of criminal tax prosecution. Taxpayers need to understand that CI special agents are not interested in civil tax determination, assessment, or collection. Rather, the goal of the special agent is to determine whether a crime has been committed and if so, recommend prosecution where appropriate. Special agents participate in an exhaustive investigation and case review process before initiating a formal criminal prosecution. During this process, special agents sometimes interview potential defendants before they have had an opportunity to obtain counsel. If that is the case, counsel must fully debrief the client to evaluate exactly what statements were made to the special agent. Unfortunately, the CI rarely makes transcripts of the interviews available to counsel, so the debriefing process becomes particularly important.

Taxpayers under investigation have a tendency to want to explain their “side of the story” or tell the facts in the most positive light to the special agent or other criminal investigator. However, this is not ideal and should be avoided at all costs. The taxpayer should be counseled to avoid speaking with any law enforcement personnel, including the case special agent or others. Speaking to the case special agent could pique the special agent’s interest in the case or inspire prosecution on non-tax related offenses. Moreover, the taxpayer could possibly make a false statement to the special agent that can eventually form the basis of for an independent or non-tax criminal prosecution.

How a Tax Attorney Can Help with Your Criminal Tax Case

If you are under investigation by the IRS for a potential criminal prosecution, then you must consult with an experienced tax attorney. San Diego tax attorney William D. Hartsock, Esq. has been successfully helping clients with criminal tax issues since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.