When IRS Criminal Investigation Contacts You
by Ed Martin, Chief Investigator at Sage Investigations, Texas Fraud Expert
If you are unfortunate enough to have IRS Criminal Investigation (CI) target you and execute a search warrant on your residence, cars, and small business, here is what to expect:
An IRS Special Agent with information sufficient to establish probable cause for a search warrant filed an affidavit with a US Magistrate and obtained a search warrant. The affidavit will be “sealed” to prevent access to the contents. The agent with his fellow agents (armed with guns, badges, bullet proof vests, and a battering ram) will systematically execute the warrant. They will take all of your personal and business records. If you maintain a “cash hoard” in a shoe box or safe deposit box, they may seize it as evidence of the crime of Income Tax Evasion (Title 26 USC 7201) or Income Tax Fraud (Title 26 USC 7206(1)). For those involved in illegal activities, there may be Money Laundering charges under Title 18 USC 1956 and 1957 and other charges. This is the start of a long “Grand Jury” investigative process that will be unsettling and confusing to most individuals. The services of an expert private investigator are required to assist your attorney in the defense of a criminal income tax investigation.
There are two types of investigation conducted by IRS Criminal Investigation, including the “Grand Jury” investigation that, with the assistance of an Assistant US Attorney (AUSA), allows the use of Grand Jury Subpoenas to gather evidence and testimony of the crime. The second is the “Administrative Investigations” conducted through the use of IRS Summons which are similar to a Federal Grand Jury Subpoenas and requires the production of records, but are more cumbersome than the Grand Jury Subpoena.
Your reaction to the search warrant is critical, because during the execution of the warrant, you will be anxious to tell your side of the story. You may be an honest person, but because you are a target of the investigation, you should STOP and tell the agent you wish to speak to an attorney. In a “Grand Jury” investigation, you will not be read your rights as is required during an “Administrative” Investigation where the Internal Revenue Manual requires that a non-custodial Miranda warning be read to the target. Regardless of the type of investigation you will be perplexed, so ask to speak to a lawyer. The agent is required by case law and procedure to stop asking you questions. Do not be tempted to continue answering questions no matter what the agent says. Statements you make are being witnessed and will be documented in writing and used against you later. Invoke your rights under the Constitution of the United States and “lawyer up.” It is your right!
During the search, the agents will present a copy of the Search Warrant, which sites the charges that are alleged, the period covered, and other information, that should be provided to your criminal defense attorney.
The agents will leave a computer generated inventory of the items seized prior to departing the premises.
Here are six steps to help you get organized:
1. Contact your business attorney and ask for a referral to a criminal defense attorney who has experience in the Federal Court system. Former Assistant US Attorneys in private practice are generally excellent in these cases. They know the system and are generally respected by the AUSAs.
2. The criminal defense attorney should prepare and deliver a letter of representation to the AUSA assigned the case to establish communications.
3. The defense attorney should hire an expert private investigator trained in investigation by the IRS and US Treasury Department. The investigator should receive an engagement letter that will allow the investigator to be covered by the attorney-client privilege. Generally, a forensic accountant and a retired IRS Special Agent with a CPA or CFE would be beneficial to the case.
4. The defense attorney should prepare Forms 2848, IRS Power of Attorney for each individual and entity involved. The investigator should also be included on the IRS Power of Attorney.
5. The defense attorney and the investigator will meet with the client, “target” of the investigation to discuss the matter, receive information, discuss the various methods of proof, and what the future holds.
6. The defense begins with the attorney and investigator interviewing current and former employees, and accountants. In some circumstances, former disgruntled employees may have gone to the IRS seeking a reward for up to 30% of the money collected from the investigation under the new IRS Tax Whistleblower statute.
Tips to Hire a Securities, Corporate and Credit Card Investigator
by Ed Martin, Chief Investigator at Sage Investigations, Texas Fraud Expert
Tips on what to look for in hiring a fraud investigator
1. Review the various names of the investigative agency and research the Chief Investigator by searching for the names.
2. Determine the scope of the investigation you would like done
3. Determine what funds you have as a budget for the investigation
4. Meet with the PI and determine if you can work together.
5. Determine if the PI is licensed by the state and has E&O Insurance and attends annual CPE.
6. Require a contract identifying the scope of the investigation.
7. PIs should be professional and members of certifying organizations.
8. The PI should be a good note taker and writer.
9. The PI should experience in testifying in court.
How to Reduce Employee Theft
by Ed Martin, Chief Investigator at Sage Investigations, Texas Fraud Expert
How to handle theft by employees and what to do to prevent theft in a small business setting. Always trust but verify to let the employee know that your are vigilant.
1. Have company bank statements sent to your home or view them online.
2. Review the bank statements and ask questions of the employee handling the bank account.
3. Require monthly reconciliations of all bank accounts and review them.
4. Have an accountant review internal controls and suggest means to segregate duties.
5. Separate cash / banking functions from record keeping functions.
6. Restrict access to payroll master files to prevent “ghost employees”
7. If using QuickBooks software make sure the audit function is always employed by the software.
8. Use background checks – the cost of a background will allow you to avoid hiring questionable employees.
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