Understanding Criminal Tax Investigations

Income taxes provide the government the ability to operate and provide services to all Americans.  As of 2016, the population of the United States is reported to be 325 million.  There are 244 million adults.  Only 122 million Americans pay federal income taxes.  Nearly two-thirds of the population of the United States pays no income taxes.

The burden of paying taxes falls disproportionately upon the top income earners.  The top 20% of income earners pay 84% of all income taxes collected annually.  Persons earning $134,000 or more annually are included in the top 20%.  By comparison, the bottom 40% of wage earners (individuals reporting less than $47,000 of income) pay virtually no taxes in the aggregate.  This group actually receives more in refunds and tax credits than they pay into the government.

Taxpayers who have annual adjusted gross income of more than $429,000 are part of the top 1% of all taxpayers. The top 1 % of taxpayers accounted for more income taxes paid to the government than the bottom 90% combined.   

For the past 15 years the United States government has spent more money to operate than it has collected in taxes. As a result, the national debt has grown each year.  In 2000 the national debt was approximately $5.6 trillion. At the end of 2016, the national debt was approaching $19 trillion.

The American Income Tax System Depends Upon Voluntary Compliance

The entire American tax system depends upon voluntary compliance by taxpayers.  To encourage the voluntary filing of accurate tax returns, the Internal Revenue Code authorizes criminal prosecution of taxpayers who willfully violate the tax laws.

The Internal Revenue Code includes the following criminal tax offenses: Section 7201 - Tax Evasion, Section 7202 - Willful Failure to Collect or Pay Over Tax, Section 7203 - Willful Failure to File, Section 7206 - Filing a Fraudulent Return, and 7212 - Interfering With the Administration of the IRS.   

 
The Criminal Investigation Division of the IRS has sole authority to investigate criminal tax violation. These investigations are conducted by highly trained special agents. The special agents are assigned to and work on a very limited number of cases. The principle objective of the investigation is to gather sufficient evidence to prove beyond a reasonable doubt that a criminal tax violation has been committed by the taxpayer who is the target of the investigation.

Once a criminal investigation has been commenced, the IRS has an informal policy that the taxpayer cannot resolve the investigation merely by paying the tax that should have been properly reported and paid for the prior tax year now under investigation.


Criminal Investigations Should Not be Treated as a Civil Audit

Criminal investigations should never be treated by the taxpayer or his representatives as a civil audit.  It should be remembered that the job of a special agent is to collect evidence in order to indict and convict the target of the investigation. The agents are trained to be friendly to get the taxpayer and witnesses to talk and provide them information they need to make a criminal case.  However, they can also quickly become angry and intimidating to get the taxpayer or witness to talk, if they determine that this is necessary to get the job accomplished.

The Conviction Rate in Criminal Tax Cases is Over 93%

The IRS reports that it is successful in obtaining a conviction in over 93% of the cases that are indicted.  The number of investigations initiated during 2013 was 5,314. The Internal Revenue Service’s Criminal Investigation Division (“CI”) is the only federal law enforcement agency with jurisdiction over federal tax crimes. A criminal tax case may take several years to investigate, indict, and go to trial. This year, 2015, CI again boasted the highest conviction rate in all of federal law enforcement — 93.2%.   The data for the past 6 six years is as follows:

                                        FY2015     FY2014       FY2013     FY2012     FY2011    FY2010

Investigations Initiated          3853         4297           5314          5125         4720         4706    
Prosecution Recommends    3289         3478           4364          3701         3410         3034
Informations/Indictments       3208         3272           3865          3390         2998         2645
Convictions                          2879         3110           3311          2634         2350         2184
Sentenced                           3092         3268           2812          2466         2206         2172
Percent to Prison                 80.8%       79.6%         80.1%       81.5%       81.7%       81.5%


The conviction rate for FY 2015 was  93.2%   
The conviction rate for FY 2014 was  93.4%
The conviction rate for FY 2013 was  93.1%
The conviction rate for FY 2012 was  93.0%
The conviction rate for FY 2011 was  92.7%

Less than 1% of All Lawyers Have Won a Criminal Tax Trial for the Defendant

During the past 18 years (1999 through 2016) only a small number of taxpayers won their criminal tax trial and were found NOT GUILTY on all counts. The number of taxpayers acquitted during the past 18 years is as follows:

56 in the Western Region:  Michigan, Ohio, Kentucky, Pennsylvania, New York, Vermont, New Hampshire, Maine, Massachusetts, Rhode Island, Connecticut, New Jersey, Delaware, and Maryland.

62 in the Northern Region:  Washington, Oregon, California, Nevada, Arizona, Utah, Colorado, Oklahoma, Kansas, Nebraska, Wyoming, Idaho, Montana, North Dakota, South Dakota, Minnesota, Wisconsin, Iowa, Illinois, Indiana, Hawaii, and Alaska.

81 in the Southern Region:New Mexico, Texas, Louisiana, Arkansas, Missouri, Tennessee, Mississippi, Alabama, Florida, Georgia, South Carolina, North Carolina, Virginia, and West Virginia.

The States Comprising the Southern Region Has 354,771 Active Lawyers

There have been 81 taxpayers that have been found Not Guilty on all counts during the past 18 years in the Southern United States Region.  The states comprising the Southern United States Region has 354,771 active lawyers. The number of lawyers by state is as follows:

New Mexico       5,581             Texas           87,957           Louisiana     19,099
Arkansas           7,320             Missouri       24,922           Tennessee    18,288
Mississippi        7,094              Alabama      14,666           Florida          75,697
Georgia           31,499              S. Carolina   10,208           N. Carolina    23,325
Virginia            24,193              W. Virginia     4,922

One Lawyer Was Responsible For Approx. 10% of the Acquittals in the Southern Region

Out of the 354,771 active lawyers in the Southern Region, one lawyer, David M. Garvin,  represented approximately 10% of the 81 taxpayers that won their criminal tax jury trial during the past 18 years. These taxpayers were found Not Guilty on all counts. David M. Garvin represented the following taxpayers in the Southern Region during this period of time.

     Taxpayer’s Name          Case No.            Verdict Date                    Verdict    

1.  Charles T. Unkle             98-398              01-28-1999            Not Guilty All Counts

2.  Terry Elliott                     98-511              06-14-1999            Not Guilty All Counts     

3.  Demetrios Armadoros   04-20190             06-17-2004            Not Guilty All Counts    

4.  Helio Castroneves         08-20916            04-17-2009             Not Guilty All Counts  

5.  John P. Miller           12-CR-60025            09-04-2012            Not Guilty All Counts      

6.  Julio Robaina                3-20346              04-29-2014            Not Guilty All Counts    

7.  Raiza Robaina             13-20346              04-29-2014            Not Guilty All Counts    

8.  Noe Mompoint             15-20258              01-25-2016            Not Guilty All Counts


In addition, during this period of time, David M. Garvin represented several taxpayers that were investigated for tax violations by the Criminal Investigation Division and upon meeting with the Department of Justice, Tax Division lawyers and/or the United States Attorney assigned to the case David M. Garvin was able to get the criminal case killed and referred back to the civil division of the IRS.  This is a testament to the review system and the integrity of the lawyers assigned by the government to review tax cases.

Representative cases of David M. Garvin that were killed after investigation but before trial are:

1.   Investigation of taxpayer Ary Krau; and
2.   Investigation of taxpayer Kemal Arin.

There Is No Margin of Error for a Taxpayer Who Seeks a Complete Acquittal    

Because less than 1% of the licensed lawyers have won (Not Guilty on all counts) a criminal tax trial for the defense, there is no margin of error afforded a taxpayer who intends to go to trial in a criminal tax case and prove his or her innocence.

An Experienced Successful Criminal Tax Lawyer Knows That a Defense Solely Based upon Willfulness Is a Defense of Last Resort

When you are the target of an IRS criminal investigation, retaining a criminal tax lawyer who has actually gone to trial in numerous criminal tax cases and has obtained complete acquittals (Not Guilty verdicts on all counts) is imperative.  There are many competent tax attorneys that have no concept as to how to try a federal criminal trial. Likewise, there are many competent criminal lawyers who know how to try a case but, have no knowledge of the tax laws. When these lawyers are hired by a taxpayer they often limit their defense of the taxpayer to the issue of willfulness. This routinely results in the defense lawyer ultimately recommending that the client accept a plea agreement which requires the taxpayer to plead guilty to a felony.  An experienced successful criminal tax lawyer knows that a defense based upon solely on willfulness is a defense of last resort and is seldom sufficient to achieve not guilty verdicts on all counts.   

When Winning Means Everything, Selecting an Experienced Winning Lawyer is Crucial

Some taxpayers look at the statistics and become overwhelmed with a feeling that maintaining their innocence is futile and obtaining justice from a jury trial is hopeless.  However, fortunately there are taxpayers who have the fortitude to go to trial to prove their innocence and share the spirit of the late great Winston Churchill, who once said:

                                       “Now this is not the end.  It is not even the beginning of the end.
                                        But it is, perhaps, the end of the beginning.”

                                                                                                        Winston Churchill

The course of history was influenced and the free world was saved by persons of similar courage in the face of overwhelming odds.  In the context of a criminal tax case, when winning means everything, selecting an experienced winning lawyer is crucial.

Taxpayers Should Use Their Common Sense

There is no substitute for common sense.  If you ask the average person the following questions they almost unanimously give the following answers.

         Q:  If you needed heart surgery, would you hire a doctor who had never
              successfully performed heart surgery before, to perform your surgery?

         A:  No.

         Q:  If you needed to build a house, would you hire a contractor who had
               never successfully built a house before, to build your house?

         A:  No.

         Q:  If you needed a pilot to fly you to a meeting, would you hire a pilot
                who had never successfully flown an airplane, to fly you to your meeting?

          A:  No.

These common sense answers beg the question: “Why would you hire a lawyer who has never won a criminal tax trial for the defense to defend you in a criminal tax investigation or trial?”

You have the absolute right when selecting a lawyer to ask for the names of the cases and the case numbers of the cases of the cases which resulted in Not Guilty on all counts verdicts.  Do your homework as if your very liberty depends upon it. Because it may.

Conclusion

In conclusion, being a target in a criminal tax case can be overwhelming.  Taxpayers in this situation often find that they cannot sleep. Instead, they lie in bed in the middle of the night starring at the ceiling wondering how they got into this mess and when it will finally end.  Nonetheless, it should be remembered that there are taxpayers who do win.  However, it is imperative that the taxpayer not make any mistakes.  This starts with the taxpayer’s selection of his lawyer.  

About the Author:

David M. Garvin is a Florida Bar Certified Tax Lawyer. Mr. Garvin holds a LLM in taxation and is also a CPA. Mr. Garvin’s law offices are located in Miami, Florida. His practice concentrates on federal white collar crimes defense including criminal tax cases. Mr. Garvin accepts cases nationwide.

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