What are the top IRS Criminal Investigation enforcement priorities?

IRS Criminal Investigation focuses on tax evasion, money laundering, cybercrime, and pandemic-related fraud including abusive Employee Retention Credit claims. CI pursues a smaller number of high-impact cases designed for maximum deterrent effect rather than a large volume of routine prosecutions.

What types of conduct trigger an IRS criminal investigation?

Conduct that triggers criminal referrals includes filing false returns, willful failure to file or pay, tax evasion schemes, money laundering, identity theft, and fraudulent refund claims. The IRS prioritizes cases involving affirmative acts of fraud and substantial tax loss to the government.

IRS Criminal Investigation Priorities: What the Annual Report Tells Us | Lynch Law

The IRS Criminal Investigation division (CI) released its annual report for fiscal year 2023, providing a window into the agency's enforcement priorities and the types of conduct most likely to trigger a criminal tax investigation. For tax practitioners and their clients, the report confirms what we have been observing on the ground: CI is active, well-funded, and focused on the cases that generate the most deterrent effect.^[1]

By the Numbers

In fiscal year 2023, CI initiated approximately 2,676 investigations — a number that reflects the division's deliberate approach of pursuing a smaller number of high-impact cases rather than a large volume of smaller matters. CI identified over $5.5 billion in tax fraud, and the conviction rate for cases referred for prosecution exceeded 90%. The average sentence for tax crimes was 44 months of incarceration. These numbers underscore the seriousness of a criminal tax investigation: when CI investigates, the probability of conviction is extremely high, and prison time is the norm rather than the exception.

Top Enforcement Priorities

CI's annual report identifies several enforcement priorities that dominate the division's caseload. Tax evasion remains the core mission — individuals and businesses that willfully underreport income, overstate deductions, hide assets, or fail to file returns. The report highlights cases involving concealment of income through nominee entities, offshore accounts, and digital assets. These cases typically involve sophisticated taxpayers who take affirmative steps to evade their tax obligations, as opposed to taxpayers who make good-faith errors or exercise reasonable interpretive judgment.^[2]

Pandemic fraud continues to generate a significant number of investigations. The Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) created opportunities for fraud that bad actors exploited aggressively. CI is pursuing both the promoters who marketed fraudulent claims and the taxpayers who filed them. The report identifies hundreds of investigations related to pandemic relief fraud, with many cases involving six- and seven-figure fraudulent claims.

Money laundering and financial crimes represent a growing share of CI's caseload. CI's money-laundering investigations often intersect with narcotics trafficking, cybercrime, and terrorism financing. The report highlights CI's increasing use of blockchain analytics to trace cryptocurrency transactions and identify taxpayers who have failed to report digital asset income or who have used cryptocurrency to conceal taxable transactions.

What Triggers a Criminal Investigation

Not every tax dispute becomes a criminal case. CI investigates willful violations of the tax laws — conduct that goes beyond mere negligence or good-faith disagreement with the IRS's position. The hallmarks of criminal tax conduct include affirmative acts of concealment (false documents, nominee accounts, fictitious transactions); consistent patterns of underreporting (as opposed to isolated errors); significant tax loss; and badges of fraud such as maintaining two sets of books, destroying records, dealing in cash to avoid reporting, or filing false documents with the IRS.^[3]

Civil audit examinations can be referred to CI if the revenue agent identifies indicators of fraud during the audit. This is one of the most common paths to a criminal investigation, and it underscores the importance of having experienced representation during any IRS audit. An ill-advised statement to a revenue agent — or the production of documents that reveal a pattern of concealment — can escalate a civil matter into a criminal investigation.

Consequences of Conviction

The penalties for tax crimes are severe. Tax evasion under IRC § 7201 carries a maximum sentence of five years imprisonment and a $250,000 fine. Filing a false return under § 7206 carries a maximum of three years and $250,000. Failure to file under § 7203 carries a maximum of one year and $25,000 per year. In practice, sentences are determined under the United States Sentencing Guidelines, which consider the tax loss, the sophistication of the offense, the defendant's role, and other factors. For tax losses in the millions of dollars, sentences of four to six years are common.^[4]

Beyond incarceration and fines, a tax fraud conviction carries collateral consequences: civil fraud penalties (75% of the underpayment under § 6663), loss of professional licenses, reputational damage, and the practical inability to resolve future tax matters without the shadow of the prior conviction. For professionals — attorneys, accountants, physicians, financial advisors — a tax fraud conviction can end a career.

What To Do If You Are at Risk

For taxpayers who have engaged in conduct that could be characterized as criminal tax evasion — willful failure to report income, use of nominee entities to conceal assets, submission of false documents to the IRS — the CI annual report is a reminder that the IRS is actively investigating these cases and that the consequences of detection are severe. The IRS's voluntary disclosure practice may be available for taxpayers who come forward before CI initiates an investigation, providing a path to civil resolution without criminal prosecution.

If you believe you may be at risk, consult immediately with experienced tax controversy counsel who can evaluate the situation, advise on the available options, and — if appropriate — guide you through the voluntary disclosure process. Time is of the essence: the voluntary disclosure practice is available only to taxpayers who come forward before the IRS begins an investigation. Once CI is at the door, the window has closed.^[5]

References

^[1] IRS Criminal Investigation, Annual Report 2023 (CI-AR-2023) (reporting enforcement statistics, case outcomes, and priority areas for fiscal year 2023).
^[2] IRC § 7201 (tax evasion: willful attempt to evade or defeat any tax); § 7206 (fraud and false statements: willfully making or subscribing a false return or document).
^[3] IRM 25.1.1.3 (indicators of fraud: affirmative acts, consistent patterns, significant tax loss, badges of fraud). See also Spies v. United States, 317 U.S. 492 (1943) (affirmative acts of evasion include keeping double books, concealing assets, and filing false returns).
^[4] United States Sentencing Guidelines § 2T1.1 (tax evasion: base offense level determined by tax loss amount); § 2T1.4 (aiding and abetting tax fraud). Tax loss tables produce base offense levels that correspond to significant incarceration ranges for losses exceeding $250,000.
^[5] IRM 9.5.11.9 (voluntary disclosure practice: timely, truthful, and complete disclosure may result in civil rather than criminal resolution). See our earlier discussion: IRS Targets High-Income Non-Filers.