How Long Does an IRS Investigation Take?

An Internal Revenue Service (IRS) investigation is a formal inquiry to determine if a taxpayer has violated United States tax laws. These investigations are methodical and can be lengthy, involving a detailed analysis of financial records to uncover facts and evidence related to potential non-compliance.

Types of IRS Investigations

The IRS conducts two primary types of inquiries. The most common is a civil tax audit, or examination, performed by IRS Revenue Agents. Their goal is to verify the accuracy of a tax return by reviewing a taxpayer’s records to ensure income, deductions, and credits are reported correctly. If discrepancies are found, the outcome is the assessment of additional tax, interest, and civil penalties, such as the accuracy-related penalty under Internal Revenue Code Section 6662.

A criminal tax investigation is a more serious inquiry conducted by IRS Criminal Investigation (CI) Special Agents, who are federal law enforcement officers. The purpose is not to recover taxes but to gather evidence for potential criminal prosecution due to willful violations of tax law. Special Agents investigate offenses like tax evasion or filing a false return, focusing on proving intent to defraud the government. This can lead to federal prison sentences and substantial fines, separate from any civil tax liability.

The Criminal Investigation Process

Case Initiation

A criminal investigation is initiated from specific information sources that suggest willful tax violations. A common origin is a referral from the civil division of the IRS. If a Revenue Agent uncovers indicators of fraud during an audit, such as concealed income, the civil audit is suspended and the case is referred to the Criminal Investigation division. Cases also originate from public sources, data analytics, or informants.

Once CI receives information, a Special Agent conducts a preliminary analysis to evaluate its merit. If the agent believes there is potential for a criminal case, the recommendation is reviewed by a Supervisory Special Agent. Final approval from the head of the local CI office is required to open a formal investigation.

Formal Investigation

With a formal investigation authorized, a Special Agent begins gathering evidence to build a case that can prove guilt beyond a reasonable doubt. Agents use a variety of techniques to obtain information. Throughout this process, the Special Agent works closely with attorneys from the IRS Chief Counsel’s office, who provide legal guidance.

Investigative Techniques

• Issuing administrative summonses to banks and brokerage firms for records.
• Interviewing the taxpayer and third-party witnesses like former employees or business partners.
• Executing search warrants to seize records from a home or business.
• Conducting surveillance to observe a taxpayer’s activities.
• Using forensic accounting to analyze complex financial data.

Supervisory and Legal Review

After gathering evidence, the Special Agent prepares a Special Agent Report (SAR) that outlines the findings and recommends whether to pursue prosecution. This report begins a multi-layered review process. The agent’s direct supervisor must first review and approve the report.

Following supervisory approval, the case file is sent to attorneys within the IRS Chief Counsel’s office. These lawyers conduct an independent legal review of the case. They assess the strength of the evidence and determine if the case meets the standards for a criminal prosecution referral. This internal review ensures that only well-supported cases move forward.

Referral to the Department of Justice (DOJ)

If IRS Chief Counsel agrees with the recommendation to prosecute, the case is transmitted to the Department of Justice, usually to the Tax Division in Washington, D.C. The authority to file criminal tax charges rests solely with the DOJ, not the IRS. Attorneys at the Tax Division conduct their own independent review of the entire case file.

The DOJ has the final say and can approve the prosecution, send the case back to the IRS for further investigation, or decline to prosecute. Only upon receiving DOJ approval can the U.S. Attorney’s Office in the relevant federal district proceed with filing formal criminal charges.

Factors Influencing the Investigation Timeline

The duration of an IRS investigation can vary from several months to multiple years. The primary driver of the timeline is the complexity of the case. Investigations involving numerous business entities, offshore bank accounts, or sophisticated money laundering schemes require extensive time to trace funds and unravel financial structures.

A taxpayer’s level of cooperation also shapes the timeline. A taxpayer who cooperates through legal counsel by providing documents and facilitating interviews may help expedite the process. Conversely, a lack of cooperation can lead to delays, as the IRS must resort to more time-consuming legal procedures like issuing summonses or obtaining search warrants.

The internal workloads of government agencies play a role in the timeline. The IRS Criminal Investigation division and the DOJ Tax Division have limited resources. A high volume of active cases can create backlogs, causing delays at various stages of the review and approval process. An investigation may be complete from the agent’s perspective but wait for months before being reviewed by IRS Counsel or DOJ attorneys.

Concluding an Investigation

An IRS criminal investigation concludes in one of several ways, and the taxpayer is formally notified of the final determination. One outcome is that the investigation is dropped. This can happen if the IRS finds insufficient evidence of criminal intent or if the Department of Justice declines to bring charges. In this scenario, the taxpayer receives a declination letter, officially closing the inquiry.

Another resolution is for the criminal case to be discontinued and referred back to the IRS civil division. This occurs when investigators find non-compliance that does not rise to the level of a prosecutable criminal offense. The case is then handled as a civil audit, which will likely include substantial civil penalties, such as the 75% civil fraud penalty under Section 6663, in addition to back taxes and interest.

The most serious conclusion is when the Department of Justice accepts the IRS’s recommendation and proceeds with criminal prosecution. This begins when the U.S. Attorney’s Office files a formal complaint or seeks an indictment from a grand jury. The taxpayer is then officially charged with a federal crime and must navigate the criminal justice system.