Signs You May Be Under Investigation for Tax Evasion

February 12, 2025 • Posted In White Collar Crime

A tax evasion investigation can begin long before you are formally charged, making it crucial to recognize the warning signs. Federal and state agencies conduct extensive financial reviews, looking for discrepancies, hidden income, and fraudulent filings. Knowing the red flags that indicate a white collar crime investigation can help you take proactive steps to protect yourself.

Unusual IRS Communication or Audit Notices

If you received an unexpected Internal Revenue Service (IRS) letter, audit notice, or request for additional documentation, you may be under investigation for tax evasion. The IRS may question income discrepancies, deductions, or unreported assets, looking for signs of fraudulent activity. Under Georgia Code § 48-7-2, tax fraud investigations can lead to criminal charges if the IRS believes you intentionally misrepresented your finances.

A routine IRS audit can quickly turn into a criminal investigation if auditors suspect deliberate tax fraud, which would be considered a white collar crime. If the IRS finds inconsistencies in your filings, they may escalate the case to the Criminal Investigation Division. What starts as a request for clarification can result in felony tax evasion charges and severe financial penalties.

Red Flags That May Trigger a Tax Evasion Investigation

Certain financial activities and inconsistencies can raise suspicion with the IRS. If your tax filings show patterns of misreporting, the IRS may conduct a deeper review to determine whether fraud has occurred. If you notice any of the following, you may already be under investigation:

• Sudden account freezes – If your bank accounts are unexpectedly restricted, the IRS may be investigating financial transactions for possible fraud. Freezing assets is a common tactic used to prevent funds from being moved or concealed.
• Increased IRS inquiries – If you are receiving multiple requests for tax records, proof of deductions, or explanations of your income, the IRS may be building a case against you. Investigators often seek additional documentation before escalating an audit into a criminal matter.
• Requests for extensive documentation – If the IRS demands years’ worth of financial records, it could indicate that they are looking for evidence of long-term fraud. Investigators often review business transactions, tax returns, and banking history to establish a pattern of misconduct.
• Frequent amendments to tax returns – If you have repeatedly corrected or adjusted your filings, the IRS may view this as an attempt to cover up fraud. Revising tax returns after an audit notice may raise suspicions instead of resolving concerns.
• Large cash transactions – Depositing or withdrawing large amounts of cash without proper documentation can attract IRS scrutiny. If your financial activity does not match your reported income, investigators may assume that you are hiding taxable funds.

Visits or Contact From Federal Investigators

If federal investigators visit your home or place of business, the IRS has likely already begun to build a case against you. Agents may ask questions, request financial records, or attempt to get you to make statements that can be used against you. Speaking to investigators without legal guidance can be risky, as anything you say may impact the direction of your case.

If the IRS believes they have enough evidence to prove tax fraud, they may refer your case to the Department of Justice for prosecution. Once this happens, you could face felony charges, substantial fines, and even prison time. If your case reaches this stage, federal prosecutors are confident they can prove you intentionally violated tax laws beyond a reasonable doubt.