The Internal Revenue Service (IRS) operates under a robust statutory framework that governs its civil and criminal enforcement activities related to tax compliance. At the core of this framework is Title 26 of the United States Code, commonly referred to as the Internal Revenue Code (IRC). The IRC sets forth the rules for federal taxation, including definitions of taxable income, allowable deductions, and penalties for noncompliance.
When it comes to IRS civil audits, the agency's authority derives primarily from Section 7602 of the IRC. This section grants the IRS the power to examine any person's books, accounts, return, information, or testimony that may be relevant to determining tax liability. The standard for initiating an audit is relatively low; the IRS need only have reason to believe that there may be a deficiency in tax or that there has been fraud.
Criminal Tax Investigations
For criminal cases involving tax evasion, the key statutes are Sections 7201 and 7206 of the IRC. Section 7201 criminalizes willful attempts to evade or defeat any tax, while Section 7206(1) prohibits making false statements on a tax return. The government must prove specific intent beyond a reasonable doubt for both offenses. In practice, this often requires evidence of intentional conduct aimed at concealing income or assets.
FBAR and Foreign Account Reporting
The Bank Secrecy Act (BSA), codified in Title 31 of the U.S. Code, mandates that individuals with financial interests in foreign accounts report these holdings to the Treasury Department if their aggregate value exceeds certain thresholds. Failure to file a Report of Foreign Bank and Financial Accounts (FBAR) can lead to severe penalties under Section 5321(a)(5). Additionally, willful violations may constitute criminal offenses under Section 5322.
Employment Tax Issues
The IRC also addresses employment tax issues through a complex web of provisions. One key area is the collection and remittance of payroll taxes on behalf of employees (Sections 7512, 6051). Employers who fail to comply can face both civil penalties under Section 6656 as well as potential criminal charges for willful failure to deposit or pay over withheld income tax (Section 7203).
Voluntary Disclosure Practice
The IRS offers a Voluntary Disclosure Program (VDP) that allows taxpayers who have not filed required returns or paid taxes on time to come forward and resolve their delinquency. This program, administered under the authority of the Chief Counsel's Office Memorandum 2018-06, provides an opportunity for reduced penalties and in some cases, immunity from criminal prosecution.
In summary, navigating IRS tax defense requires