The Threat of Parallel Investigations: When Civil Isn't Civil
By: Justin J. Andreozzi, J.D.; Randall P. Andreozzi, J.D.; and Arlene Hibschweiler, MBA, J.D.
While at one time, the IRS would discontinue a civil examination when it began a criminal investigation of a taxpayer, it is now the IRS’s policy in certain situations to conduct simultaneous civil and criminal investigations in what are called parallel investigations.
While, technically, the civil and criminal investigations are separate, IRS civil examiners and criminal investigators, as well as any IRS attorneys and Department of Justice attorneys involved, are instructed to, and do, coordinate their efforts and share information. Instructions for how parallel investigations should be conducted are included in the Internal Revenue Manual (IRM).
The courts have affirmed that the IRS can conduct parallel investigations but cannot deceitfully carry on the criminal investigation under the guise of a civil investigation. The IRS, however, does not have an affirmative obligation to disclose the existence of a criminal investigation; rather, it must not intentionally mislead a taxpayer about the existence of or the potential for a criminal investigation.
IRS civil examiners are instructed not to disclose that a criminal investigation has been opened, and, if asked, only to state that any information obtained in a civil examination can be shared with criminal investigators.
The IRS in practice uses parallel investigations most aggressively in cases involving abusive tax shelters, and it provides specific instructions in the IRM on how civil and criminal investigations of tax shelters should be coordinated.
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