Criminal Tax Investigations and Current-Year Returns: New Thoughts on a Perennial Issue.

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Criminal Tax Investigations and Current-Year Returns: New Thoughts on a Perennial Issue.

This article was originally published in Andrews Litigation Reporter-December 2004

Criminal tax cases present many issues unique to the world of white-collar criminal practice, but perhaps the most complex and intriguing one arises from the annual requirement that every U.S. taxpayer file a timely, accurate and complete tax return, and the implications of this requirement for the target of the investigation.

Most criminal tax inquiries take more than a year to investigate, and thus persons under scrutiny by the Internal Revenue Service's Criminal Investigation Division have to "return to the scene of the crime" each year by confronting a filing likely to bear on one or more issues in the prior years' returns already under scrutiny.

The situation is fraught with peril for the target of the investigation - filing a complete and truthful return may provide important and incriminating leads to investigating agents; anything less risks expanding the inquiry to include the current year's filing as part of the criminal conduct.

For example, a taxpayer under investigation for having a previously undisclosed foreign bank account must still confront the question on the 1040 form asking whether, in the previous calendar year, he or she had signatory authority over or a financial interest in a foreign account. A "yes" answer, with the additional required information, would be a potentially incriminating admission. Failing to answer, or worse, a "no" answer, may be a new criminal offense.

Or, an accurate portrayal of a taxpa...

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