Criminal Tax Cases & White Collar Defense

The IRS and the Department of Justice (DOJ) focus on a few thousand taxpayers each year, looking for violations of the specific federal criminal provisions that punish tax evasion and related conduct. These cases can include issues relating to personal and corporate income taxes, employment taxes, estate and gift taxes, tax shelters, conservation easements, micro-captive insurance entities, unreported foreign assets and accounts, cryptocurrency, and inquiries into tax professionals and return preparers. 

For decades, Caplin & Drysdale has been one of the preeminent law firms with attorneys, including former senior IRS and DOJ officials, who specialize in the complex area of criminal tax investigations. Our objective in these cases is always to attempt to persuade the IRS and the DOJ not to bring criminal charges and to handle the case as a civil tax matter. We represent clients during all phases of such cases, from an initial, and often sudden appearance by Special Agents in the IRS Criminal Investigation Division, through the DOJ’s decision whether to indict and in subsequent litigation. The firm has worked on many of the most complex criminal tax investigations in the last 50 years – a great number of which have stayed out of the public eye because we have succeeded in our clients avoiding criminal charges. 

Among many examples of Caplin & Drysdale’s successful criminal tax representations are these:

• Represented a wealthy private equity executive in an investigation arising from the creation and use of a nine-figure foreign trust. The Department of Justice entered into a rare “Non-Prosecution Agreement” whereby the individual avoided criminal charges, and the IRS agreed to a corollary civil tax settlement.
• Represented the CEO of a public company under criminal tax investigation involving substantial allegedly personal expenses. After a conference and a series of submissions, the Tax Division declined to authorize an indictment and sent the case back to the IRS for civil processing.
• Represented a public company whose CEO was targeted by an internal whistleblower who alleged that he had engaged in personal tax evasion. After we supervised an internal review of the matter and presented our findings to the investigating IRS agent and prosecutor, the matter was dropped.
• Represented a locally well-known physician in an alleged criminal gift tax fraud scheme and persuaded the Tax Division not to bring charges based on the doctor’s reliance on tax advice he had received.
• Represented the founder of a well-known consumer product brand in a case involving unreported foreign accounts of over $100,000,000 and following a guilty plea, obtained a sentence of probation, years less than the sentencing guidelines range.
• Represented a major international bank in connection with a sweeping criminal tax investigation into certain tax shelter transactions marketed and sold to the bank’s wealthy clients. After a series of presentations to federal prosecutors and IRS agents, the government agreed to enter into a Deferred Prosecution Agreement, and the bank avoided criminal charges.
• Represented a professor of business in a case involving unreported foreign accounts of over $200,000,000 and following a guilty plea, obtained a sentence of seven months, significantly less than the sentencing guidelines range.
• Represented a tax return preparer who prepared thousands of returns over a four-year period in negotiating plea for illegal reporting of false or inflated Schedule A and Schedule C deductions for the individual’s clients. Through substantial advocacy and tactful consultation with the government was able to convince the court to order a sentence of home confinement (no incarceration) which was a substantial departure from the guidelines range of 24 to 30 months.   
• Successfully represented numerous Swiss banks in connection with their participation in the Department of Justice Swiss Bank Program, resulting in non-prosecution agreements for each client and a significantly mitigated monetary payment.

Criminal tax cases represent a highly specialized area of practice. Caplin & Drysdale has always taken pride in our work with other lawyers where we play a consulting role to the client’s primary criminal or litigation counsel, bringing to the case our knowledge of legal, factual, and tactical issues that are unique to criminal tax matters. These cases can range from inquiries about criminal tax issues that arise prior to any investigation to consultations on active federal and state investigations.

Our firm has been proud to be associated with some of the top U.S. and global law firms in helping to advise clients on potential or ongoing criminal tax matters. We are often brought in by these firms to help, and we also have access to the same network of firms for clients whose cases raise legal issues in other parts of the U.S. or around the world. We continue to enjoy our relationships with our professional colleagues, and we always strike to collaborate in a collegial team environment working for the client’s best interest.  Some of our most significant and successful case results have occurred in such collaborations.

The process of a criminal tax investigation is unique in the federal system in that the Tax Division, which is headquartered in the Department of Justice in Washington, plays a significant role in nearly every case. In some cases, prosecutors from the Tax Division handle and/or supervise the investigation. In most cases DOJ Tax Division prosecutors will make the ultimate decision whether to ask a grand jury for a criminal indictment. Caplin & Drysdale attorneys have decades of experience interacting with the Tax Division, conferring with their prosecution teams and reviewing attorneys, advocating for our clients that criminal charges should not be brought, and obtaining criminal declinations.

Criminal tax cases also often involve active participation by local U.S. Attorney’s offices, frequently with prosecutors who are specialized in tax and white collar matters. Caplin has appeared before dozens of U.S. Attorney’s offices, frequently with colleagues at local law firms, to seek a favorable outcome for taxpayers under investigation.

Criminal tax investigations, on occasion, are part of a broader criminal inquiry by the Department of Justice or IRS. In addition to the focus on tax issues, an investigation might include other alleged financial improprieties involving for example fraud generally (wire/mail/bank), money laundering, securities fraud, foreign corrupt practices, or public corruption.  A typical “white-collar” financial investigation can broaden as investigators gather additional financial information.  Such a case may involve only the IRS as the investigative agency because the IRS has jurisdiction in areas like money laundering or Bank Secrecy Act violations or the case may include another investigative agency such as the FBI. 

Caplin & Drysdale attorneys frequently encounter these broader investigations and usually handle all aspects of these cases, because the potential tax violation is often closely intertwined with the other alleged improper financial conduct.  In cases where our client would benefit from other specialized expertise, such as a securities matter, we readily and frequently pair with counsel from another firm to provide the most comprehensive and effective defense possible.

Criminal investigations of alleged financial crimes, such as tax or other white-collar matters, almost invariably involve efforts to interview third party witnesses, such as accountants, bookkeepers, business partners, or attorneys. Our attorneys regularly represent such individuals during the course of an investigation and potential interview. These representations often include determining the exact status of the witness and responding to subpoenas for relevant records, all while obtaining any appropriate legal protections, such as possibly limited immunity. We have substantial experience in handling sensitive privilege issues that can arise where legal advice is an issue in the case. Depending on the nature of the investigation, we may collaborate with counsel for the target or for other parties under common interest arrangements. Or often, as counsel to the principle subject, we are coordinating representation as effectively and efficiently as possible for multiple such third party witnesses. 

When a business organization becomes aware of possible criminal conduct in connection with the entity’s business activity, Department of Justice policies incentivize quick action by the C-suite to ascertain what happened, determine an overall strategy, and take appropriate action against any wrongdoers. Caplin & Drysdale attorneys have advised many companies, professional firms, and related types of entities in such cases, either alone or as part of a larger team where we consult on specific criminal tax matters. There are important and sensitive issues relating to the attorney-client and work product privilege that require careful thought at the inception of such cases. Moreover, the Department of Justice is likely to scrutinize the manner in which such an investigation is conducted as well as its results.  An effective and meaningful internal investigation can sometimes make the difference in a prosecutor’s decision whether to indict a business organization or to enter into a non-criminal disposition, so it important that any internal review is done correctly and without interference.

Notwithstanding our best efforts, some criminal tax cases move forward either to indictment, trial or plea, and our clients may face the potential of a criminal sentence.  Federal law requires a judge to fashion a sentence that takes into consideration numerous factors including the gravity of the crime and the need for deterrence, but the judge must also recognize the personal situation of the defendant. The Court is also required to consider the federal Sentencing Guidelines, which in criminal tax cases, can raise unique and challenging issues. For a defendant facing sentencing, it is important that the judge understand any mitigating circumstances that would justify a lesser sentence of incarceration such as home confinement or even probation and that is not so punitive financially that it renders the defendant unable to get back on their feet once they have completed their sentence. 

An important component of all of our firm’s criminal tax representations is developing a strategy for minimizing the risk of incarceration, stiff penalties, and financial restitution.  Evaluating a client’s potential exposure in light of the nature of the case, the applicable  Sentencing Guidelines, and possible mitigating factors will help the client understand a range of scenarios, and it will, with our advice, help guide the client through the difficult decision points that present themselves in any criminal tax matter. Similarly, understanding how to use a client’s charitable history or Sentencing Guideline departures – such as those for cooperation (§5K1.1) or loss of a caretaking function (§5H1.6) – to ameliorate the client’s potential exposure is critical to an effective representation. 

Caplin & Drysdale attorneys have spent decades guiding clients through criminal proceedings and using a combination of experience, advocacy, and ingenuity have helped clients achieve sentencing outcomes that allowed them to get on with their life sooner and be well positioned for the future. 

The U.S. tax system depends on taxpayers voluntarily meeting their tax obligations. There are stiff civil penalties and potential criminal sanctions associated with the failure to meet these obligations. By far, the best time to address any deficiencies is before contact by the IRS, especially before being visited by IRS Special Agents, who conduct criminal tax investigations. If an audit or criminal investigation has commenced, the option of a voluntary disclosure is no longer available. 

For many years both the IRS and Department of Justice through their respective voluntary disclosure policies and practices have welcomed taxpayers who wish to correct prior filings if they do so in a truthful, accurate, and timely manner. Such a voluntary disclosure will effectively preclude the initiation of a criminal investigation and prosecution and may reduce civil penalties. Guiding a client successfully through the voluntary disclosure process often requires addressing complex issues, so working with the right lawyer can mean the difference between a successful non-criminal resolution or potentially severe criminal and civil consequences.

In the last decade the IRS made a significant effort to formalize the voluntary disclosure process with respect to both domestic and international matters. This formalization of the process, however, has not made it easier to qualify for a voluntary disclosure, and there is no guarantee that simply entering into a voluntary disclosure assures that a taxpayer will receive the leniency contemplated by the program or even avoid a criminal investigation. Our attorneys are well versed on the extensive requirements for entering the IRS’s voluntary disclosure program today, and that is particularly helpful to minimizing the client’s overall costs.

Caplin & Drysdale’s skilled group of lawyers have decades of experience handling voluntary disclosures for our clients and have successfully guided several thousand clients through their disclosures in recent years.