Warning Signs Your Civil Tax Examination Is Turning Criminal

By Jason M. Silver, Tax Attorney, Silver Law PLC. Last reviewed September 2026.

A civil audit rarely announces the moment it stops being civil.

The clearest signs are procedural. Your examiner goes quiet, the report you expected never arrives, the questions move from what the numbers say to what you knew and who told you, and people outside the exam start getting contacted. Under IRM 25.1.3.3, an examiner who develops firm indications of fraud must suspend the examination “without disclosing to the taxpayer or representative the reason for the suspension.” The silence isn’t a lull. It’s often the signal.

Practitioners call this an eggshell audit: a civil examination carried on over facts the taxpayer knows are wrong. It isn’t a legal category, and nothing obligates the IRS to warn you.

Drawing on Jason M. Silver’s years as a trial and criminal tax attorney with the IRS Office of Chief Counsel, here is what those signs reflect, how a fraud referral moves, and what to do first. If you’re under exam now, start with our IRS audit representation page.

Table Of Contents

• The Signs, And What Each One Usually Means
• Why A Quiet Examiner Is A Reliable Sign
• Indicators Of Fraud Versus Affirmative Acts
• How A Referral Moves From Your Examiner To Criminal Investigation
• The Questions You Can Ask, And What The Answers Are Worth
• What Changes If The Exam Stays Civil
• Arizona Exposure Is Separate From The Federal Case
• What To Do In The First Week
• When To Bring In Tax Counsel

The Signs, And What Each One Usually Means

Each row pairs something you can observe with the procedure that tends to produce it. None proves a referral. Several together, in one exam, is worth a call to counsel this week. Remember to keep a dated copy of everything you hand over.

Signs A Civil Examination May Be Developing Into A Fraud Case

Sign You May See	What It Often Reflects Inside The IRS	A Reasonable First Move
The examiner stops responding and the case sits for weeks	Fraud development requires suspending activity, and the reason isn’t disclosed (IRM 25.1.3.3)	Ask in writing whether the case is still active
No Revenue Agent Report arrives when the exam looks finished	A report can’t go to you or your representative until the step is discussed with a Fraud Enforcement Advisor (IRM 25.1.2.4)	Stop volunteering documents until counsel reviews the scope
Questions move from what the numbers are to why you did it and who told you to	Fraud requires fraudulent intent, so intent evidence is what a fraud case needs (IRM 25.1.1.3)	Answer factual questions through counsel, and don’t speculate about intent
The scope expands to years outside the original notice	A fraudulent return filed with intent to evade leaves the assessment period open indefinitely (26 U.S.C. 6501(c)(1))	Don’t extend the period before counsel reviews why
A third-party contact notice arrives, or your bank was contacted	The IRS generally must give 45 days’ notice before contacting third parties (26 U.S.C. 7602(c))	Ask third parties to route questions through counsel
A summons is served on a bank, your accountant, or you	Some third-party summonses carry notice and a 20-day right to petition to quash, some are excepted (26 U.S.C. 7609)	Calendar 20 days from the date notice was given
A second IRS employee joins, or a special agent reads you a Fifth Amendment warning	A joint investigation pairs Criminal Investigation with the civil function, and agents warn a subject before interviewing (IRM 25.1.4.2; IRM 9.4.5.8.3.1.1)	End the meeting and call a tax attorney before the next contact
You ask whether the case has criminal potential and get a non-answer	Employees may decline that question, but may not deceive you about the nature of the investigation (IRM 25.1.3.3)	Put the question in writing and keep the reply

Why A Quiet Examiner Is A Reliable Sign

An examiner who suspects fraud has less freedom to talk to you, not more. Once affirmative acts are established, IRM 25.1.2.2 directs that “the compliance employee must suspend collection or examination activity, and immediately notify the group manager and the FEA.” Before that, the case sits in fraud development status on Form 11661, on 60-day review cycles. None of that paperwork reaches you.

The report is the other tell. IRM 25.1.2.4 says a Revenue Agent Report “must not be sent to the taxpayer … unless and until this action is specifically discussed with the FEA.” An exam that looks complete and produces nothing may be waiting on that conversation.

Will The IRS Tell Me If My Audit Became A Fraud Case?

Usually not, and not on its own timetable. IRM 25.1.3.3 tells the employee to suspend activity without disclosing the reason, lets them decline questions about criminal potential, and bars them from deceiving you about the character or nature of the investigation. The honest answer to a direct question is often silence rather than reassurance.

Indicators Of Fraud Versus Affirmative Acts

The IRS separates the two, and the distinction decides what happens next. Indicators are warning signs, and affirmative acts are the evidence. IRM 25.1.2.1.1 defines them as “actions taken by the taxpayer, return preparer and/or promoter to deceive or defraud.”

IRM 25.1.2.3 groups the indicators into six categories: Income, Expenses or Deductions, Books and Records, Allocations of Income, Conduct of Taxpayer, and Methods of Concealment, and notes that each list “is not intended to be all-inclusive.”

An examiner working through your records is working through those six headings, whether or not the word fraud has been said out loud. Underneath sits the definition in IRM 25.1.1.3: “deception by misrepresentation of material facts, or silence when good faith requires expression,” requiring both a tax due and owing and fraudulent intent.

Where Is The Line Between A Bad Return And Fraud?

IRM 25.1.1.3.3 states that avoidance of tax is not a criminal offense and that taxpayers may minimize taxes by legitimate means, while evasion “involves some affirmative act to evade or defeat a tax,” including deceit, subterfuge, camouflage and concealment. A math error or a documented deduction isn’t evasion. A second set of books is. Our article on negligence versus criminal tax evasion goes deeper.

How A Referral Moves From Your Examiner To Criminal Investigation

The early clock is short, though nothing after acceptance has a published timetable. Your examiner doesn’t refer to a case directly. Form 2797 (Referral of Potential Criminal Fraud Cases) travels from the compliance employee up through the group manager, while the Fraud Enforcement Advisor and the FEA group manager to a Criminal Investigation field office, carrying the facts that establish firm indications of fraud or willfulness.

What Happens After Your Examiner Suspects Fraud

Step	Timing	Rule
Indicators documented, group manager told, Fraud Enforcement Advisor contacted	As early in the exam as possible	IRM 25.1.2.2
Case placed in fraud development status on Form 11661 with a plan of action	Follow-up date within 60 days, and within 60 days of each later plan	IRM 25.1.2.2
Affirmative acts established, examination activity suspended	Immediately, and the reason isn’t disclosed to you	IRM 25.1.2.2; IRM 25.1.3.3
Form 2797 reaches CI, special agent sets the initial conference	Within 10 workdays of receipt of the referral	IRM 25.1.3.4
Disposition conference, where CI’s decision is discussed	Within 30 workdays of receipt of the referral	IRM 25.1.3.4
Accepted, the matter becomes a subject of criminal investigation. Declined, the examiner resumes the civil exam	On the decision	IRM 25.1.3.5; IRM 25.1.3.6

That filtering is why the numbers on the other side are lopsided. Across all its crime categories, IRS Criminal Investigation initiated 2,792 investigations in fiscal year 2025, saw 1,613 defendants sentenced, and reported an 89% conviction rate and a 76% incarceration rate (IRS-CI Annual Report, FY2025), figures we covered in our post on the annual conviction rate reporting.

Once a Justice Department referral is in effect, 26 U.S.C. 7602(d) bars the IRS from issuing a summons or enforcing one against that person. The administrative tools stop, but grand jury tools don’t.

The Questions You Can Ask, And What The Answers Are Worth

Ask directly, and ask in writing. IRM 25.1.3.3 permits an employee to decline questions about criminal potential, and prohibits deceiving a taxpayer who asks specifically about the character or nature of an investigation. That second half has teeth in a narrow set of cases.

In United States v. Tweel, 550 F.2d 297 (5th Cir. 1977), a revenue agent told the taxpayer’s accountant that no special agent was involved when a criminal unit was behind the exam. The Fifth Circuit called that “a sneaky deliberate deception by the agent,” held that “silence can only be equated with fraud where there is a legal or moral duty to speak or where an inquiry left unanswered would be intentionally misleading,” and ruled the evidence should have been suppressed.

Set your expectations about how far that goes. In United States v. Caceres, 440 U.S. 741 (1979), the Supreme Court held that evidence obtained in violation of the IRS’s own internal rules need not be excluded, because the agency “was not required either by the Constitution, or by statute, to adopt any particular procedures or rules.” A departure from the Internal Revenue Manual is not, by itself, a suppression remedy. Tweel turned on an affirmative misrepresentation, and later cases have read it narrowly.

Treat an offer to keep the matter civil as outside the examiner’s authority. In a joint investigation, IRM 25.1.4.4.1 prohibits statements construed as offers of immunity or attempts to settle civil liabilities, counseling the person under investigation about defenses, and arrangements suggesting prosecution is not contemplated.

Do I Have To Answer A Special Agent’s Questions?

No. A special agent interviewing a subject outside custody gives a warning under IRM 9.4.5.8.3.1.1: the agent “cannot compel you to answer any questions or to submit any information if such answers or information might tend to incriminate you in any way,” anything you say or submit may be used against you, and you may “seek the assistance of an attorney before responding.” Take that last part literally.

What Changes If The Exam Stays Civil

The money and the calendar change at different rates.

Penalty And Assessment Exposure By Outcome

If The Exam Ends This Way	Penalty Exposure	How Far Back The IRS Can Assess
Ordinary adjustment, no fraud asserted	Interest, and possibly a 20 percent accuracy-related penalty where the understatement exceeds the greater of 10 percent of the tax required to be shown or $5,000 (26 U.S.C. 6662)	Generally 3 years from filing, or 6 years where omitted gross income exceeds 25 percent of the amount stated (26 U.S.C. 6501(a), (e))
Civil fraud asserted, no prosecution	75 percent of the portion of the underpayment attributable to fraud (26 U.S.C. 6663(a))	No time limit on a false or fraudulent return filed with intent to evade tax (26 U.S.C. 6501(c)(1))
Prosecuted for a false return (26 U.S.C. 7206(1))	Fined not more than $100,000 ($500,000 for a corporation), imprisoned not more than 3 years, or both, plus costs of prosecution	No time limit for the fraudulent year
Prosecuted for tax evasion (26 U.S.C. 7201)	Fined not more than $100,000 ($500,000 for a corporation), imprisoned not more than 5 years, or both, plus costs of prosecution	No time limit for the fraudulent year

Understand the burden inside the fraud penalty before you argue about it. Under 26 U.S.C. 6663(b), once the government establishes that any portion of an underpayment is attributable to fraud, the entire underpayment is treated as attributable to fraud except whatever portion you establish, by a preponderance of the evidence, is not. The default runs against you.

Procedure still matters: we wrote about a fraud penalty the Tax Court threw out over missing written supervisory approval, the kind of defect counsel looks for early rather than at the end.

How Far Back Can The IRS Go If It Claims Fraud?

There’s no cutoff. 26 U.S.C. 6501(c)(1) provides that in the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed at any time.

The ordinary rule is 3 years, and 6 years where omitted gross income exceeds 25% of the amount stated on the return. That’s why an exam that starts in one year and quietly reaches five is doing something other than housekeeping.

Arizona Exposure Is Separate From The Federal Case

A federal outcome doesn’t close the state file. Under A.R.S. 42-1127(B), a first-time violation “may be designated as a class 1 misdemeanor, but otherwise it is a class 5 felony” to knowingly present a return or document that is fraudulent or materially false, or to knowingly fail to file or conceal a material fact with intent that the department rely on it.

The Arizona Department of Revenue takes its own criminal investigation referrals. If your exam touches Arizona returns, ask counsel about both tracks in the same conversation, not in sequence. Our piece on Arizona income tax audit risk covers the state side.

What To Do In The First Week

These steps preserve options you can lose in a single meeting.

1. Write down the timeline: every contact, who started it, what was asked, what was produced. Calendar any summons or third-party notice deadline on the document itself.
2. Keep a complete copy of everything already given to the IRS. You can’t assess exposure from memory, and your representative needs the set the examiner has.
3. Stop producing documents until counsel reviews the scope. Producing what was requested is normal. Producing more is how years get added.
4. Don’t sign a consent extending the assessment period until someone explains why it’s being asked for now.
5. Route substantive questions through counsel, including questions to and from your accountant. Our guide to responding to an Information Document Request covers a normal request.
6. Don’t amend, reconstruct, or tidy up records mid-exam. Conduct during an examination is one of the six indicator categories, and altering records is what it looks for.
7. If a special agent has made contact, say you want counsel present and end the conversation. Then read our guide to handling a criminal tax investigation.

Should I Keep Talking To My Accountant?

Keep the relationship, and change what travels through it. Federal law has no general accountant client privilege, so your accountant’s file, workpapers and testimony are generally reachable, and your accountant may have separate penalty exposure under 26 U.S.C. 6694. Practical answer: your accountant keeps doing accounting, and questions about intent, prior positions, or what to tell the examiner go to counsel first.

When To Bring In Tax Counsel

Bring counsel in at the first sign above, not at the end of the exam. The decisions made in the quiet weeks of an eggshell audit, what to produce, what to say about intent, whether to extend the statute, are the hardest to undo later. If a summons has been served the clock is already running, and we cover when a summons carries notice and a right to challenge it separately.

Silver Law PLC is staffed by former IRS attorneys. Read the firm’s audit and appeals experience before you call, or see criminal tax defense for matters already on the criminal side.

Call (480) 429-3360 or contact our Scottsdale office before your next meeting with the examiner.

What Clients Say

I started with Steve, Jason’s dad, and Jason back in 2009 on just say a big mess on the IRS’s part; criminal investigation for 4 years totaling 7 different returns. Despite 4.5 years of pressure from “the boys” the Silvers never wavered in supporting me… — Roland H. Cipolla II, Google review of Silver Law PLC, Scottsdale

…Surviving an extensive 3 year audit from the IRS was something that I don’t think I could have done on my own… he also kept me calm and collected through the worst of it when I had been terrified for the worst outcomes possible… — Derek Noble, Google review of Silver Law PLC, Scottsdale

About This Article

Jason M. Silver is a tax attorney with Silver Law PLC in Scottsdale, Arizona. From 1995 to 1999 he served as a Trial Attorney and Criminal Tax Attorney with the IRS Office of Chief Counsel in Los Angeles. He is a Certified Tax Law Specialist through the Board of Legal Specialization of the State Bar of Arizona and a Fellow of the American College of Tax Counsel. Read more about the firm’s attorneys. Editorial note: First published September 2026. Jacob Silver, an attorney and CPA, checked the statutory citations, the Internal Revenue Manual provisions, and the procedural descriptions against their sources before publication.

Sources

• IRM 25.1.1, Overview/Definitions
• IRM 25.1.2, Recognizing and Developing Fraud
• IRM 25.1.3, Criminal Referrals
• IRM 25.1.4, Administrative Joint Investigation
• IRM 9.4.5, Interviews
• 26 U.S.C. 6501, 6662, 6663, 7201, 7206, 7602, 7609
• United States v. Tweel, 550 F.2d 297 (5th Cir. 1977)
• United States v. Caceres, 440 U.S. 741 (1979)
• A.R.S. 42-1127; Arizona Department of Revenue criminal investigation referral
• IRS tax preparer penalties, 26 U.S.C. 6694
• IRS-CI Annual Report, Fiscal Year 2025 (Publication 3583)

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