In this episode of the Tax Rep Network Podcast, host Eric Green sits down with former IRS Office of Fraud Enforcement advisor Esther Robinson for an inside look at how civil tax audits can turn into criminal investigations. From fraud development and civil fraud penalties to IRS Criminal Investigation referrals and real-world case stories, Eric and Esther break down what tax professionals need to know when dealing with potential fraud issues. They discuss the role of the IRS Office of Fraud Enforcement, the warning signs examiners look for, why some cases become criminal while others stay civil, and the costly consequences taxpayers face when crossing the line. Packed with practical insights, behind-the-scenes IRS procedures, and war stories from the field, this episode is a must-listen for CPAs, EAs, attorneys, and anyone handling IRS controversy work.

Join us for the webinar covering this in-depth on June 4th by registering here: https://taxrepllc.com/20260604-fraud/

Want to connect with Esther? Contact her at: Esther@treestoneadvisory.com.

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Watch the episode here

 

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Inside the IRS Office of Fraud Enforcement: How Civil Tax Cases Become Criminal Investigations

When most taxpayers think about an IRS audit, they picture a civil examination focused on numbers, records, and tax adjustments. What many do not realize is that some civil audits can evolve into criminal investigations — and the IRS Office of Fraud Enforcement (OFE) plays a major role in determining when that happens.

In a recent discussion, Tax Rep Network founder Eric Green sat down with former IRS fraud expert Esther Robinson to explain how the OFE operates behind the scenes and how tax professionals can recognize when a case may be heading into dangerous territory.

The Office of Fraud Enforcement was created during the tenure of former IRS Commissioner Chuck Rettig as part of an effort to strengthen the IRS’s ability to identify and develop fraud cases within the civil divisions of the agency. While the office is housed under the IRS Small Business/Self-Employed Division (SBSE), it supports multiple IRS operating divisions.

According to Robinson, OFE’s primary role is not to conduct audits directly, but to train and advise IRS examiners on recognizing “badges of fraud.” Fraud enforcement advisors educate revenue agents and revenue officers on the warning signs that may indicate intentional wrongdoing rather than simple mistakes or negligence.

These indicators can include repeated underreporting of income, structured cash transactions, falsified documents, employment tax issues, hidden assets, or patterns of deceptive conduct over multiple years.

Once an examiner suspects fraud, they may consult with OFE for guidance. From there, the case can enter “fraud development,” where OFE works closely with the examiner to determine whether the facts support civil fraud penalties, a criminal referral to IRS Criminal Investigation (CI), or neither.

Importantly, not every suspicious case becomes criminal. Robinson explained that cases can be dropped at multiple stages. Some may lack sufficient evidence, while others simply do not meet the prosecution standards or dollar thresholds that CI looks for.

Green shared several real-world examples illustrating how easily cases can be misunderstood. In one instance, a taxpayer who legally bought and sold firearms as personal assets was incorrectly suspected of tax fraud because large amounts of money moved through his bank account. After reconstructing the records, the actual tax deficiency turned out to be relatively small, and the criminal investigation was dropped.

The discussion also highlighted the severe consequences of civil fraud penalties, even when criminal charges are never filed. The IRS can impose a 75% civil fraud penalty, which can dramatically increase a taxpayer’s liability and make it far more difficult to settle or discharge the debt in bankruptcy.

One particularly dangerous area involves collection matters and false financial disclosures submitted to the IRS. Robinson and Green discussed how submitting inaccurate financial statements or hiding assets during collection proceedings can lead to “evasion of payment” cases — often viewed as even more serious than traditional tax evasion.

For tax professionals, the key takeaway is clear: understanding the fraud referral process is essential. Recognizing the early warning signs of fraud development can help practitioners better protect their clients, avoid costly mistakes, and respond strategically before a civil examination escalates into something much more serious.

 

Important Links

• Esther Robinson
• Episode 81 – The IRS’s New Fraud Czars
• When Payroll Taxes Go Criminal With Robert Nordlander
• Civil or Criminal: Inside the IRS Office of Fraud Enforcement
• Esther Robinson Email
• Esther Robinson on LinkedIn

 

About Esther Robinson

Esther Robinson is a Certified Public Accountant and former IRS Fraud Enforcement Advisor with over 15 years of experience at the IRS including fraud enforcement, forensic accounting, tax controversy, and compliance. During her tenure with the Internal Revenue Service, Esther worked in the Office of Fraud Enforcement working with multiple operating divisions, where she developed national fraud programs, trained examiners on identifying civil and criminal fraud, and advised executives, counsel, and enforcement agents on high-impact investigations.

As founder of Treestone Advisory CPA, Esther works with accounting, tax, and legal professionals who need forensic insight or assistance in complex financial matters. She draws on her deep understanding of IRS procedures and investigative methods to support practitioners in resolving fraud and compliance issues with precision and integrity.