The U.S. taxpayer’s exposure to civil penalty/criminal prosecution for unreported income and undisclosed foreign financial accounts is a “double-edged” sword with dual civil/criminal: Evidentiary Standards of Proof, Statute of Limitations, and Collateral Estoppel Issues.
If the IRS first institutes a civil tax audit, they may summons evidence, which may support both a civil penalty (e.g. fraud) and criminal culpability (e.g. tax evasion). The evidence from the civil tax audit may then be used for a subsequent criminal prosecution of the same U.S. taxpayer.
Civil and criminal tax deficiencies may differ; Criminal violations are charged only against the tax deficiency that results from fraud.
Civil tax deficiency includes all tax due on the tax returns (i.e. “evaded income and deductions adjustments).
Under a civil tax audit, the IRS may obtain evidence that may be illegal under criminal proceedings (e.g. Fifth Amendment defenses objecting to “tainted evidence”) tax evidence obtained from the civil tax audit may enable the IRS (i.e. the U.S. Attorneys to initiate criminal proceedings against the taxpayer).
Criminal tax fraud requires a higher standard of proof than civil tax fraud. The government must prove “beyond a reasonable doubt” that the defendant is guilty of criminal tax fraud.
In civil tax fraud, the burden of proof required is a preponderance of the evidence (also termed “by clear and convincing evidence”) which is a lower evidentiary standard).
A criminal tax decision of a court or jury will bind a civil tax decision, but a civil tax decision does not bind a criminal tax decision.