The IRM requires that IRS revenue agents discontinue or suspend their audit after receiving firm indications of fraud. Proceeding beyond that point create the risk that the taxpayer will be mislead as to the nature of the investigation (civil or criminal) and result in the taxpayer not being aware that he or she should consider asserting his or her constitutional rights. See generally IRM 25.1.2. Thus, where the continued audit by the agent results in obtaining incriminating statements from the taxpayer, the taxpayer will cry foul in any resulting criminal prosecution in which the Government attempts to use those confessions. Those taxpayer claims are usually, but not always, unsuccessful unless the taxpayer can show that the agent's continued efforts were based upon some bad faith by affirmative misrepresentation as to the nature of the continued investigation.
The high water mark in terms of sanctions for such affirmative misrepresentations was United States v. Tweel, 550 F.2d 297 (5th Cir. 1977) where a tax indictment was dismissed because the civil agent’s actions misled the taxpayer as to the criminal nature of the investigation. Since Tweel, the courts have applied the dismissal remedy -- more usually a suppression remedy which might result in dismissal -- sparingly (really almost never), requiring some express misrepresentation (rarely found) rather than just a joint civil and criminal use of the fruits of the audit. See e.g., United States v. Rutherford, 555 F.3d 190 (6th Cir. 2009).
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