The line between a civil tax problem and a criminal one is thinner than people think, and you don't get to decide which side you're on. The IRS does. Owing money is civil. Lying about it is criminal. Evasion under Section 7201, willful failure to file under 7203, false returns under 7206. The government is selective about which tax cases it prosecutes, and it tends to charge the ones it expects to win.
How Civil Cases Turn Criminal
Revenue Agents are trained to spot what the IRS calls badges of fraud: unreported income, double sets of books, false statements during the audit, destroyed records. When an agent sees enough of them, the civil exam quietly stops and the file goes to Criminal Investigation. You usually won't be told. The first sign is often two special agents at your door, and by then, every word you've said in the audit is already in the file.
This is why the most dangerous audits are what we call eggshell audits: civil on the surface, criminal exposure underneath. Handling one of those without counsel is how people talk themselves into indictments.
The One Rule That Matters
If IRS Criminal Investigation contacts you, say nothing and call a lawyer. Not your CPA. Their files and their memory can be summoned. A lawyer, whose conversations with you are privileged no matter how bad the facts are.
Most criminal referrals can be prevented long before they happen, but prevention requires getting honest with someone the government can't subpoena.