Karen Kelly, Esq.: Tax Attorney and Former Head of the DOJ Tax Division
By Jeff Grant
We were honored to host Karen Kelly, Esq., a tax attorney at Kostelanetz LLP and the former head of the Justice Department’s Tax Division, as our July 2026 White Collar Support Group Tuesday Night Speaker Series presenter. She gave us the hour on how a criminal tax case gets opened, how it gets built, and how many people sign off on it before anyone is charged. You can watch the full recording above.
Almost every one of us has a tax dimension buried somewhere in our case, and almost none of us ever had it explained by the person who used to run the other side. If a tax count got attached to a matter that started somewhere else, if your accountant has gone quiet, or if you are the spouse trying to work out what a summons to the bank means, this is the hour.
What Karen Kelly covered
- 11:10 Al Capone, Spiro Agnew, and why tax charges exist
- 14:37 What separates a Title 26 tax case from a Title 18 case
- 18:04 The handful of tax crimes and the ceiling on each one
- 20:55 IRS Criminal Investigation by the numbers, fiscal year 2025
- 25:20 How a criminal tax case actually gets started
- 30:27 Surveillance, garbage pulls, and undercover tax returns
- 40:08 The review chain a case clears before anyone is charged
- 45:10 How prosecutors prove what was inside your head
- 53:20 The defenses that actually work in a tax case
- 1:00:10 Restitution, tax loss, and why the two numbers differ
“It's entirely possible that the subject or target of that administrative investigation never even knows that there was a criminal administrative investigation opened on them because it never leaves the IRS and it never becomes public.”
Why a tax charge lands in a case that started somewhere else
Karen opened with Al Capone, and the point of that story is not the gangster. It is that the government could not make the case it wanted, so it made the one it could.
But criminal tax is special because it is the way that the United States can catch the bad guy when other charges don’t quite fit.
Spiro Agnew left the vice presidency over what he did not report. Wesley Snipes beat the felonies at trial and still served time on three misdemeanor counts. That pattern answers a question people bring to our Monday meetings constantly. Why did the tax counts show up late, and why from an agency nobody in the case had heard from?
Then Karen put a number on the odds. In fiscal year 2025 the IRS opened 1,380 criminal tax investigations against 161 million individual returns, one for every 117,000 filed. Being struck by lightning over an American lifetime runs one in 15,000. She is not minimizing anything. She is telling you that you were selected on purpose.
How a criminal tax case gets opened, and who approves the charge
Cases start in more ways than people expect. One of Karen’s began with a newspaper list of the ten highest paid employees in Washington, DC, and an agent who checked which of them had bothered to file. Bank reporting data feeds most of the rest.
What happens after that is the part of this hour I would hand to anyone under investigation right now. A tax case does not move the way a fraud case moves. Karen calls it the sausage making. The special agent’s report gets an independent written review by the IRS criminal tax lawyers, then a sign off from the Special Agent in Charge, and only then does it cross from Treasury to the Justice Department, where a trial attorney, an assistant chief and a chief each weigh in and every count is separately authorized or declined. Only after that does an Assistant US Attorney get the file, and that office reviews it again.
She sets that against a non-tax case, where an agent walks his package down the hall to a prosecutor and the two of them decide together. Whatever the grinding costs a person in months of waiting, a tax charge that survives it is one several offices already tried to break.
Willfulness, and the defenses that actually work
Every tax crime turns on willfulness, an intentional violation of a known legal duty, and the standard is subjective. The government has to prove what was inside your head.
Short of a lobotomy, it’s very hard to know what’s inside a person’s head.
So they build it out of conduct instead. What you kept from your accountant. Your education and business background. What you told the agents at the door. The second set of books, the assets in somebody else’s name, the income reported one year and quietly dropped the next. Karen walks through how that gets assembled in front of a jury, and the expensive boat comes up more often than you would think.
The relief runs along the same seam. Mistake, negligence and ignorance excuse nothing in most federal crimes. In a tax case they can produce an acquittal, and Karen has an airport example that makes the distinction impossible to forget. Uncertainty in the law is a real defense when the experts cannot agree. And documented, good faith reliance on an accountant or a lawyer, she told us, is close to ironclad.
She closes on the money, where our members get hurt most often. Restitution and tax loss are two different numbers, built two different ways, and the gap is not academic. Our panel on restitution and forfeiture with the Women’s White Collar Defense Association covers what happens after that.
About Karen Kelly
Karen Kelly is a tax attorney at Kostelanetz LLP, where she represents clients in civil tax controversies, in government investigations involving criminal tax and white collar matters, and against state and federal criminal charges. She joined the firm after more than 30 years of federal and state trial practice. At the Justice Department she was Acting Assistant Attorney General and head of the Tax Division, supervising every federal civil and criminal tax matter in the country and more than 300 trial and appellate attorneys. Karen and I met at a conference in Georgia days after she left the government.
