Representation in Income Tax Investigations

An income tax investigation is a criminal proceeding. It is opened when there is a suspicion of an offense under the Income Tax Ordinance, and it is conducted by the Assessing Officer (Investigations) offices or the Israel Tax Authority's National Investigations Unit. The most serious offense under the Ordinance is willful fraud with intent to evade tax (Section 220), punishable by up to 7 years of imprisonment. You are entitled to consult with an attorney before the investigation. Send us your summons, and we will schedule a preparatory meeting before the date.

An audit and assessment proceeding is a civil process in which the Assessing Officer determines how much tax you owe. An investigation is a criminal process that examines whether an offense was committed. Several signs help distinguish between the two:

• An audit is conducted at the assessment office where your file is managed, while an investigation takes place at an investigations office, which is a separate unit.

• At the start of a cautioned investigation, you are told that you are a suspect and that you are not obligated to answer any question whose answer may incriminate you.

• An audit ends with an assessment, which can be objected to. An investigation ends with a decision on whether to file an indictment.

Both proceedings can run concurrently for the same tax years. After a conviction or payment of a monetary settlement (kofer) for certain offenses, the Director may amend an assessment even after the regular period has expired, up to one year from the date of conviction or payment (Section 147(a)(2)). We have written about the civil side — assessments, objections, and appeals — on our Income Tax Attorney page.

• You received a summons to a cautioned investigation from the Assessing Officer (Investigations).

• Investigators conducted a search at your home or business and seized documents.

• Cash was found in your possession, and you are being asked where it came from.

• Your accountant or bookkeeper has been summoned to an investigation.

• You are a director of a company under investigation, and you are wondering whether liability extends to you as well.

• You received notice that the investigation file has been transferred to the prosecution and that you may request a hearing.

The Ordinance classifies offenses according to the mental element: without reasonable cause, without reasonable justification, or willfully and with intent to evade tax. The penalty increases accordingly:

• Section 216: Failure to comply with a requirement in a notice under the Ordinance, or failure to appear as required, without reasonable cause. Penalty: up to one year of imprisonment or a fine.

• Section 217: An incorrect return from which income was omitted, or incorrect information, without reasonable justification. Penalty: up to two years of imprisonment or a fine plus the amount of the income shortfall. A person claiming reasonable justification bears the burden of proving it.

• Section 220: Omission of income from a return, a false statement in a return, a false answer to a question under the Ordinance, false books, or fraud, evasion, and contrivance — when committed willfully and with intent to evade tax. Penalty: up to 7 years of imprisonment, or a fine plus twice the amount of the concealed income, or both.

In a case under Section 220, the central question is usually intent. A mistake or a professional dispute over the classification of income does not satisfy this element, and the prosecution must prove it beyond a reasonable doubt. An indictment may be filed within 6 years from the tax year in which the offense was committed, and for an offense under Section 220, within 10 years (Section 225). When an offense is committed within a company, an active director, partner, or accountant is also deemed guilty unless they prove they had no knowledge or took all reasonable measures (Section 224A).

• To consult with an attorney before the investigation. The attorney can also coordinate the date of appearance, but until the postponement is approved, the original date remains in effect.

• Not to answer any question whose answer may incriminate you. Section 227(1) of the Ordinance applies to an investigating Assessing Officer the provisions of Section 2 of the Criminal Procedure (Evidence) Ordinance, which exempts such questions from the obligation to respond.

• To read the statement before signing it, and to request corrections to any wording that does not accurately reflect what you said.

• If you are arrested, to be brought before a judge within 24 hours (Section 29 of the Arrests Law). An authorized Assessing Officer may also release on bail independently (Section 227(3)).

An investigating Assessing Officer may seize documents but not other property (Section 227(2)). When the investigation is conducted jointly with the police, police powers also apply. And what is prohibited: ignoring a summons. Failure to appear without reasonable cause as required in a notice under the Ordinance is an offense under Section 216(2), punishable by up to one year of imprisonment or a fine.

1. Summons or search. Sometimes these are preceded by a covert investigation that you are unaware of. We determine which unit is investigating, what the suspicion is, and in what capacity you were summoned.

2. Preparatory meeting. You bring the summons, the annual returns for the years under suspicion, and correspondence with the Assessing Officer. We review what has already been provided to the authority and what the documents show.

3. The investigation. We decide in advance whether to provide a statement and to what extent. Silence is permitted, but it may later strengthen the prosecution's evidence, so this is a case-by-case decision.

4. Follow-up investigation. The investigators may question employees, clients, and the accountant, and summon you again. We accompany you through these rounds as well.

5. Transfer to prosecution and hearing. For a felony offense, the prosecution sends a notice, and there are 30 days to submit a written request that no indictment be filed (Section 60A of the Criminal Procedure Law). This is where we present the full accounting explanation.

6. Decision. The case is closed, resolved through a monetary settlement (kofer) under Section 221, or an indictment is filed.

We have written about monetary settlements (kofer) and the publication of decisions under the suspect's name on our Kofer Proceedings and Administrative Penalties page. Anyone who has unreported income and has not yet been subject to an investigation can read about the available options on our Voluntary Disclosure and Asset Regularization After August 31, 2026 page.

Income tax investigations are handled by Adv. and CPA Shlomi Vaknin and his firm's team. Shlomi has been a certified public accountant since 2000 and an attorney since 2008, and served for nearly a decade as a national supervisor in the VAT Professional Division of the Israel Tax Authority. In investigations involving income omission, he personally analyzes the returns and wealth declarations.

The team also handles the assessment and appeal proceedings that run alongside the investigation.