TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

The number of criminal tax prosecution referrals each year by the Internal Revenue Service (IRS) to the U.S. Department of Justice (DoJ) has risen by nearly a quarter — 23.4 percent — during the administration of President Obama (FY 2009-2013) when compared with the George W. Bush years (2001-2008) according to a February 4, 2014 Report released by the Transactional Records Access Clearinghouse at Syracuse University (TRAC).[1] Convictions are also drawing slightly longer average prison terms — 27 months under President Obama versus 25 months under George W. Bush.[2]

According to the Report, the annual number of criminal prosecution referrals from the IRS to the DoJ increased from 2,529 to 3,499; annual prosecutions filed increased from 1,303 to 1,568; the percent actually prosecuted after receipt of the referral declined from 53.7% to 53.0%; the average prison sentence imposed increased from 25 months to 27 months; while the average number of IRS Criminal Investigation Special Agents declined from 2,758 to 2,705.[3] The IRS, however, reports an overall decline in the number of Special Agents from 2,751 in 2010; 2,730 in 2011; 2,650 in 2012; to 2,540 in 2013. The IRS also reports a continuing decline in the number of Revenue Officers (those who collect delinquent liabilities on behalf of the IRS) from 6,042 in 2010; 5,619 in 2011; 5,186 in 2012; to 4,748 in 2013. Similarly, the IRS reports a continuing decline in Revenue Agent examiners from 13,888 in 2010; 13,867 in 2011; 13,021 in 2012; to 12,234 in 2013. Total IRS enforcement revenue collected has changed from $57.6 billion in 2019; to 55.20 billion in 2011; to $50.20 billion in 2012; to $53.35 billion in 2013. Much of the recent enforcement revenue is most likely attributable to the continuing increased efforts aimed at undeclared foreign related transactions.

Among U.S. federal judicial districts, Alaska registered the highest per capita rate of criminal tax related prosecutions, 53 per million people, compared with 6.4 prosecutions per million nationally. Next was the Middle District of Alabama (Montgomery), with 30 per million, followed by the District of Columbia with 27 per million.

The most common major counts of tax related indictments filed by DoJ are for: (1) Fraud and False Statements, 26 USC 7206;(2) Attempt to Evade or Defeat tax, 26 USC 7201; (30 Public Money, property or Records, 18 USC 641; and (4) Conspiracy to Commit an Offense or to Defraud the US, 18 USC 371. The most significant increase in DoJ prosecutions over the past year of 580% is for Fraud and Related Activity – ID Documents, 18 USC 1028.

IRS Criminal Investigation (CI) is aggressively investigating and referring identity theft cases for prosecution regarding attempts to defraud the federal government by filing fraudulent refund claims using another person’s identifying information. CI has four Scheme Development Centers (SDCs) across the country whose primary mission is detecting refund fraud. These SDCs have uncovered numerous identity theft related schemes. CI also participates in the DoJ Identity Theft Interagency Working Group.

In Fiscal Year (FY) 2013, the IRS initiated approximately 1,492 identity theft related criminal investigations (up from 898 in FY 2012 and 276 in FY 2011) leading to 1,257 prosecution recommendations (up from 544 in FY 2012 and 218 in FY 2011), an increase of 66 percent over investigations initiated in FY 2012. Direct investigative time applied to identity theft related investigations has increased 216 percent over the last two years. Prosecution recommendations, indictments, and those convicted and sentenced for identity theft violations have increased dramatically since FY 2011. Sentences for convictions relating to identity theft have been significant, ranging from two months to 317 months.

So, now that we have the numbers, what does it all mean in the trenches?  People who commit tax crimes go to prison. This includes “Mom and Pop” as well as those who expend considerable effort to avoid detection, use various tax scams, etc. Regardless of who is President of the United States, the IRS and the DoJ (Tax) remain fully engaged in their core missions of enforcing the nation’s tax laws fully, fairly, and consistently, in order to promote voluntary compliance with the tax laws, maintain public confidence in the integrity of the tax system, and promoting the sound development of the law.

We have a voluntary compliance system of taxation that, for those who intentionally chose to not voluntarily comply, can easily lead to a criminal prosecution involving a period of incarceration followed by having to satisfy civil taxes, penalties and accrued interest. Most taxpayers who have had the unfortunate opportunity to interact with IRS CI or have felt the power of the US government as a target of a criminal tax prosecution do not seek out a repeat performance.

As tax filing season gets underway, remember that many untoward consequences can flow from what is included – or not – in a tax return. An income tax return is simply not an offer to negotiate later with the government – spend the extra effort to get it right.