Posted by: Steven Toscher | November 4, 2016

Update re Domestic and International Criminal Tax Enforcement

I recently had the pleasure of moderating a panel on domestic and international criminal tax enforcement at the California Tax Bar and California Tax Policy Conference in San Diego.  With me was Mark F. Daly,  DOJ Tax Division Senior Litigation Counsel and Robert Conte, Deputy Chief of the Tax Division of the United States Attorney’s Office in the Central District of California.

There are some rumblings by our colleagues that the government is letting criminal tax enforcement, including the international tax enforcement wither.  That is not the case.  What we are seeing is a bottleneck within the Internal Revenue Service (“IRS”) because of the lack of resources and funding.

The representatives of the Department of Justice (“DOJ”), Robert Conte and Mark Daly indicated  foreign tax enforcement is alive and well.

In discussing issues of case selection, Mark Daly indicated “there is a complex mixture of factors in determining whether to pursue a criminal tax fraud case.  The IRS and DOJ consider at every stage how much money is at stake, the target’s age and education, and whether the target is a public figure with some level of notoriety.”

Mark Daly indicated that his favorite cases coming from the IRS Criminal Investigation division’s business opportunity program are those in which undercover agents pose as prospective buyers of a taxpayer’s business. He explained that when the agents request information on what they are buying, the taxpayer will frequently show them a second set of books.  The beauty is that the agents are wearing a wire and the taxpayer has basically written the search warrant.

The government attorneys addressed how the U.S. government collects criminal tax information from other countries and Mark Daly indicated it depends upon the jurisdiction and whether the country uses an informal or formal basis for obtaining information.  Mr. Daly noted that one of the beauties of the criminal investigation division is its criminal attachés who are stationed in London, Frankfurt, Cairo, and Sydney.  He noted that in offshore tax cases, the DOJ can contact the attaché and inform the local police that the U.S. government needs intelligence information.  Sometimes a month later the DOJ and IRS can get a “sneak and peak” of the person’s entire account records.

The other significant topic discussed was the government’s offshore streamlined procedures.  The DOJ has been very public about its interest in streamline filings and Mark Daly told the practitioners “I like to read streamline applications [and] compare [them] to the bank account records that I have in my possession.  There’s a level of cognitive dissonance sometimes between what a taxpayer represented to the IRS as to why they were not willful and the handwritten crawled notes to the banker that appear in the file.”

There ensued  a debate  as to the appropriateness of streamline filings.  Practitioner Martin Schainbaum—known as the Tax Warrior– was of the view that streamline filings are too dangerous, that the better view is to go into the full offshore voluntary  disclosure program and  as applicable, opt out because under that circumstance you do get a measure of protection in terms of criminal prosecution.

The other side of the argument advocated by the undersigned was that there are many many cases which are very appropriate for streamline; in fact, the government has received 48,000 streamline applications thus far.  True, if your client does have a willfulness problem and/or criminal exposure, streamlined is not the way to go, but the government is inviting streamline applications and it is an opportunity which should not be overlooked

Finally, the DOJ representatives noted that the goal is to bring U.S. taxpayers into compliance and they will continue to keep pursuing criminal tax cases of significant dollar amounts that would bring publicity. Robert Conte noted “incarceration is such a key part of the overall prosecution and this means informing the law-abiding taxpayers who voluntarily file their tax returns on time that for criminal fraud it’s not just going to be a fine or home confinement, but rather incarceration and loss of liberty.”  He noted “frankly, I won’t even issue a press release unless the judge has sentenced the defendant to incarceration.”

The saga continues . . .

STEVEN TOSCHER – For more information please contact Steven Toscher – Mr. Toscher is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., specializing in civil and criminal tax litigation. Mr. Toscher is a Certified Tax Specialist in Taxation, the State Bar of California Board of Legal Specialization and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation. Additional information is available at

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