Posted by: Steven Toscher | September 26, 2017

CRIMINAL TAX ENFORCEMENT— IT HAPPENED AGAIN AND WE SHOULD NOT BE SURPRISED by Steven Toscher ©2017

The Treasury Inspector General for Tax Administration (“TIGTA”) issued a report September 13, 2017, concluding that “declining resources have contributed to unfavorable trends in criminal investigation business results.” That’s Government speak that the IRS criminal tax enforcement program is falling behind.

This is not a surprise for those of us in the trenches.  It reminds us of another report issued almost 20 years ago, the so-called “Webster Report” issued in 1999, in which an independent review by former FBI and CIA Director William Webster concluded the IRS Criminal Investigation Division had suffered “mission drift” and that its lack of investigations of income tax fraud would have a negative impact on taxpayer compliance.

When the Webster Report was issued, the mission drift was a function of IRS devoting too many resources toward drug enforcement.   Today the  mission drift is more due to shrinking government resources and a focus on taxpayer identity theft by the Criminal Investigation Division.

The point is that if we are going to have an IRS criminal investigation function that serves as a deterrent against taxpayers committing tax crimes, the TIGTA Report is alarming on a number of counts.

Most strikingly, for fiscal year 2016, the Criminal Investigation Division (“CI”) initiated 3,395 cases or an overall decrease of 44%, compared to 5,125 cases initiated in fiscal year 2012.  That’s a big drop.

The other important statistic is that the percentage of cases initiated from functions within the IRS (the examination function and collection function), has decreased 5% from fiscal 2012 to 2016.   One of the key takeaways from the Webster Report was to increase the “fraud referral program” which in fact was reinvigorated post-Webster Report; however, that reinvigoration seems to have lost steam– likely due to  budget constraints within the  IRS operating divisions.

Finally, the other key takeaway is that in fiscal year 2016, it took an average of 540 days or 1.5 years to determine  there was no prosecution potential in a case.  In 2012, it only took an average of 422 days to make that determination.

The TIGTA Report is a good read for anybody interested in tax enforcement and it raises the fundamental question of whether we are serious in a vibrant and effective criminal tax enforcement program.  After all, with a $458 billion tax gap—even a one (1%) percentage point uptick in taxpayer compliance translates  to  almost $5 billion of additional revenue.  Under CI’s current budget of $576 million, that could be very good return on investment.


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