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What Are the Trends in the IRS Criminal Investigation Report?

IRS Criminal Investigation (IRS-CI) recently released its annual report. This report contains substantial information regarding the types of cases it investigates and the number of cases it recommends for prosecution.

Anyone reviewing this report will have a greater understanding of the IRS's priorities going forward, as well as overall trends in the data. Perhaps the most obvious trend is that IRS-CI, along with other areas of the IRS, has had reduced funding in recent years. This reduced funding is reflected in the number of investigations and prosecutions. Secondly a review of the report will show that IRS-CI investigates a broad range of cases touching on many cases in different areas of criminal law.

IRS-CI is doing less with less

In 2016, IRS-CI initiated 3.395 investigations and referred 2,744 cases for prosecution in 2016. On its face this may appear to be a significant number of cases. When compared to previous years, however, these numbers are less impressive. As recently as 2013, IRS-CI investigated 5,314 cases and recommended prosecution in 4,364 cases.  From 2013 to 2016, this is a 36% drop in investigations and a 37% decrease in referrals for prosecution.

The cause of the decrease in investigations is not likely increased tax compliance; rather, IRS-CI, along with other divisions of the IRS, has fewer resources. These budgetary constraints are seen in the number of IRS Special Agents, with a decrease of 2,541 agents in 2013 to 2,217 currently.

Where is IRS-CI focusing its efforts?

In the introduction to the 2016 annual report, IRS-CI states that it is devoted to "high impact criminal investigations to promote deterrence worldwide and industry-wide." As a practical matter, "high-impact criminal investigations" most frequently involved:

  • Money laundering
  • Narcotics
  • Identity theft
  • Bank Secrecy Act (BSA) violations

As some have noted, the above cases are not necessarily crimes that directly impact tax administration. Some of the more "typical" tax crimes involve questionable refunds, international tax fraud, not filing tax returns and employment tax issues.  Investigations in each of these types of cases declined in 2016, except for employment tax cases, which had a slight increase. While most types of criminal investigations decreased, investigations into healthcare fraud, public corruption and terrorism all increased from 2015 to 2016. Given that IRS-CI has fewer resources than previous years, it is interesting that it is investigating a wider range of cases than in years past.

The IRS is still a formidable adversary

Despite a smaller budget, once IRS-CI sets its sights on a taxpayer, that taxpayer is likely to face significant issues. As stated in its report, IRS-CI refers more than 80% of its investigations for prosecution. In its report, IRS-CI references an incarceration rate of roughly 80% of as well. The average period of incarceration for these sentences is 41 months. Any taxpayer in the crosshairs of IRS-CI needs to act decisively and work with tenacious, knowledgeable legal counsel as early as possible. Based in Manhattan and serving taxpayers across the United States and the world, the attorneys of Goldburd McCone defend taxpayers under investigation by the IRS and state tax authorities.

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