The Internal Revenue Service (IRS) publicly releases an annual report containing detailed statistics culled from the Service’s Criminal Investigation Division (CI or CID), recently under new leadership by IRS-CI Chief John “Don” Fort. With the calendar counting down to April 17, 2018 – the deadline to file taxes for 2017 – our criminal tax defense attorneys have highlighted some of the report’s more alarming findings as part of an effort to dispel the harmful notion that the IRS “only chases the big corporations,” or “doesn’t bother with ordinary taxpayers.” Unfortunately, these are dangerous misconceptions that have contributed to more than one taxpayer’s criminal investigation, prosecution, and ultimately, conviction. The plain truth of the matter is the IRS strives to spread the exposure for criminal tax prosecution to all taxpayers, of all ethnicities, all religious beliefs, all sexual orientations, all political parties, in all industries and lastly, all levels of income. No one receives a pass!
How Many People Were Charged with or Sentenced for Federal Tax Crimes in 2017?
The following statistics are sourced from the IRS: Criminal Investigation 2017 Annual Report, which you can browse in full here. However, in case you don’t want to comb through all 116 pages of the report yourself, our Orange County tax evasion defense lawyers have already done most of the heavy lifting for you. Simply read on for a sampling of the report’s core findings. Keep in mind that all statistics pertain to FY 2017 and apply at the national level.
- A total of 3,019 criminal investigations were initiated. (For those interested, our IRS tax attorneys have laid out the entire IRS criminal investigation process in detail.) These investigations were carried out by 2,159 special agents, and resulted in:
- A total of 2,294 indictments, or criminal charges.
- A total of 2,549 sentences being handed down.
- Unsurprisingly, the IRS Criminal Investigation Division spent the bulk of its investigative time – about 72.5% – looking into suspected tax crimes, including tax refund fraud, employment tax fraud, abusive tax schemes (such as offshore tax schemes), and international tax fraud. However, the IRS also dedicated resources to investigating non-tax and even drug-related crimes, including corporate fraud and money laundering.
- Where tax crimes were concerned, a total of:
- 1,811 investigations were initiated.
- 1,196 indictments were returned.
- 1,303 defendants were sentenced.
- Tax crimes had a conviction rate of 91.5%, meaning statistically, even more than nine in 10 defendants were convicted.
- Where the non-tax crimes, such as corporate fraud, were concerned, a total of:
- 1,208 investigations were initiated.
- 1,098 indictments were returned.
- 1,246 defendants were sentenced.
- The overall incarceration rate for combined offenses was 80%. However, certain tax crimes had higher rates of incarceration than others. A few examples include:
- Abusive return preparer violations, in which a tax preparer or tax preparation business unlawfully reduces taxable income by “formulating fraudulent and illegal deductions” – 75%
- Violations of the Bank Secrecy Act (BSA), such as failure to file an FBAR (Report of Foreign Bank and Financial Accounts) – 78%
- Employment tax violations – 78%
- Non-filer violations (failure to file a tax return) – 84%
- Likewise, certain types of convictions resulted in longer average sentences than others. Based on sentence length, some of the most harshly punished offenses were:
- Non-filer violations – 37 months
- BSA violations – 38 months
- Financial institution fraud violations – 53 months
- Corporate fraud violations – 54 months
- Money laundering violations – 67 months
- The report highlights the creation of the Nationally Coordinated Investigations Unit (NCIU), an offshore- and cryptocurrency-focused enforcement initiative which our Bitcoin tax attorneys discussed in a recent article. Specifically, the report states that one of the NCIU’s missions is to partner with the Department of Justice (DOJ) “to support efforts to litigate these investigations through prosecution.”
- In profiling the IRS’ Los Angeles field office, the report also summarizes several noteworthy cases that recently unfolded here in California, including those of:
- Michael Joseph Calalang Cabuhat, who “was sentenced to 46 months in prison and ordered to pay restitution in the amount of $1,496,416 to his victims and the IRS” after pleading guilty to “wire fraud and subscription to a false federal income tax return.”
- Bradley John Martin, who “was sentenced to 63 months in prison and three years supervised release” after playing a part in “an international money laundering organization.”
- Jonathan Todd Schwartz, perhaps best known as “business manager for singer-songwriter Alanis Morissette,” who “was sentenced to 72 months in prison, three years of supervised release, and ordered to pay $8,657,268 in restitution” after pleading guilty to “wire fraud and tax fraud charges.”
- Cynthia Lozano, who “was sentenced to 175 months in prison,” or about 14.6 years, “and ordered to pay restitution of $1,479,134 to the IRS and Department of Housing and Urban Development (HUD) for mail and wire fraud, false claims and aggravated identity theft.”
Our Criminal Tax Defense Lawyers Can Help if You Are Being Investigated or Audited by the IRS
The data is painfully clear: the IRS and DOJ work closely together, using increasingly far-reaching and sophisticated technology, to detect, investigate, and eventually prosecute alleged tax offenders. In particular, the Criminal Investigation Division has recently announced initiatives that will make cryptocurrency tax compliance, such as the requirement to report capital gains realized through Bitcoin, and international tax compliance, such as the requirement to disclose foreign financial accounts by filing an FBAR, enforcement priorities for 2018.
The 2018 tax season is already underway. If you believe you have achieved anything less than absolute and total compliance with state tax laws, federal tax laws, or tax laws for expatriates, you are in danger of being audited and/or prosecuted.
As the adage goes, “Don’t become a statistic.” The best way to protect yourself against civil penalties or criminal prosecution is to immediately review your record of tax compliance with a knowledgeable, skilled, and experienced tax attorney, like the California tax lawyers at the Tax Law Office of David W. Klasing. Our zealous, award-winning legal team can protect your best interests while providing strategic financial guidance, preparing your individual or business tax returns, preparing you for a tax audit, representing you before the IRS, or representing you in federal tax court. To learn more about the tax planning, tax audit, or criminal tax defense services we provide in California and beyond, contact our law offices online, or call the Tax Law Office of David W. Klasing at (800) 681-1295 for a reduced-rate consultation.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
Here is a link to our YouTube channel: click here!
Here is a link to our practice overview video on warning signs that an audit has gone criminal.
What is an effective tax defense in an IRS eggshell tax audit?
https://www.youtube.com/watch?v=7qixPqWTtvA
So, you cheated on your taxes and you are under a tax audit…
https://www.youtube.com/watch?v=FZce4jqQJpI
Why should I hire a tax attorney to represent me in a tax audit?
https://www.youtube.com/watch?v=NDwc4GUfBX8
Foreign income and information non-compliance
https://www.youtube.com/watch?v=g2UlIE8oxPA
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