Tax Enforcement Priorities

Recently, the Principal Deputy Assistant Attorney General Caroline D. Ciraolo appeared and delivered prepared remarks at the American Bar Association’s 27th Annual Philadelphia Tax Conference. At the conference, Ms. Ciraolo took the time to discuss the Tax Division’s prosecutions and successes since January 2015. Furthermore, Ms. Ciraolo also provided a window into the ongoing and future enforcement priorities that will guide the agency.

If you suspect that you made errors regarding any of these tax obligations, it is imperative that you fix these mistakes before the IRS or DOJ opens an audit or criminal tax proceedings. While taxpayers who come forward voluntarily and correct their tax mistakes usually avoid worst-case scenarios, taxpayers who gamble and intentionally avoid satisfying their obligations can face penalties that may include a federal prison sentence.

DOJ’s Tax Division has Added Attorneys Who Boasts an Extremely High Conviction Rate

For individuals who have relied on the fact that government gridlock would continue to depress hiring at the Department of Justice, Ms. Ciraolo’s remarks revealed that this reliance was likely misplaced. Since January 2015, the Tax Division has added at least 70 attorneys bringing its ranks to more than 370 lawyers. In additional at least 130 administrative and executive staff members contribute to the Tax Division’s mission.

While the Tax Division continues to add enforcement personnel, its success rate in litigation remains extremely high. Ms. Ciraolo revealed in her remarks that DOJ “civil trial attorneys were successful in more than 95 percent of the cases they litigated to a decision” collecting more than $1.6 billion and retaining “an additional $1.3 billion by successfully defending against tax refund suits.” At any one time, the attorneys of the DOJ’s Tax Division are involved in over 6,000 civil cases in various stages of litigation including approximately 650 tax appeal matters. Areas of tax litigation and appeal include:

  • Lawsuits to collect assessed tax, penalties, and interest
  • Prosecuted tax evasion, false return filing, and obstructing the administration of the U.S. Tax Code
  • Pursuit of summons enforcement
  • Defend challenges to IRS regulations and procedures
  • Tax refund litigation
  • FOIA litigation
  • Sought injunctions against fraudulent tax return preparers
  • Took enforcement action against promoters of abusive tax schemes
  • Employers who fail to comply with their employment tax obligations
  • Collection due process matters

The above covers only some of the areas the DOJ’s Tax Division and IRS focus tax enforcement resources on. Ms. Ciraolo also discussed the particular enforcement focuses of the Tax Division for the remainder of 2016 and the new year.

Civil and Criminal Employment Tax Enforcement, Offshore Tax Evasion Are Prosecution Focuses for the Tax Division

Ms. Ciraolo also made clear that the Tax Division has placed a particular emphasis on stamping out all forms of employment tax fraud. In making clear the Division’s commitment and potential consequences delinquent employers face she stated:

…in an effort to send a clear message to delinquent employers who treat taxes withheld from employee wages as a personal slush fund or loan that can be put off or ignored entirely, we filed 55 injunction complaints in federal courts across the country and, to date, courts have issued 47 permanent injunctions. These injunctions require the timely deposit of employment tax and filing of employment tax returns, prompt notice to the IRS after each deposit and notice to the IRS if the employer begins operating a new business.  In addition, the injunctions preclude employers from assigning property or making payments to other creditors until the company’s employment tax obligations are paid.

Employment tax fraud has significant and far-reaching consequences that can affect not only the business but also employees and responsible parties.

In addition to the focus on identifying and stamping out employment tax evasion, Ms. Ciraolo also reaffirmed the Division’s commitment to offshore tax fraud enforcement. Tax Division successes in FBAR and FATCA enforcement efforts include:

  • Negotiated and signed 78 non-prosecution agreements with 80 Swiss banks leading to information used in subsequent prosecutions.
  • Collected more than $1.3 billion in offshore penalties and received substantial, detailed information regarding U.S. related accounts.
  • Charged at least 160 U.S. accountholders with tax evasion and willful failure to report foreign accounts.
  • Since 2009, more than 55,000 taxpayers have come into compliance through OVDP and paid nearly $10 billion in tax, interest, and penalties since 2009.
  • 48,000 taxpayers have made use of Streamlined Voluntary Compliance procedures while having paid approximately $450 million in taxes, interest, and penalties.

All in all, the DOJ’s continued commitment to offshore tax enforcement clearly show that noncompliance or use of secret accounts is not viable and discovery is imminent. As the Swiss Bank Program enters its legacy phase, agents and investigators will continue to scour the data and have pledged to follow the money across the globe. At the conference Ms. Ciraolo summed up the commitment as such:

We are following the money outside Switzerland and into jurisdictions around the world and investigating activities by asset management companies, corporate service providers, financial advisers, insurance companies and other financial entities…entities are contacting us to acknowledge their role in facilitating U.S. tax evasion, disclose the individuals engaged in this conduct, and cooperate with the department in an effort to address and resolve criminal exposure. [emphasis added]

Taxpayers who have failed to comply with FBAR or FATCA disclosure obligations are urged to leverage the voluntary disclosure programs and mitigate the consequences faced before it is too late.

Facing Tax Mistakes or Errors and Fear an Audit?

If you fear that you have made tax mistakes regarding employment tax obligations or offshore assets, entities, or trusts, the clock is ticking on your time to address the issue voluntary before the DOJ or IRS come knocking on your door. Since these are areas of focus for the Tax Division, individuals, and business owners should assume that these types of prosecutions are being prioritized.

To discuss how you can mitigate the tax penalties you face, contact the tax professionals of the Tax Law Office of David W. Klasing. Mr. Klasing is a dually certified tax attorney and CPA with more than 20 years of practical experience. To schedule a reduced-rate consultation at our Los Angeles or Irvine tax law offices, call 800-681-1295 or contact the firm today.