Criminal tax enforcement by the IRS has often been compared to a pendulum for the way it swings back and forth between periods of heightened enforcement and periods of low enforcement. In the late 1990s, for example, the IRS received a congressional bashing, and, as a result, audit, collection, and enforcement activity greatly decreased. In the mid-2000s, as the memories of this congressional hearing became fainter, the IRS began to pursue criminal enforcement much more aggressively. An influential 2007 article claimed that the pendulum has swung too far in favor of enforcement, and the last decade has brought fewer criminal tax referrals as a result of this sentiment creating political headwinds, as well as massive budget shortfalls and worker attrition faced by the agency. Now, the pendulum has begun to swing back toward enforcement once again.
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How Criminal Tax Fraud is Pursued by the IRS
The IRS manual instructs its agents, upon finding a “firm indication of fraud” committed by a taxpayer, to refer the case to the criminal investigation unit to pursue. The agents of the criminal investigation unit are highly trained in forensic accounting and other investigative work necessary to supply the prosecutors with the evidence they need to pursue criminal tax charges. They are also assisted by specially-trained “fraud technical advisors” (FTAs), who work on the civil side of enforcement. These FTAs help with making requests for documents, preparing agents for taxpayer interviews, and collecting other evidence that could help support not only civil fines and penalties but also a referral to the criminal division for potential criminal tax charges.
Current State of Criminal Tax Enforcement by the IRS
As noted at the start of the article, the 2010s were a time of low criminal tax enforcement at the IRS for a variety of reasons, both political and budgetary. Recently, a new commissioner, Charles Rettig, has begun heading up the agency. Mr. Rettig came over to the IRS from one of the most respected criminal tax defense firms in the nation. Under his leadership, multiple public statements have been made indicating that the agency plans on ramping up its referrals to the criminal investigators and its pursuit of criminal tax cases.
Don Fort, the IRS’s chief of criminal investigations, issued a statement in June of 2019 indicating that Commissioner Rettig has indicated to him that increasing criminal prosecutions was a priority. The agency also promoted deputy chief of criminal investigations, Eric Hylton, to head up a new division of the agency focused on taxpayers with small businesses or who are self-employed. The fact that a criminal tax investigator was appointed to head this division, coupled with Hylton’s public statements indicating he plans to seek greater enforcement, indicates that this agency will have a large focus on making criminal fraud referrals in these cases.
The IRS has also outlined a new program in which IRS agents will make unannounced visits to high-income tax-filers, which is likely to lead to more audits and more criminal tax referrals. This is partially in response to complaints in recent years that criminal tax cases were being brought against low-income filers at a much higher rate than they were against high-income filers. Additional enforcement initiatives introduced under Commissioner Rettig include increased cooperation with foreign tax authorities to promote worldwide enforcement of U.S. tax law violations, and aggressively hiring new special agents within the IRS criminal investigations department to replace those lost through the budget shortfalls and attrition of the early 2010s.
How the Covid-19 Pandemic is Affecting the IRS’s Criminal Tax Enforcement Initiatives
The onset of the unprecedented public health crisis that is the Covid-19 pandemic has left no aspect of our society unaffected, including the IRS. The agency has been forced to shut down most of its field offices and try to get employees trained to conduct business remotely over the past two months. Mail has piled up and audits have been delayed. Even the tax filing deadline was moved back in order to accommodate the realities of living during a pandemic. This has obviously put a bit of a dent in the IRS’s plans in general and in particular their ability to gain steam on new projects like the initiative to increase criminal tax enforcement.
However, while the IRS has been forced to put its efforts on pause, this does not mean that this initiative will not be resumed once the agency begins operating at full capacity again. Furthermore, agents have been using this time to prepare cases and comb-over documents even more than usual, and criminal referrals have continued to be made during this time. As the agency begins to reopen across the country, it is reasonable to expect to see a serious uptick in criminal tax investigations this summer, resulting from increased referrals and the backlog built up during the lockdown.
If You Are Concerned About Facing Criminal Tax Liability, Call Our Experienced Tax Law Attorneys Today
In the last year, the IRS under Commissioner Rettig has made it abundantly clear that they believe that the pendulum has swung too far in favor of non-enforcement and that they intend to focus on increasing criminal tax enforcement as a result. While the coronavirus has delayed some of the IRS’s criminal fraud initiatives, they are still in place and will be carried out as the agency resumes normal operations. At the Tax Law Offices of David W. Klasing, our tax lawyers have years of experience helping our clients work out their cases and mitigate or avoid entirely the most serious consequences that can come with criminal tax fraud. To schedule a confidential consultation, call us today at (800) 681-1295.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed returns coupled with affirmative evasion of payment) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one-stop-shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
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