IRS to Increase Number of Criminal Referrals in Tax Evasion Crackdown

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IRS to Increase Number of Criminal Referrals in Tax Evasion Crackdown

In 2018, sources like the New York Times and AccountingToday.com reported that IRS criminal referrals had reached a 30-year low, in part due to congressional cuts that slashed the Service’s budget from around $14 billion in 2010 to roughly $12 billion by 2017. This year, that trend is going to change. In mid-2019, the IRS reversed strategic course, announcing a new initiative to increase the number of tax fraud referrals to IRS-CI, which is the IRS’ criminal division. This announcement is good news for the federal government, which loses billions of dollars to tax evasion each year, but bodes poorly for taxpayers who are behind on their taxes or out of compliance with asset reporting laws, such as FATCA. If you have unfiled tax returns, failed to report income, failed to pay taxes, or failed to disclose foreign assets, your risk of being referred for an IRS criminal investigation just dramatically increased. Take action to protect yourself by consulting an experienced criminal tax defense attorney, like David W. Klasing, right away for help.

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IRS Announces Plans for More Criminal Tax Fraud Referrals

In an article published in October of 2018, the New York Times quoted former IRS criminal enforcement officer Chuck Pine, who summarized the situation bluntly: “Due to budget cuts… and a shift in focus, there’s been a collapse in the commitment to take on tax fraud. I believe,” Pine continued, “there are thousands of individuals who have U.S. tax obligations and are not complying with U.S. tax laws.”

An IRS Special Agent (criminal investigator), whose identity was withheld, offered an assessment from within the Service, stating, “The focus of auditors and tax collectors is not to identify fraud, it’s to collect tax, so by default, the employees are not doing it.”

The agent is apparently referring to the fact that revenue agents or auditors – who examine taxpayers, but do not conduct criminal tax investigations – must refer cases to IRS-CI when apparent indicators of tax fraud, or willful misconduct, are uncovered. (As the IRS explains in IRM 25.1.3, Criminal Referrals, “If… it is determined that a potential fraud case has firm indications of fraud/willfulness and meets criminal criteria, the compliance employee [such as an IRS auditor] will suspend the examination/collection activity” right away.) The agent’s quote seems to suggest that this does not occur as often as it should.

In an effort to address these issues, the IRS is now changing its tactics, with plans for increased criminal referrals in 2019. According to CI chief Don Fort, who was appointed in 2017, the IRS’ objective is expand the CI caseload devoted to tax fraud, which currently constitutes only about 7% of CI’s cases. Appearing at an NYU-hosted tax forum in June 2019, DOJ principal deputy assistant attorney general Richard Zuckerman told attendees, “That’s an issue that we’re trying to look into a lot more closely than perhaps we have in the past,” referring to decisions about whether to treat tax cases civilly or criminally. (For more information on that subject, interested readers should refer to our article comparing civil audits versus criminal tax investigations, or read about reverse eggshell audits, which involve simultaneous civil and criminal investigations).

IRS Announces Plans for More Criminal Tax Fraud Referrals

In an article published in October of 2018, the New York Times quoted former IRS criminal enforcement officer Chuck Pine, who summarized the situation bluntly: “Due to budget cuts… and a shift in focus, there’s been a collapse in the commitment to take on tax fraud. I believe,” Pine continued, “there are thousands of individuals who have U.S. tax obligations and are not complying with U.S. tax laws.”

An IRS Special Agent (criminal investigator), whose identity was withheld, offered an assessment from within the Service, stating, “The focus of auditors and tax collectors is not to identify fraud, it’s to collect tax, so by default, the employees are not doing it.”

The agent is apparently referring to the fact that revenue agents or auditors – who examine taxpayers, but do not conduct criminal tax investigations – must refer cases to IRS-CI when apparent indicators of tax fraud, or willful misconduct, are uncovered. (As the IRS explains in IRM 25.1.3, Criminal Referrals, “If… it is determined that a potential fraud case has firm indications of fraud/willfulness and meets criminal criteria, the compliance employee [such as an IRS auditor] will suspend the examination/collection activity” right away.) The agent’s quote seems to suggest that this does not occur as often as it should.

In an effort to address these issues, the IRS is now changing its tactics, with plans for increased criminal referrals in 2019. According to CI chief Don Fort, who was appointed in 2017, the IRS’ objective is expand the CI caseload devoted to tax fraud, which currently constitutes only about 7% of CI’s cases. Appearing at an NYU-hosted tax forum in June 2019, DOJ principal deputy assistant attorney general Richard Zuckerman told attendees, “That’s an issue that we’re trying to look into a lot more closely than perhaps we have in the past,” referring to decisions about whether to treat tax cases civilly or criminally. (For more information on that subject, interested readers should refer to our article comparing civil audits versus criminal tax investigations, or read about reverse eggshell audits, which involve simultaneous civil and criminal investigations).

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If you have been chosen for an IRS audit, are concerned about potential criminal charges, or have unresolved issues such as unfiled income tax returns, it is crucial to address the problem as soon as possible with guidance from a trusted tax professional. At the Tax Law Office of David W. Klasing, we have more than 30 years of experience handling civil and criminal tax cases, enabling us to approach any tax issue – no matter how sensitive – from a strategic standpoint focused on mitigating penalties, minimizing damage, and achieving tax compliance successfully. To schedule a reduced-rate consultation with an award-winning, dually-certified attorney-CPA, contact us online today, or call the Tax Law Office of David W. Klasing at (800) 681-1295.

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