The Criminal Investigation Division (CID) trains the rest of the IRS’s employees to be alert for, and to report any indication of, fraud. Each service center has a CID office that assists employees in spotting and reporting suspicious activities. Consequently, the most important source within the IRS of criminal tax investigations is fraud discovered during routine civil audits. When an audit examiner discovers firm indications of fraud, the audit is suspended and CID is informed by means of Form 2797, Referral Report for Potential Fraud Cases. The taxpayer often is not notified that there has been a referral to CID until a special agent from CID contacts him.
Other sources that provide leads for CID include informants and state and local law enforcement agencies (Most often the Franchise Tax Board (FTB) in California). The IRS has the ability to reimburse state and local law enforcement agencies for investigatory expenses when the resulting information is furnished to the IRS and leads to a recovery of money related to a Tax Crime. CID also receives data regarding potential criminal cases from other divisions of the IRS, the public, the news media, state courts hearing matrimonial cases, state offices, and its own intelligence-gathering sources. One of the most important sources of information outside the IRS that leads to Tax Crime investigation leads for CI is the Financial Crimes Enforcement Network (FinCEN). FinCEN is a federal government-wide, multisource intelligence and database network.
State and Local Law Enforcement Agencies also substantially contribute to the recovery of federal taxes by providing leads that often result in the discovery of hidden assets owned by the taxpayer that are used to satisfy the taxpayer’s assessed, but otherwise uncollectible, federal tax liability for illegal drug or related money-laundering activities.
CID also utilizes reports that Banks and specified other financial institutions must file to report currency transactions involving amounts over $10,000 to generate leads for possible Tax Crimes. Individuals who receive more than $10,000 in cash in one transaction in the course of a trade or business must report the receipt of the cash.
