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How the IRS selects tax crime lead for investigation

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    IRS Large Business & International (LB&I) Division Announces 5 New Compliance Campaigns with Focus on Foreign ReportingFrom a policy perspective, CID chooses Cases for full investigation with the goal of deterring Criminal Tax violations by covering a wide cross section of taxpayers. CID’s aim is to encourage voluntary compliance throughout the nation by covering the widest possible cross section of taxpayers. In the past, subjects of Criminal Tax investigations have included persons from every economic and vocational group and every geographic location.

    Cases are selected in areas of the tax spectrum that the IRS believes have significant compliance problems. The IRS attempts to identify the specific types of individuals and businesses responsible for the greatest amount of tax fraud. CID is currently focused on dishonest return preparers and persons engaged in the underground economy, believing these groups are involved in dishonest practices and make up a large segments of the population.

    Cases believed to result in high-publicity are occasionally selected to publicize the enforcement effort often involving public figures such as movie stars and musicians. By contrast, media coverage of convictions of local citizens may be limited or nonexistent. Cases involving organized crime figures, narcotics traffickers, dishonest politicians, and other types of celebrities, often generate significant publicity for the enforcement effort.

    Criminal investigations are extremely expensive, because of the time required for a full investigation (often more than a year) and the expense of securing and examining books and financial records. Criminal Investigation Division personnel from experience know that some cases have a higher chance of resulting in a conviction while other cases have a small likelihood of success due to factors such as the advanced age of the defendant, the uncollectible of witnesses, or the Justice Department’s dislike for a particular type of case. Annually CID has historically only had the resources to initiate less then 7,000 investigations nationally. Consequently, decisions to undertake an investigation or not often rest on the availability of resources as much as on any other factor.

    Historically, the IRS has not prosecuted cases in which there is only a small deficiency at stake. The IRS’s internal CID guidelines require that a tax deficiency be at least $10,000 over three tax years to bring a tax evasion prosecution. Prosecution for signing false returns or failure to file requires a tax deficiency of at least $2,500 over three years. However, case law has shown that a taxpayer can be successfully prosecuted for filing a false return even when no deficiency is proven.

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