The IRS handles millions of tax returns that have nothing to do criminal tax charges. How does the agency decide, then, which cases to refer for criminal tax fraud prosecution?
The answer affects many taxpayers in Texas and across the nation. After all, a criminal investigation raises the ante immeasurably in a tax controversy. It puts the possibility of prison time, not only tax penalties, on the table.
Last month, the Treasury Inspector General for Tax Administration (TIGTA) released a report of an audit examining the referral process the IRS uses for investigations of possible criminal tax fraud. TIGTA was looking to see how well the Criminal Investigation (CI) unit of the IRS was doing in its efforts to increase the number of referrals for tax fraud prosecution.
The audit found that fraud referrals to the CI were up in Fiscal Year 2012. Not surprisingly, this also resulted in more criminal investigations and more recommendations to the Justice Department to pursue criminal prosecution.
But the audit also found that the IRS failed to put in place a performance measurement system that included reliable data on the timeliness of its investigations. In other words, the audit indicated that the Criminal Investigation unit did not have a good way of tracking whether fraud referrals were being handled in a timely manner.
In response to the audit, the IRS has already committed to a clarified policy going forward. The agency intends to review all tax fraud referrals within a clearly specified period of time.
The introduction to the TIGTA report noted that criminal tax fraud does not only involve underpayment. It also requires fraudulent intent.
Proper investigation is required in order to determine whether a given taxpayer had such intent.
Source: Accounting Today, "IRS Needs to Fix the Criminal Fraud Referral Process," Michael Cohn, June 19, 2013