Abusive Return Preparer Investigations by the Numbers

Each year the criminal investigations unit of the IRS (IRS-CI) puts out its annual report. Agents in this division are in charge of investigation tax crimes and recommending prosecutions.

As IRS funding continues to fall short, the number of agents has steadily declined. What has this meant for abusive preparer investigations? We’ll explain in more detail in this post.

Fewer total investigations, but more sentences

In our March blog post, we shared some of the figures for 2016. Here is more on the changes from 2014 to 2016:

• Investigations fell from over 300 to 252.
• Prosecutions recommended decreased from more than 225 to 174.

But what we did not discuss in enough detail was the number of sentences. The number of sentences ticked up to 202. This indicates that of those 174 prosecutions recommended many involved multiple people.

While that might not seem significant when the current number of individuals with Preparer Tax Identification Numbers (PTINs) is 708,052, it does indicate a high conviction rate when IRS-CI recommends prosecution. In this funding atmosphere, it may be good to consider are they going to pursue borderline cases that they might lose?

The answer is probably not. Thus, once under investigation, it’s crucial to seek help from a criminal defense attorney who focuses on white collar tax crimes.

The road to prosecution

In the annual report, there is an example from Georgia where two brothers had been running a tax preparation firm called Global Tax Service. From 2009 to 2012 the brothers filed thousands of returns with fictitious, unprofitable businesses that lowered client income and increased their refunds.

On an individual scale, this might not have seemed significant. Over the cumulative course of the three years, IRS-CI charged that it resulted in a $3.5 million tax loss. The sentences were hefty at 78 and 75 months in prison, with restitution of the $3.5 million and three years of probation for each.

But in many of these cases, criminal prosecution is not the first line method of enforcement. Usually, there will be a letter regarding a pattern of discrepancies. A field agent may come out to complete an audit of business practices.

Often there are ways to resolve issues with EIC, whether related to business losses or inflated numbers of dependents, prior to any criminal investigation or prosecution. Head-in-the-sand mentality is usually when the IRS-CI gets involved.