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March 26, 2016


Criminal tax enforcement: What is the impact of IRS budget cuts?

One of the threads we’ve been following in this blog is the effect of IRS budget cuts on tax enforcement.

It’s widely known that the overall number of audits is down. But what about criminal investigations?

Nearly a year ago, we noted that despite the budget problems caused by a lack of Congressional funding, the number of criminal investigations actually seemed to be increasing. We wrote about that in our April 29 post last year.

What has happened in the last year? In this post, we will update on the story.

The most recent report on the data shows that all of the budgets cuts in recent years are catching up with the IRS. The odds of a criminal prosecution are now going down. A report from the Transactional Records Access Clearinghouse (TRAC) at Syracuse University put the number of criminal prosecutions in FY 2015 as the lowest since President Obama took office.

Keep in mind, in interpreting the data, that the Criminal Investigations (CI) division of the IRS has other enforcement responsibilities besides investigating tax evasion or tax fraud.

The CI division is also responsible for investigating other financial crimes. Money laundering is the most obvious example of this. The CI also conducts investigations relating to narcotics enforcement and to counterterrorism efforts.

The enforcement statistics show that of the 3853 investigations that the CI initiated in FY 2015, 2246 were tax investigations. The other 1607 were related to other financial crimes.

The overall trend in the last couple of years, however, is clear enough. From 5,125 investigations in FY 2013, the number of investigations decreased to 3,853 in FY 2015.
The number of cases recommended for criminal prosecution has declined as well in the last couple of years. It went from 4,364 in FY 2014 to 3,289 last year. But this is still more prosecution recommendations than during the waning years of the previous presidential administration.

Tax Crimes