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Criminal tax investigations increase even as CI unit loses staff

July 30, 2017


Recently, the Internal Revenue Service’s Criminal Investigations unit released a yearly report showing that the number of prosecutions increased in fiscal year 2012. The increase in criminal tax investigations was noteworthy in part, because the number of people employed in the unit has decreased.

In fiscal year 2012, which ended on September 30, 2012, the unit initiated 5,125 investigations. This was a nine percent increase over the prior year. The number of indictments increased 13 percent, while convictions were up 12 percent from the prior year.

The total number of convictions in 2012 was 2,634 with the conviction rate rising slightly to 93 percent.

The unit brought more investigations against fraudulent tax preparers. Some of the other types of cases highlighted in the report included:

  • Filing of false returns
  • Embezzlement
  • Keeping two sets of company books
  • Money laundering an
  • Offshore Internet gambling

A surprise from the report was that the international operation group initiated fewer investigations. The number of new international cases that could include failure to disclose offshore accounts actually fell from 244 in 2011 compared with 211 investigations in 2012.

The number of identity-theft cases rose almost three times from 2011. The ID theft cases accounted for 544 cases in 2012 and 223 people were sentenced to jail, according to the report.

A Texas example: Failure to disclose all profits may result in a prison sentence

In March, an Austin business owner pleaded guilty to two counts of tax evasion for failure to supply information. He ran a successful business selling secondhand Dell computers. The company he founded in 1997 had grown to three stores and he had purchased another similar company, which had three stores in the San Antonio area.

Court records filed in the case showed that IRS began an investigation into tax returns filed in 2006 and 2007. Allegedly, the owner told the CPA firm who prepared his taxes that all the corporation’s profits went into one bank account. However, an investigation showed that there was a second bank account and several PayPal accounts. The criminal investigation showed he failed to report approximately $168,000 of business income on the 2006 and 2007 tax returns.

The business owner will be sentenced later this year and faces as many as five years in prison, up to three years of supervised release and a fine of up to $100,000. The Magistrate Judge may also order him to pay restitution.

The penalties in a criminal tax matter are very serious. Upon receipt of an investigation notice, contact an experienced tax defense attorney. Obtaining counsel immediately will protect your rights and an attorney can advise whether possible defenses might exist after review of your individual circumstances.