January 24, 2023
IRS CI 2022 Annual Report and Early 2023 Cases Highlight Enforcement Priorities
In 2022, IRS Criminal Investigation (IRS CI) identified $5.7 billion in tax fraud and $26.9 billion in other financial crimes. It executed 1,210 warrants and referred 1,837 cases to the U.S. Department of Justice (DOJ) for prosecution. These referrals resulted in a conviction rate of 90.6 percent.
These statistics are contained in IRS CI’s recently-released 2022 Annual Report. The Annual Report also goes in-depth into IRS CI’s enforcement priorities over the past year. IRS CI’s early cases in 2023 highlight the division’s enforcement priorities as well, and understanding these priorities can be critical for individuals and businesses that are facing (or that are at risk of facing) IRS CI scrutiny.
IRS CI’s Priority Enforcement Areas
As outlined in the 2022 Annual Report, IRS CI has several priority enforcement areas. These include (but are not limited to) the following:
Abusive Tax Schemes
Combating abusive tax schemes has long been a top enforcement priority for IRS CI. This includes schemes that use trusts, partnerships, foreign corporations and other entities to fraudulently shield income and assets from enforcement and collection. As IRS CI explains, these schemes “are usually complex and involve multiple layers of transactions to conceal the true nature and ownership of the income and/or assets . . . [and] make it appear that a trustee, nominee . . . or other foreign entity is the owner of the assets and income, when in fact, a U.S. taxpayer maintains true ownership and control.”
Corporate fraud is another perennial enforcement priority for IRS CI. The IRS’s criminal investigation division works alongside the DOJ and other agencies to uncover corporate fraud ranging from underreporting taxable income to insider trading. IRS CI and the DOJ prosecute companies as well as their owners, officers and directors, and corporate fraud investigations can expose these individuals to both substantial financial liability and the risk of long-term imprisonment.
Cryptocurrency and Cybercrimes
Cryptocurrency-related tax fraud has taken on an enhanced profile within IRS CI (and the IRS as a whole) in recent years. Even though Bitcoin and other digital currencies had a down year in 2022, it is clear that IRS CI and other federal authorities are still prioritizing enforcement in this area. This includes enforcing individual and corporate taxpayers’ reporting and payment obligations, as well as targeting individuals and corporations for conducting fraudulent initial coin offerings (ICOs) and engaging in other cryptocurrency-related offenses and related cybercrimes.
Employment Tax Fraud
With many businesses continuing to struggle due to the economic impacts of the COVID-19 pandemic, employment tax fraud has taken on a heightened profile within IRS CI as well. The division is targeting companies (and individuals) for all forms of employment tax fraud, including failing to report employment tax liability, failing to collect employees’ share of FICA taxes and misusing FICA tax funds held in trust.
General Tax Fraud
According to the 2022 Annual Report, “[g]eneral tax fraud investigations are at the core of CI’s law enforcement efforts.” IRS CI investigates individual and corporate taxpayers for all forms of tax fraud, with a particular focus on “high-income taxpayers who have a filing requirement but deliberately choose not to file returns and pay taxes owed.” Other types of tax fraud falling under this umbrella include:
- Keeping multiple sets of books and records
- Claiming personal expenses as business expenses
- Claiming false credits and deductions
- Hiding and transferring assets to evade tax liability
In general tax fraud investigations, IRS CI targets not only taxpayers but also accountants, tax preparers and others suspected of aiding and abetting tax law violations. All targeted individuals can face substantial penalties—including criminal fines and imprisonment (in addition to taxpayers’ liability for taxes, interest and penalties already owed).
Offshore Account Fraud
Offshore account fraud involves failing to report and pay taxes on assets held in foreign bank accounts. U.S. taxpayers who own offshore accounts have reporting obligations under the Foreign Account Tax Compliance Act (FATCA) and the Bank Secrecy Act (BSA). As IRS CI explains in its 2022 Annual Report, “CI’s BSA program has grown substantially since its start in early 2000. CI now uses various data analytics tools to actively analyze BSA data and identify leads for possible investigation.” Violations of FATCA and the BSA can lead to substantial penalties as well, and while taxpayers can mitigate their risk through streamlined filings and voluntary disclosures in some circumstances, this is no longer an option once IRS CI opens an investigation.
Tax Refund Fraud
Combating tax refund fraud is a top priority for IRS CI as well. IRS CI conducts investigations focused on substantiating charges against taxpayers who fraudulently underreport their income, claim fraudulent credits and deductions, file multiple returns, commit identity theft, and engage in other unlawful acts. Under its Return Preparer Program, IRS CI also targets accountants and others who assist with the preparation and filing of false returns for the purpose of collecting fraudulent refunds.
What To Do if You Are Facing Scrutiny from IRS CI in 2023
If you find yourself facing scrutiny from IRS CI in 2023, what should you do? This is a dangerous situation, and it requires a proactive and strategic approach. Once you are under investigation, the best-case scenario is to resolve IRS CI’s investigation before charges get filed.
In a recent article, we discussed several strategic considerations for responding to an IRS CI investigation with the goal of securing a favorable pre-charge resolution. We covered the potential benefits and risks of cooperating with the investigation, and we listed five keys to avoiding unnecessary consequences. If you need to know more about how to respond to an IRS CI investigation in 2023, you can read: What Do You Need to Know if You Have Been Contacted By IRS Criminal Investigation (IRS CI)?
Speak with a Federal Criminal Tax Lawyer at Brown Tax, P.C.
At Brown Tax, P.C., our lawyers have decades of experience successfully representing individual and corporate taxpayers in high-stakes criminal tax matters. If you need to speak with a lawyer about an IRS CI investigation, we invite you to call 888-870-0025 or contact us online to arrange a confidential consultation.