November 29, 2022
IRS releases annual report on FY 2019 criminal investigations
A nontraditional focus was on cybercrimes, such as tax violations involving crypto and virtual currencies.
On Dec. 5, the IRS issued the annual report of its Criminal Investigation Division, called CI, for fiscal year 2019. The report describes in detail CI’s priorities for investigating and enforcing tax crimes in the past year, suggesting its likely continued areas of focus in the next year.
In a news release about the report, the IRS notes it is CI’s 100th year as the federal law enforcement wing with jurisdiction over tax crime for the federal government – and that in FY 2019, its conviction rate was 91.2%. For individual, business and other taxpayers, this is a sobering message that, while every legitimate advantage available under the Tax Code is fair game, if targeted for serious audit or investigation, a tax lawyer with criminal defense experience should immediately be consulted.
The potential ramifications of a conviction are too serious not to have a seasoned advocate involved as early as possible to communicate and negotiate with the IRS. An attorney may be able to resolve issues before they evolve into potential criminal charges. A conviction could not only result in fines, restitution, jail time and other penalties, but also in harm to your reputation and future employment prospects.
In FY 2019, CI kicked off 2,485 cases and identified $1.8 billion in tax fraud and $4.4 billion in other financial crime proceeds. About 75% of CI’s work was in tax crime matters plus 11.9% in nontax financial crime and 11.3% in narcotics.
While the number of CI agents has significantly decreased to about 2,000, the agency has turned to data analytics and “strengthened its international partnerships to assist in finding the most impactful cases.” The agency also has sophisticated understanding of the electronic – and instantaneous – movement of money, including the ability to trace cryptocurrency transactions.
CI’s 2019 priorities included:
- Cybercrimes that may involve identity theft to facilitate false tax returns generating refunds and a variety of other electronically supported schemes that usually use the internet and increasingly involving virtual currencies like bitcoin
- Money laundering, including efforts to make illegally acquired money look legitimate through transaction layering, international fund movement and manipulation of currency reporting
- Traditional tax investigations
- Tax fraud broadly such as income underreporting through inaccurate bookkeeping, false business expense deductions, hiding assets or claiming other false deductions or inappropriate credits
- Corporate fraud that includes falsifying or destroying company records and using resulting false information for tax fraud or completing falsified corporate documents; also, executive diversion of corporate money for personal use
- International tax enforcement, including uncovering schemes to make assets and income look like a foreign entity owns them instead of the actual U.S. owner as well as a variety of international tax crimes
- Public corruption involving illegal use of taxpayer money by government officials
- Employment tax fraud like paying wages with cash and failure to turn over withheld payroll taxes to the government
- Identity theft to file a fraudulent return as someone else and claim a refund
The importance of immediate consultation with tax counsel cannot be overemphasized should a taxpayer learn of potential investigation that could involve CI or allegation of any kind of tax or other financial criminal crime, especially in the areas emphasized in 2019.