Let’s first define some of the players at the IRS. A Revenue Agent is an auditor and it is an auditor’s job to examine tax returns and to make civil adjustments to those returns. A Revenue Officer is a collector, and it is the job of a Revenue Officer to secure unfiled returns and to collect the balances owed. A Special Agent is a policeman who has the responsibility of investigating federal tax crimes. Tax crimes include not filing a return, filing a fraudulent return and willful tax evasion.
It is generally a bad idea for a taxpayer to talk with a Revenue Officer or a Revenue Agent. A taxpayer should never talk to a Special Agent.
If a Special Agent shows up on a taxpayer’s door step, he will have spent a long time developing a criminal case. His purpose in interviewing the taxpayer is to confirm facts, obtain admissions, and to catch the taxpayer in lies that can be used as additional counts in a criminal indictment. If a Special Agent hands you a card, say nothing and find a competent tax lawyer.
In the past the IRS would suspend collection and audit activity when a criminal case was being investigated. That is no longer the case. The IRS now conducts parallel audit and criminal cases. The auditors may be used to gather evidence for the criminal case, and the taxpayer may be unaware of the developing criminal investigation.
The following are the main points I take away from the NYU 5th Annual Tax Controversy Forum, presentation by Josh Ungerman.
- Offshore tax evasion is a dominant focus of the IRS Criminal Investigation Division.
- John Doe Summonses on U.S. branches of foreign banks and their correspondent banks produce huge volumes of information on U.S. taxpayer suing foreign banks to evade U.S. taxes.
- Identity thieves are using stolen identities to file false tax returns and get refunds. This exposes IRS to multiple payments and has the attention of the IRS. Improved internal procedures seem to be managing this problem.
- Criminal investigations of legal source tax crimes break down in the following categories:
– General tax fraud including skimming, keeping two sets of books, false entries, claiming personal expenses as business expenses, claiming false deductions and hiding assets.
– Refund fraud programs. In this area the IRS is focusing on tax preparers who falsify returns.
– Identity theft.
– Abusive tax themes. Principally the use of trust foreign corporations and partnerships for the purpose of appearing that the true owner of assets and income is someone other than the actual taxpayer.
– Non-filer investigations. Focus particularly on high income taxpayers.
– Employment tax. The focus is on pyramiding, employee leasing, payment of employees in cash, filing false payroll tax returns and failing to file payroll tax returns.
The IRS is very selective about cases it prosecutes. In 2012, IRS investigated 5,125 cases, 3,701 prosecutions were recommended, there were 2,634 convictions and of those 81.5% went to prison.