As we approach the end of the year, many of us are preparing to file our 2015 tax returns. As we do so, it is important to remember that errors and omissions relating to compliance with the tax laws can result in criminal charges. What follows is a very brief primer on how the Internal Revenue Service investigates tax crimes, as well as the results of some relatively recent criminal investigations.
The Criminal Investigation (“CI”) section of the Internal Revenue Service investigates possible criminal violations of the tax laws. CI has approximately 3,500 employees worldwide. Approximately 2,500 of these employees are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act violations that rise to the level of criminal conduct under the Internal Revenue Code. These investigations are very record-intensive. Because financial records are becoming increasing automated, CI agents are trained to recover evidence stored in electronic format, regardless of whether it is password protected, encrypted or electronically shielded by some other means.
CI has three investigative programs. The first is Legal Source Tax Crimes. These investigations involve legal industries and occupations, and legally earned income. Violations in this area include income tax evasion, failure to file a tax return, or filing a false tax return. Specific crimes in this area frequently include employment tax fraud and false claims for tax refunds. Individuals who refuse to file tax returns and/or pay taxes as a challenge to the constitutionality of the tax system are also typically investigated through this program. The second CI program is Illegal Source Financial Crimes. This program focuses on monies coming from illegal sources such as embezzlement, kickbacks, or health care fraud. Specific crimes in this area can include Medicare over billing, kickbacks to public officials, securities fraud, ponzi schemes and illegal gambling activities. The final investigative program is Narcotics-Related and Counterterrorism Financing Crimes. This program focuses on the financial profits of drug trafficking and money laundering operations, with an eye toward cutting off funding for such activities. All three programs are interdependent and, where necessary, coordinate with other federal law enforcement agencies. Continue reading