2018 Priorities of the IRS Criminal Investigation Division (IRS-CI):Part II, Two New Initiatives for Identification and Investigation of Tax Crimes

by Moskowitz LLP

Despite the reduction in its budget, the IRS Criminal Investigation Division (IRS-CI) has begun to implement two new initiatives that hope to improve the department’s already impressive success rate.

Last year, the IRC-CI made 2,251 criminal tax prosecution recommendations, which resulted in a conviction rate that exceeded 90%. On August 2, 2017, the new Chief of the IRS-CI, John D. Fort, announced his plan to implement two new enforcement initiatives in 2018 – the National Coordinated Investigations Unit (NICU) and the International Tax Enforcement Group.

The National Coordinated Investigations Unit
The new National Coordinated Investigations Unit (NICU) will harness the data collected by the various IRS civil departments to identify areas of non-compliance for nationally-coordinated investigations and select cases to be referred to prosecution by the Department of Justice.

To help identify patterns in taxpayer behavior, data analytics are being utilized. Internal Revenue Manual lists two specific programs:

  • The Questionable Refund Program (QRP) involves the review of tax returns that have been identified through either manual or computerized screening techniques as being in violation of 18 U.S. Code Sections 286 and 287, and which appear to have been prepared by the same person or group utilizing similar return characteristics or methods.
  • The Return Preparer Program (RPP) investigates patterns of noncompliance in tax returns filed by tax return preparers who have knowingly manipulated their client’s returns to falsely generate a larger refund or less tax owed. These returns usually involve false statements under 26 U.S. Code Sections 7206(1) and (2).

The NICU is commencing its work with cases related to employment tax violations, international tax crimes, microcap stock fraud and fuel excise tax abuses.

The International Tax Enforcement Group
The new International Tax Enforcement Group (ITEG) will build on NCIU international tax enforcement efforts by taking responsibility for major international tax investigations.

ITEG will also use data analytics to compile and sort through data collected from the Offshore Voluntary Disclosure Program (“OVDP”), reporting made in accordance with the Foreign Account Tax Compliance Act (“FATCA”), the Swiss Bank Program, and information provided by whistleblowers through the Panama Papers and other sources. ITEG will also glean information from tax treaty information exchanges as well as the coordinated efforts of foreign governments and IRS attachés in countries throughout the world.

On the IRS-CI radar is, as usual, the failure to comply with foreign asset reporting requirements (FBAR, etc.). The use of offshore debit cards and hiding funds through cryptocurrency accounts will now also be subject to increased IRS scrutiny.

Other department actions to increase investigations of tax crimes
Fort has also announced that the IRS-CI has been educating IRS employees as to the types of cases it is looking for, and how they can best use information from civil cases, whistleblower claims and other referrals to find cases warranting criminal prosecution.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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