From shady tax preparation businesses to identity theft gangs to corrupt IRS agents, the IRS Criminal Investigation division’s annual report reviewing its accomplishments in 2013 reveals the wide range of criminal tax activities it investigated in the past year. And, the report points out, despite a continued significant decline in staffing, the division maintained a conviction rate of more than 93%, which it noted “reflects the quality of ...[its] casework” (IRS Criminal Investigation (CI) Annual Business Report, p. 1).
The division’s chief, Richard Weber, described 2013 as “one of the most challenging years in recent memory,” in the report’s introduction. During FY 2013, the CI division started 5,314 cases and recommended 4,364 for prosecution, an increase of almost 18% over FY 2012, the report says.
The report said the CI division’s enforcement priorities for 2013 were:
- Identity theft fraud;
- Return preparer and questionable refund fraud;
- International tax fraud;
- Fraud referral program;
- Political/public corruption;
- Organized crime drug enforcement;
- Bank Secrecy Act and Suspicious Activity Report (SAR) review;
- Asset forfeiture;
- Voluntary disclosure program; and
- Counterterrorism and the Sovereign Citizens group.
The report contains a wide variety of case summaries from the division’s investigations. Among the notable convictions in identify theft fraud, the division noted a case in Alabama in which a state employee stole information from state databases that was used to file more than 1,000 fraudulent tax returns claiming more than $1.7 million in false tax refunds. In another case, two Philadelphia men, who worked for a nonprofit agency set up to help the disabled, stole identifying information from their clients to file false tax returns.
The Return Preparer Program investigates the “orchestrated preparation and filing of false income tax returns” (p.10). Among its notable cases was a scheme in which a defendant falsified income tax returns for hundreds of clients, including reporting false dependents, made-up businesses, and false education credits. Another case involved a tax preparer who invented home-based businesses for his clients that were used to claim deductions and credits the clients were not entitled to.
The Questionable Refund Program is aimed at identifying fraudulent refund claims. Among its interesting cases was a prosecution of a tax preparer who solicited people whose information was used to file fraudulent telephone excise tax refund claims and first-time homebuyer credit claims. In another case, a now-former IRS employee threatened taxpayers that she would red-flag their returns and interfere with their refunds if they did not pay her a $400 “fee.”
According to the IRS, the division’s investigation of abusive tax schemes focuses on investigating promoters and clients who willfully participate in domestic and/or offshore tax schemes, usually by using trusts, foreign corporations, and partnerships to make it appear that a foreign trustee or nominee or a nonresident alien owns assets that are actually owned by a U.S. taxpayer. Among the prosecutions was a surgeon who attempted to evade more than $1 million in taxes using a web of entities in Ireland, Hungary, Cyprus, the Isle of Man, Jersey, and Guernsey.
Nonfilers investigated and prosecuted by the division included an economist in New York who did not file income tax returns from 1989 through 2010 and a Nevada couple who questioned the IRS’s authority to tax them and failed to file returns and pay tax.
The Illegal Source Financial Crimes Program prosecutes tax-related
money laundering and currency violations, particularly individuals who
derive income from sources such as embezzlement, bribery,
and illegal gambling operations. The program prosecuted a mortgage fraud case in Texas and six people in Minnesota who were involved in a large bank and retail fraud scheme that spread to at least 13 other states.
One of the public corruption cases mentioned in the report involved
former U.S. Rep. Jesse Jackson Jr. He was sentenced to 30 months in
prison for conspiring to defraud his re-election campaign, and his
wife, Sandra Stevens Jackson, was sentenced to 12 months in prison for
filing false tax returns as part of the
scheme. Another case involved a former Texas judge who was sentenced to 72 months in prison and ordered to pay more than $6.7 million in restitution after using his office to enrich himself through extortion, primarily by receiving payments for favorable rulings in cases before him.
Sally P. Schreiber (
) is a JofA senior editor.