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IRS criminal unit stops $10 billion in tax fraud despite steep drop in staff


The Internal Revenue Service's crime fighting division did a bang-up job last fiscal year, stopping almost $10 billion in tax fraud.

That 2018 amount was four times more than the previous fiscal year, according to the IRS Criminal Investigation (CI) Division’s annual report released today.

CI, which marked its 100-year anniversary at the Oct. 1 start of the 2019 fiscal year, identified $9.7 billion in tax fraud during the last fiscal year (Oct. 1, 2017, through Sept. 30, 2018).

That's up dramatically from the $2.5 billion CI found in fiscal 2017.

Much crime, but tax fraud focus: General tax fraud investigations are at the core of CI’s law enforcement efforts and directly influence the American public’s confidence and compliance with the tax laws, notes the latest CI report.

IRS CI FY18 tax crimes snapshot2 graphic_annual report 111418
1.4% uncategorized
Source: IRS Criminal Investigation Annual Report 2018

"Publicizing these convictions helps to reinforce the voluntary compliance aspect of our nation's tax system. It shows law-abiding taxpayers that we take violations of the tax laws seriously and will pursue those who take advantage of the system," said CI Chief Don Fort in his report preface.

The common practices that CI agents see in their general tax fraud investigations include keeping two sets of books, making false entries in books and records, claiming personal expenses as business expenses, claiming false deductions or credits against taxes owed and hiding or transferring assets.

Tax scofflaws, consider yourself warned!

In addition, the report also notes that in fiscal 2018 CI, the only federal law enforcement agency with jurisdiction over federal tax crimes, also:

  • Found $10.4 billion in other financial crimes, a steep hike from the $1.1 billion identified in fiscal 2017,
  • Initiated 2,886 cases, with traditional tax cases accounting for 73 percent of the total, and
  • Achieved a conviction rate of 91.7 percent in fiscal 2018. That, according to the IRS, is among the highest of all federal law enforcement agencies.
IRS CI FY18 tax crimes graphic_annual report 111418
Source: IRS Criminal Investigation Annual Report 2018

Data increase to offset depleted staff: That conviction level was accomplished even though the number of CI special agents fell by the end of the last fiscal year to less than 2,100.

That's the lowest level since the early 1970s.

To make up for the personnel losses, CI says it turned to data analytics to help its remaining investigations find the most-impactful cases.

White-collar conviction problems: However, the news wasn't all good.

The CI leader cited studies released this summer that show the United States on pace to record the fewest number of white-collar crime prosecutions on record.

"This statistic is especially troubling because financial crime has proliferated over the past few years," said Fort, who cited recent CI successes in cyber-crime cases including Silk Road, Liberty Reserve, Alpha Bay and BTC-e.

All CI employees, not just special agents, now are required to complete cyber training, said Fort, adding, "Moving forward, it is hard to imagine future cases that will not have a cyber component to them."

"Future criminal investigations must make use of data to help drive case selection and efficiency in the critical work we do. That means using models, algorithms, and the millions of records and evidence we have at hand to help identify areas of tax noncompliance," said Fort. That includes making the use of data analytics and other technologies such as predictive policing an everyday tool for CI.

New data analytics unit ready: Ford cited what he called "one particularly noteworthy success," the launch of the Nationally Coordinated Investigations Unit (NCIU).

This unit relies heavily on data analytics to help drive future case selection, he said, and in 2019 will become an official CI section.

So far, NCIU has already referred more than 50 leads to CI field offices. Ford said that number is expected to grow substantially this new fiscal year.

Old-school investigations still matter: While the types of tax crimes and the methods to fight them have changed markedly with the advent of new technology, Fort says the traditional way of catching tax crooks remains a key function of his division.

Cyber tools are just one more means to stop the rampant, worldwide problem of tax fraud and other financial crimes.

"Although these tools will never replace good, old-fashioned investigative work, they will make us more effective and allow us to maintain our reputation as the world’s finest financial investigators," said Fort.

"As we begin our 100th year of criminal investigations, I could not be prouder to lead this exceptional group of men and women. We have never been more capable, well-trained, or relevant to the financial crime landscape than we are today. While challenges always lie ahead, I know we will meet them with the same energy and expertise that has made us successful over the last 99 years," said Fort.

You can check out the latest CI report to find out what these special IRS agents are doing in your backyard. The report summarizes the division's involvement in stopping a wide range of financial crimes during the last fiscal year and features examples, via links with details on CI efforts and subsequent convictions, from each field office.

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Dan Humphrey

I have a step brother that purchased a used truck, but registered it to an address in Lancaster Ohio. He lives in Garfield hts. Out of curiosity I did a little digging and found a man with the same name, with a different middle initial, living at the Lancaster property. Both have criminal records, and the private search sites show the same relatives. Both were born in July of 59, but different days. Similar crimes too, one passing bad checks, and several tax leans. The other Grand theft & CCW violations. Is it possible the same person is using two slightly different ID's to cheat on taxes, avoid EPA regulations, and/or so his felony doesn't show up?

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