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IRS criminal investigators tout 2019 successes, look to year 101's tax crime challenges

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Folks who cheat on their taxes to pocket extra dollars are infuriating enough to those of us struggling to do everything right on our 1040 forms.

Folks who go to extremes to evade taxes are even more maddening.

The Internal Revenue Service, however, has some good news for us here. It's Criminal Investigation (CI) unit is catching and convicting these tax criminals at a commendable rate.

A 91.2 percent conviction rate in 2019, to be precise. That's among the highest of all federal law enforcement agencies, according to the IRS.

And CI, which detailed that conviction rate and other successes in its 2019 annual report, has a message for tax crooks: "We will not stop in our pursuit."

CI Chief Don Fort vows that his crew will improve on its crackdown on tax and financial criminals thanks to an aggressive enforcement strategy.

More CI agents to be hired: The latest prosecutorial success came even though CI continued a general downward trend of investigations and prosecutions over the last few years due to personnel losses.

An estimated 130 to 150 CI agents retire every year, said Fort during a conference call Dec. 5 to discuss the latest report findings. The time between on-boarding new agents and completion of their first case averages two to three years.

But things are turning around a bit. "This year we will hire more agents than we have in the last five years combined," said Fort.

IRS CI snapshot of 2019 activities
Overview of IRS CI 2019 activities. Source: IRS CI 2019 Report

Jail and other punishments handed out: Of those convicted of tax crimes, around 79 percent went to jail, with the average sentence being more than three years. Those who weren't incarcerated faced other punishments, such as fines, restitution or house arrest.

During fiscal year 2019, IRS criminal investigators identified $1.8 billion in tax fraud and another $4.4 billion in other financial crimes, such as money laundering.

"Our cases continue to be some of the most complex and impactful cases in the world," said Fort. "We are working smarter, using data analytics to augment good old-fashioned police work and find those cases that have the biggest impact on tax administration."

That combination of modern investigative techniques and old-school shoe leather methods will continue.

"We are leading the world in our ability to trace virtual currency in financial investigations while still working our bread and butter tax enforcement mission areas," he added.

Moving into modern crime-fighting: However, as the world and tax criminals adapt, so will the CI.

That's already apparent in the CI's success in breaking high-tech criminal schemes.

"Criminals stay current with the trends and adopt their methods to match the public’s tendencies. The speed at which money moves today is almost instantaneous and the convenience that comes with that opens the door for criminals to exploit the latest technological advancements," the CI leader noted in his message that opens this year's report.

"Years ago, we had time on our side and we could allow things to play out without losing a trace of a criminal or their proceeds. Now, money disappears in the blink of an eye," he added. "The internet and the dark web have facilitated this change and law enforcement has had to make adjustments to keep up."

"They took their money offshore and hid around the world, but we found them," Fort said "They went on the dark web thinking that their actions were anonymous, but they weren't, and we again found them."

Crypto, cyber tax issues get more attention: "They now deal in crypto-currency, again thinking this will make them anonymous, but our agents have once again proved that there is nowhere to hide," Fort added.

That anonymity feature of digital assets like Bitcoin allows users to transfer money globally with little or no oversight. Earlier this year, however, the IRS took steps to shed some investigative light on this area.

After obtaining details of more than 10,000 users of the cryptocurrency exchange Coinbase, the IRS sent the virtual currency owners letters requesting reporting of their crypto transactions and payment of any due tax. Early reports are that the cryptocurrency compliance effort is working.

The report notes that since 2015, CI has been building a cybercrimes program to address the exponential growth of all tax-related cybercrime, as well as its additional impacts on U.S. financial systems and the economy.

A Cyber Crime Unit (CCU) with locations in our Los Angeles and Washington, D.C., field offices was part of the initial launch of the program. That was soon followed by a headquarters Cyber Crimes office and cybercrimes coordinators in each of CI's 21 field offices followed.

IRS CI field office locations
Source: IRS CI 2019 Report

"CI's cybercrime investigative efforts focus on subjects using the internet as an essential means to commit the crime, remain anonymous, elude law enforcement, and conceal financial transactions, ownership of assets, or other evidence," notes the report.

Still following the money: The changing financial, tax, technological and criminal world, however, does not mean that CI will ignore traditional tax crimes.

CI remains involved in the more familiar investigations into general tax fraud, abusive tax schemes, refund fraud, employment tax fraud and tax identity theft.

And tax crime investigators, notes the report, will continue to use the same "follow the money" approach that has made CI's involvement in complex investigations a mainstay since the creation of the agency in 1919.

"While the tools of the trade may have changed, criminals are still doing the same things they were doing 100 years ago. Skimming money from a business to avoid employment taxes or pretending to be someone else to file their taxes — these are all things criminals have done since our inception," said Fort.

100 years of tax crime-fighting: The CI chief did, however, acknowledge the momentousness of the 100th anniversary as the IRS' law enforcement agency.

On July 1, 1919, then IRS Commissioner Daniel C. Roper created the Intelligence Unit to investigate widespread allegations of tax fraud. If was manned (yes, all men back then) by six United States Post Office Inspectors who were transferred to the IRS to form the new unit. It officially was renamed CI in 1978.

The unit has had a lot of success over the last century, but CI's first national attention and accolades came in the 1930s with the conviction of Al Capone, public enemy number one, for income tax evasion.

Al Capone, aka Scarface, mugshot taken June 17, 1931, by the U.S. Department of Justice. C28169 is his rogue's gallery number. (Photo via Wikimedia Commons)

"Honor the Badge, Preserve the Legacy, Master Your Craft, Inspire the Future. These are the guiding principles that IRS Criminal Investigation lives by and that 2019 was defined by," he wrote in his preface to the unit's 2019 report.

"We will not stop in our pursuit. I’m proud of all we have accomplished in fiscal year '19 and in our 100-year history. I’m proud to lead this agency and I look forward to helping to write the next chapter of investigative excellence for IRS-CI," he added.

That attitude is why IRS CI earns congratulation this week and why 100 gets the weekly By the Numbers honor.

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Lance Wallach

Cryptocurrency and the IRS
Published on March 27, 2020
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Lance Wallach
Managing Director at vebaLLC
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This summer the Internal Revenue Service launched an effort to make sure cryptocurrency owners comply with tax law.

The IRS treats the online money as an investment, not cash. It sent more than 10,000 Bitcoin et al investors letters to educate them of their tax responsibilities, encourage them to report their transactions and get payment where due.

The IRS crypto asset outreach appears to have worked.

Positive taxpayer and IRS responses: Not only did the IRS get responses to the letters (which is what you should always to when you get a notice from the federal tax collector), in many cases the IRS reportedly issued acceptance letters regarding the transactions as long as they were accompanied by supporting documentation.

That seems to indicate, notes Bloomberg Tax, that the IRS is more concerned about individuals who don't disclose digital transactions at all rather than those who try to comply but miss the tax-due mark.

In some cases, there's even better news. The IRS has issued some crypto currency owners refunds based on their responses to the letters.

"I personally worked with a user where the IRS was saying that they owed thousands of dollars on a CP2000 notice," Lance Wallach, co-founder of the firm VEBA LLC, told Bloomberg Tax. "And then after they presented their full transaction history, the user actually ended up with a refund."

There's even the story, reported by several crypto websites, that one investor who, after answering the IRS letter, learned that he owed $3,900 in taxes. But after he paid the tax bill, the IRS gave him the money back as a refund.

Probably not true: I think this might be an apocryphal (or misinterpreted or wishful thinking) story.

Personally, I don't see Uncle Sam giving back rightfully owed taxes just because that person decided to comply with the law. Wouldn't such a precedent mean millions of us who do our tax duties every April (or October) deserve the same cash-back consideration?

That just wouldn't work for the U.S. Treasury.

Still, I like that the IRS is looking simply to get people to do the right thing. And I like it enough to award $3,900 this week's By the Numbers honors.

Plus, I send kudos to the IRS for not being overly heavy handed when it comes to dealing with this relatively new tax category.

Wallach agrees that the IRS deserves some credit for its handling of the crypto currency situation.

He told OhNoCrypto that the IRS' recent crypto compliance actions underscore the agency's message that it wasn't looking to be punitive. It just wants owners of the assets to comply with tax law.

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