Recent headlines touted the Internal Revenue Service's success in uncovering $10 billion in tax fraud financial crimes in the 2020 fiscal year. Investigations of fraud claims for economic impact payments, PPP loans, and the CARES Act led to high fraud numbers in the age of COVID-19.
What is the Criminal Investigation Division?
The IRS's Criminal Investigation Division (CID) is the only federal agency with jurisdiction over tax crimes. According to the IRS, the purpose of the CID is to investigate potential violations of the internal revenue code to ensure compliance with the law and foster confidence in the U.S. tax system.
In the U.S., we've based our tax system on the premise that all income, including income from illegal activities, is taxable. In many cases, proving a taxpayer tried to willfully hide income is an integral part of uncovering other illegal activity. The CID has a 90.4% case conviction rate, the highest in federal law enforcement.
CID investigations often begin with referrals from other parts of the IRS. For example, the Examination Division of the IRS, which conducts civil tax audits, refers many of the cases that ultimately result in criminal investigations. If a revenue agent suspects fraud, they will suspend their examination without telling the taxpayer or their counsel why they've done so. Some of the most common investigations involve:
- Return Preparer Fraud: These investigations involve tax preparers who claim inflated business expenses, false deductions, or excessive exemptions.
- Abusive Tax Schemes: These investigations often involve sophisticated arrangements taking advantage of financial secrecy laws in foreign jurisdictions.
- Bankruptcy Fraud: The IRS is often a major creditor in bankruptcies, and the CID investigates bankruptcies to ensure their legitimacy.
- Corporate Fraud: Corporate fraud often involves false corporate and individual returns.
- Employment Tax Evasion: These investigations involve paying employees in cash, employee leasing, filing false payroll tax returns, or failing to file payroll tax returns.
- Gaming: These investigations involve illegal gaming operations.
- Healthcare Fraud: Healthcare fraud can involve false billings, nursing homes, other medical provider fraud, staged accidents, kickback schemes, and pharmaceutical diversions.
- Identity Theft
- International Investigations: International investigations involve cross-border transactions and international tax avoidance schemes.
- Money Laundering & Bank Secrecy Act: Money laundering can involve complicated financial transactions and outlets worldwide.
- Narcotics-Related: Financial leads can often interrupt international drug and money laundering operations.
- Failure to File
- Public Corruption: Public corruption investigations can involve many crimes, including bribery, extortion, illegal kickbacks, fraud, money laundering, bank fraud, tax fraud, entitlement, and subsidy fraud.
- Questionable Refunds
The IRS's criminal investigations are wide-ranging and often quite successful. If you're facing a criminal investigation from the IRS, you need legal assistance right away. Call Senior Partner, Tax Controversy Attorney, Brandon A. Keim at (602) 200-7399 to discuss your options.