On November 14, IRS Criminal Investigation released its 2018 Annual Report. The report comes on the heels of IRS-CI Deputy Chief Eric Hylton’s statement at the ABA Section of Taxation meeting in early October that CI plans to hire 250 new special agents over the next 18 months.
Overall in fiscal year 2018, IRS-CI initiated 2886 investigations. These investigations included 80 cases involving abusive tax schemes, 224 cases involving tax return preparers, 207 cases concerning employment tax, 164 cases of identity theft, and 254 cases involving unfiled tax returns. From those investigations, there were 2130 prosecution recommendations and 756 prosecution declinations. There were 2111 sentencing with an incarceration rate of 82% and an average of 45 months to be served.
The recently formed IRS-CI Nationally Coordinated Investigations Unit (NCIU) is focused on developing investigative strategies that impact and proactively address nationwide key non-compliance areas and emerging threats. The NCIU’s investigative efforts are primarily focused on 3 areas: employment tax, international tax and significant money laundering and virtual currency. In fiscal year 2018, NCIU referred 55 cases for criminal referral including employment tax (36), international tax (5), microcap stock (12) and biofuels credit (1) according to the report.
IRS-CI is increasingly relying on data mining and data analytics technology to root out tax fraud and tax evasion and has been using the technology to do “predictive policing” to uncover potential tax cases. For example, as part of its Offshore Programs, the IRS has obtained a tremendous volume of documents from taxpayers and financial institutions. According to IRS CI Chief Don Fort, “We have also prioritized the use of data in our investigations. 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. Data analytics and other technologies like ‘predictive policing’ help give law enforcement a clearer picture and are quickly becoming an everyday tool for CI. 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.”
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