Monday, October 17, 2011

TIGTA Report on the State of IRS CI (10/17/11)

In August, TIGTA released its report titled Trends in Criminal Investigation’s Enforcement Activities Showed Improvements for Fiscal Year 2010, With Gains in Most Performance Indicators (Ref: 2011-30-068 7/25/11), here. I have finally found time to look at the report, which is an annual report on key areas of priority and statistics for IRS' Criminal Investigation ("CI"), the IRS division charged with investigating tax crimes. CI has other criminal investigation responsibilities, but after the Webster Report in the late 1990s, has been tasked with using more of its resources on criminal tax investigation and, within that category, legal source criminal tax investigations. The notion for focusing more on legal source criminal tax investigation is that that is where the IRS can get the most benefit from its limited resources in terms of supporting the overall tax system. Obtaining and publicizing legal source tax convictions will likely have much more ripple effect on compliance than with obtaining and publicizing illegal source tax convictions.

Most of the report is about statistics, usually presented in graph form (called figures). I caution readers to heed Benjamin Disreali's caution that: "There are three kinds of lies: lies, damned lies and statistics."

I excerpt only some portions of the report and refer to some of the figures (graphs) in the report that struck my interest.  Footnotes are omitted:
In February 2006, the Internal Revenue Service (IRS) released updated compliance estimates showing that the gross Tax Gap was $345 billion in Tax Year 2001. In an explanation provided in the Criminal Investigation (CI) Program Assessment Rating Tool, Office of Management and Budget examiners noted that the IRS had a goal of reducing the percentage of taxpayers who believe it is acceptable to cheat on their taxes from 12 percent in Fiscal Year (FY) 2004 to 10 percent in FY 2010. However, the 2010 Taxpayer Attitude Survey, conducted by the IRS Oversight Board, shows that taxpayers’ attitudes are again at the 2004 level. According to survey results, 12 percent of the surveyed population believed that it was acceptable to cheat on their taxes, a slight decrease compared to 13 percent from the 2009 survey. In addition, 87 percent said it was not at all acceptable, compared to 84 percent in the 2009 survey. The IRS Oversight Board, which conducted the survey, did not offer any perspective on why taxpayers’ attitudes towards cheating might have changed. The IRS Commissioner, while emphasizing a balanced program between taxpayer service and tax enforcement, stresses the need for an aggressive enforcement program for those who understand their tax obligations but fail to comply.

* * *

Using its unique statutory jurisdiction and financial expertise, the IRS made significant contributions to important national law enforcement priorities. According to the FY 2010 Business Performance Review (BPR) document, CI improved its performance from the levels achieved in FY 2009 in the following key areas:

• Completed more than 4,300 criminal investigations – an increase of 12.4 percent.
• Maintained a Department of Justice case acceptance rate of 93.9 percent and a United States Attorney case acceptance rate of 91.8 percent – increases of 2.2 and 3.1 percent, respectively.
• Achieved a conviction rate of 90.2 percent – an increase of 3 percent.
• Obtained 2,184 convictions – an increase of 3.8 percent.

* * *

CI continues to emphasize publicizing its investigation results In an effort to deter financial crime and enhance voluntary tax compliance, CI uses media and other outreach opportunities to maximize publicity of investigations. In FY 2010, CI representatives participated in more than 500 outreach events. Audiences included tax and accounting professionals, representatives from financial institutions, business and industry, government, educational institutions, and the public. Topics included general fraud awareness, tax and accounting fraud, money laundering, the Bank Secrecy Act, and other financial fraud.
CI continues to emphasize publicizing the results of tax prosecutions resulting from its tax investigations. This effort conveys to taxpayers that violations of the Internal Revenue Code and related financial crimes are investigated and prosecuted. The overall publicity rate for prosecutions in FY 2010 was 87.3 percent – an all-time high, and 9.3 percent higher than the targeted rate of 78 percent. The 92.4 percent publicity rate for legal source tax investigations is 4.5 percentage points higher than in FY 2009.

Research suggests that higher levels of criminal sentences lead to greater tax compliance. Figure 4 provides details of average incarceration periods for each of CI’s Compliance Strategy Programs. The percentage increase in the number of months a subject is incarcerated for legal source tax investigations rose 35.3 percent (from an average of 17 to 23 months) between FYs 2006 and 2010. The incarceration time increased 5.4 percent (from an average of 37 to 39 months) for illegal source investigations; however, it decreased 4.3 percent (from an average of 94 to 90 months) for narcotics-related investigations between FYs 2006 and 2010. From FY 2009 to FY 2010, the incarceration rate increased 11.4 percent for illegal source investigations and 1.1 percent for narcotics-related investigations.
Now, here are a few of the statistics for fye 2010:
  • Average Mos. Incarceration for legal source cases in 2010: 23 months (Figure 4, p. 8)
  • Number of Fraud referrals from other IRS functions and percent accepted - 539 - 70.3% (Figure 7, p. 24)
  • Number Elapsed Days of Subject Investigations Discontinued and Referred for Prosecution: 400 and 306.4, respectively (Figure 11, p. 26)
  • Number of Tax Related Subject Investigations Referred for Prosecution: 1,507 (Figure 12, p. 26)
  • Number of Legal Source Subjects Convicted of a Crime: 726 - Legal Source (Figure 14, p. 27)

1 comment:

  1. So focusing on legal source because most where most of the money are (immigrants and expats), and the only crime would be tax evasion. It is rather easier and "safe" for IRS to get conviction and to rip off.

    Illegal source -- likely the drug dealers, weapon smugglers, are they untouchable ? just kidding..


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