Here are excerpts related to criminal tax matters that are the focus of this blog:
Tax Division prosecutors authorize and prosecute cases after determining that there is a reasonable probability of conviction based on the existence of sufficient admissible evidence to prove all of the elements of the offense charged.
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Criminal Investigation and Prosecution
Criminal Trial In addition to our extensive civil practice, the Tax Division authorizes all prosecutions arising under the federal tax laws except for excise taxes and criminal disclosure violations. In most cases, Division attorneys either conduct or supervise these prosecutions, often in partnership with prosecutors from the United States Attorneys' Offices. The Division's twin criminal goals are to prosecute criminal tax violations and to promote uniform nationwide criminal tax enforcement. In many cases, the Tax Division receives requests from the IRS to prosecute violations after the IRS has completed an administrative investigation. In other cases, the IRS asks the Tax Division to authorize grand jury investigations to determine whether prosecutable tax crimes have occurred. Tax Division prosecutors review, analyze, and evaluate referrals to ensure that uniform standards of prosecution are applied to taxpayers across the country. In the past few years, the Division has authorized between 1,300 and 1,800 criminal tax investigations and prosecutions each year. After tax charges are authorized, cases are handled by a United States Attorney's Office, by a Tax Division prosecutor, or by a team of prosecutors from both. Tax Division prosecutors also conduct training for IRS criminal investigators and Assistant United States Attorneys, and provide advice to other federal law enforcement personnel, such as the DEA and the FBI.
The crimes investigated and prosecuted by the Tax Division include attempts to evade tax, willful failure to file returns, and submission of false returns, as well as other conduct designed to violate federal tax laws. The crimes may be committed by individuals, business entities, or tax preparers and professionals. These cases often encompass tax crimes where the source of the individual or business income is earned through legitimate means -- as examples, a restaurateur who skims cash receipts; a self-employed individual who hides taxable income or inflates deductions; or a corporation that maintains two sets of books, one reporting its true gross receipts and the other -- used for tax purposes -- showing lower amounts. Prosecutions in these cases often receive substantial attention in the local and national media, and convictions remind law-abiding citizens who pay their taxes that those who cheat will be punished.
Tax Division prosecutors also investigate and prosecute tax violations that have been committed along with other criminal conduct, such as securities fraud, bank fraud, identity theft, bankruptcy fraud, heath care fraud, organized crime, public corruption, mortgage fraud, and narcotics trafficking. In addition, Tax Division prosecutors investigate and prosecute domestic tax crimes involving international conduct, such as the illegal use of offshore trusts and foreign bank accounts used to conceal taxable income and evade taxes. As tax crimes have become more complex and international in scope, so has the workload of Tax Division prosecutors. In addition to the traditional cases involving unreported legal source income, over the last several years a greater proportion of our cases involve high net worth taxpayers and tax professionals who sell and implement dubious tax schemes. During FY 2011, Division prosecutors obtained indictments in 145 cases and convictions in 137 cases. The conviction rate for cases brought by Tax Division prosecutors usually exceeds 95%.
Criminal Appeals The Tax Division Criminal Appeals and Tax Enforcement Policy Section (CATEPS), handles appeals in criminal tax cases prosecuted by Tax Division prosecutors, as well as some appeals from trials handled by United States Attorneys' Offices. The Division also supervises appeals in matters prosecuted by the United States Attorneys' Offices. The appellate-level review provided by CATEPS attorneys plays a vital role in promoting the fair, correct, and uniform enforcement of federal tax law. CATEPS is also charged with developing criminal tax enforcement policy, and the section provides technical guidance on issues including the sentencing guidelines and restitution in tax cases. The section's international team serves as a resource to Division attorneys and IRS agents on international discovery matters arising in civil and criminal cases. CATEPS also plays a role in providing information and technical expertise on matters involving international tax information agreements and treaties.
It is apparent from this brief overview that Tax Division attorneys and prosecutors are involved in every facet of federal tax enforcement. While we continue to maintain a sizeable caseload of what may be considered "traditional" tax enforcement matters, we are also mindful of the need to identify and respond to ongoing, growing, and new trends in civil and criminal noncompliance. I would like to take a moment to highlight four areas of noncompliance that are among our highest enforcement priorities -- stolen identity refund fraud, abusive tax shelters, offshore tax schemes, and tax defiers.
Stolen Identity Refund Fraud
[Omitted, even though it relates to criminal enforcement; it is not a primary focus of this blog although it is a hot topic now]
Abusive Tax Shelters
[Omitted because it is primarily a civil initiative now; although some outlier shelters are prosecuted, gone are the juicy criminal initiatives against the major accounting firms]
Offshore Tax Schemes
The Tax Division plays a lead role in investigating and prosecuting those who use foreign tax havens to evade taxes and reporting requirements. The increased technical sophistication of financial instruments and the use of the internet have made it all too easy to move money around the world instantly, without regard to national borders. According to a 2008 report issued by the Permanent Subcommittee on Investigations, Committee on Homeland Security and Government Affairs, United States Senate, the use of undeclared offshore accounts to evade U.S. taxes costs the Treasury at least $100 billion annually. Using tax havens facilitates evasion of U.S. taxes and related financial crimes, and fosters the perception that if people have enough money and access to unscrupulous professionals, they can get away with hiding money offshore. Thanks to the considerable and highly publicized efforts of the Tax Division and the IRS, reality has caught up with those who chose to engage in this illegal behavior.
Offshore tax schemes re often difficult to detect and prosecute. Over the last several years, the Tax Division and the IRS have worked closely and devoted considerable civil and criminal resources to target taxpayers and professionals who engage in and facilitate offshore tax evasion. The Division's initial efforts focused on UBS AG, the biggest bank in Switzerland and the seventh largest in the world. In 2009, UBS entered into a deferred prosecution agreement, paid $780 million in disgorged profits, taxes and penalties, exited the cross-border business and provided account information for a large number of U.S. taxpayers. Separately, UBS agreed to provide the IRS information on thousands more U.S. taxpayer accounts. The Tax Division and the IRS engaged in extended negotiations with the Swiss government to obtain the necessary records under Swiss bank secrecy laws. Both the Department and the IRS continue to investigate offshore tax schemes worldwide. Charges have already been brought against a bank and numerous bankers, independent financial advisers and attorneys. The deterrent effect of these efforts has been substantial. Since 2009, nearly 30,000 taxpayers have voluntarily disclosed their hidden foreign accounts, compared to fewer than 100 voluntary disclosures of all types annually in prior years, and the IRS recently reported it has collected $4.4 billion from those taxpayers. And the individuals who disclosed their foreign activities are now expected to go forward as compliant taxpayers, bringing much more into the Treasury.
There are constraints imposed by prosecutorial needs as well as statutory protections for grand jury secrecy and the confidentiality of tax information that prevent me from commenting on any ongoing investigations in this or any other area. However, I can say this: We have insisted, and will continue to insist, that individuals and companies doing business in this country comply with U.S. laws. And we have investigated and prosecuted, and will continue to investigate and prosecute, U.S. taxpayers who try to evade taxes by hiding money in offshore accounts and those who help them.
National Tax Defier Initiative
[Omitted; it does involve criminal prosecutions but they are not a focus of this blog]JAT Comment: Some of the statistics are not self-explanatory. For example, AAG Keneally touts that "nearly 30,000 taxpayers have voluntarily disclosed their hidden foreign accounts, compared to fewer than 100 voluntary disclosures of all types annually in prior years." I think for the low number in prior years, she is referring to noisy disclosures. I am confident that there were a hell many, many more quiet disclosures that brought in substantial revenue to the Government. Those quiet disclosures were often intended to mitigate the criminal tax exposure and, in most case, in fact no criminal prosecution ensued.
I do agree that the "deterrent effect has been substantial. Certainly, on a go-forward basis, compliance has been enhanced many times with respect to FBARs and related income tax reporting. By go-forward in this context, I mean no just the go-forward only strategy (although that is substantial), but all persons who are now aware of and concerned about these obligations. Many, perhaps most, of them will do right in the future and that will be a big revenue gain.
Also, note the statistics. Only a limited number are prosecuted. That is not a reason to play fast and loose in reporting and paying tax liabilities. But it should tell you that the IRS / DOJ are not going to be the next persons who knock on your door. Hence, you have to to deal with this very serious matter in a productive and appropriate way without panicking. You need to deal with it and start now. But do not panic or assume the worst which can debilitate you from dealing with the issue.