Wednesday, September 19, 2012

DOJ Tax Budget Request: Promo Piece with Some Statistics (9/19/12)

I am not sure exactly when this came out.  The pdf copy I have says that it was created in February 2012, so I am behind in getting to it.  In any event, here it is.  Department of Justice 2013 DOJ Tax Division FY 2013 Congressional Budget, here.

Key excerpts related to criminal tax enforcement that has been blogged frequently here (some footnotes omitted):
To help achieve uniformity in nationwide standards for criminal tax prosecutions, the Tax Division’s criminal prosecutors authorize almost all grand jury investigations and prosecutions involving violations of the internal revenue laws. Alone or in conjunction with Assistant United States Attorneys, Tax Division prosecutors investigate and prosecute these crimes. In the last few years, the Division has authorized between 1,300 and 1,800 criminal tax investigations and prosecutions per year. 
Improving Voluntary Compliance. The Tax Division’s success rate in its litigation – more than 90% – has an enormous effect on voluntary tax  compliance. fn2 By law, the IRS cannot make public the fact of an IRS audit, or its result. By contrast, the Tax Division’s important tax litigation victories receive wide media coverage, leading to a significant multiplier effect on voluntary compliance. fn3 Efforts of the IRS and the Tax Division are having a positive effect on voluntary compliance. According to the most recent survey by the IRS Oversight Board, 87 percent of those surveyed think it is “not at all” acceptable to cheat on taxes. fn4 Also, the Commissioner’s Voluntary Disclosure Initiative, timed to coincide with the Division’s ongoing criminal and civil enforcement concerning unreported offshore accounts, resulted in an unprecedented number of taxpayers, almost 15,000, attempting to “return to the fold” and paying back taxes, interest and penalties due that will likely total in at least the hundreds of millions of dollars. As an integral part of the IRS’s enforcement efforts, the Tax Division is partially responsible for the IRS’ ability to collect over $2 trillion in taxes each year. fn5
   fn2  A widely regarded study concluded that the marginal indirect revenue-to-cost ratio of a criminal conviction is more than 16 to 1. While no comparable study of civil litigation exists, the same research suggests that IRS civil audits -- the results of which are not publicly disclosed -- have an indirect effect on revenue that is more than 10 times the adjustments proposed in those audits. Alan H. Plumley, The Determinants of Individual Income Tax Compliance, pp. 35, 40, Internal Revenue Service Publication 1916 (1996).  [That Study is here.]
   fn3 “The IRS ... found that taxpayers who heard about IRS audit activity via the media [rather than through word of mouth] were less likely to cheat...” Leandra Lederman, The Interplay Between Norms and Compliance, 64 Ohio. St. L. J. 1453, 1494-95 (2003), quoting Robert M. Melia, Is the Pen Mightier than the Audit?, 34 Tax Notes 1309, 1310 (1987). 
    n4 See IRS Oversight Board 2010 Taxpayer Attitude Survey, January, 2011, 
   fn5 See Internal Revenue Service Data Book, 2009, Table 1, available at www.irs.taxstats. From the website, select “IRS Data Books” in the “Products, Publications, & Papers” section. 
Using John Doe Summonses to Track Down Owners of Unreported Offshore Accounts
The Tax Division is assisting the IRS in attempting to obtain more information about United States persons who maintain undeclared foreign accounts. This assistance primarily takes the form of obtaining court authorization for the IRS to serve John Doe summonses —a summons issued to obtain the identities of unknown taxpayers — and in petitioning for judicial enforcement of the summons. fn13 
   fn13 Before the IRS may serve a John Doe summons, it must obtain authorization from a federal district court judge in an ex parte court proceeding. At the court proceeding, the Government must establish that (1) the summons relates to the investigation of a particular person or ascertainable group or class of persons; (2) there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law; and (3) the information sought to be obtained from the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources. 
At the centerpiece of the Division’s current efforts is the John Doe summons served on the Swiss banking giant UBS, which does business in the United States. In United States v. UBS, AG (S.D. Fla.), filed in July, 2008, the Tax Division successfully obtained court approval for the issuance of a John Doe summons to UBS seeking the names of U.S. account holders with undeclared accounts. The approval and issuance of the summons generated worldwide publicity. When UBS failed to comply with the summons in full, the Tax Division in February, 2009, filed a petition to enforce the summons. 
The filing of the enforcement action, and the attendant pressure on the Bank and the Government of Switzerland, resulted in an historic settlement, signed on August 19, 2009. This agreement has dealt fabled Swiss bank secrecy a devastating blow. The agreement has put in place a government-to-government process that should yield information on thousands of U.S. offshore account holders who have high-value accounts in UBS. The agreement also provides a method for the United States to obtain similar account information from other Swiss banks. In addition, the agreement should serve as a template for US government actions taken in connection with banks from other countries. 
The publicity surrounding the Tax Division’s enforcement action and the subsequent settlement has already produced dramatic enforcement results. Because of worldwide media coverage, an unprecedented number of U.S. taxpayers who held offshore accounts in UBS and other foreign institutions availed themselves of the IRS’ voluntary disclosure program so far – nearly 18,000 to date, in an 18-month period, in contrast to fewer than 100 annually in previous years – and the uptick is expected to continue. Part of the voluntary disclosure program requires account holders to identify any other foreign institutions they have used, and also to identify all of those who helped the account holders conceal their accounts. By strategically timing its voluntary disclosure program in tandem with the Tax Division’s civil and criminal litigation efforts, the Service was able to obtain significant additional information about those who have helped to facilitate tax fraud, information that is extremely important to tax administration and is expected to lead to additional investigations. Moreover, although hard to measure, the fact that foreign bank secrecy is no longer “secret” should improve voluntary compliance by dissuading many other taxpayers from attempting to maintain hidden offshore accounts in the first  [*10]  instance. Put simply, the word is out that placing assets in foreign accounts no longer provides the protection from disclosure it once did. 
In addition to filing the John Doe summons against UBS, Tax Division attorneys have sought and won judicial approval to use the John Doe summons process to gather information from credit card companies, credit card processors, and merchants where the cards were used. With this information the IRS will be able to identify thousands of persons who have credit, charge, or debit cards issued by or paid through banks in various foreign tax haven countries and who may be illegally hiding assets and income in offshore accounts. After the Tax Division obtained approval for the IRS to seek such information from PayPal, a large internet purchase payment company, the IRS opened investigations on more than 2,200 taxpayers, and more than 1,650 settled their resulting tax liabilities with the IRS. The government’s victories in these cases not only helped gather necessary documents to identify customers seeking to hide behind a veil of secrecy, but the surrounding publicity reassures law-abiding taxpayers that the tax laws are being enforced. 
The IRS is also looking into taxpayers who operate businesses, either online or from a physical location, and who have some or all of their gross sales income deposited directly into a bank account maintained outside the United States. As part of this effort, in In re John Does (Summons to First Data) (D. Colo.), the district court on April 15, 2009, issued an order authorizing service of a John Doe summons on First Data Corporation. First Data issues credit, debit, smart card, and stored-value cards, and also provides merchant-transaction processing services, internet commerce solutions, and check processing and verification services to financial institutions in thirty-seven countries, including the United States. The summons authorized by the court requests information regarding merchants that have entered into contractual relationships with First Data or its subsidiaries or affiliates, to deposit payment card sales to offshore merchant bank accounts. 
The Tax Division authorizes, and either conducts or supervises, almost all prosecutions arising under the federal tax laws. The Division’s twin criminal goals are to prosecute criminal tax violations and to promote a uniform nationwide approach to criminal tax enforcement. In many cases, the Tax Division receives requests from the IRS to prosecute tax violations after the IRS has investigated them administratively. 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 these referrals to assure that uniform standards of prosecution are employed and that criminal tax violations warranting prosecution are prosecuted. After the Division authorizes tax charges, the cases are handled either by a United States Attorney’s Office (USAO) or, in complex or multi-jurisdictional cases or cases in which the USAO is recused or requests assistance, by the Tax Division’s  [*14]  experienced prosecutors. In addition to their substantial litigation caseloads and review work, Tax Division prosecutors also conduct training seminars for IRS criminal investigators and Assistant U.S. Attorneys and often provide advice to other federal law enforcement personnel, including the DEA and FBI. 
Criminal workload has grown primarily due to an increasing number of complex cases. The sophistication of the Tax Division’s criminal cases has increased steadily over the past few years. A greater proportion of the cases involve high net-worth taxpayers and tax professionals who sell and implement complex tax products. During FY 2010, Division criminal attorneys obtained indictments in 77 cases and convictions in 109 cases. 
The Tax Division’s criminal trial attorneys investigate and prosecute individuals and corporations that attempt to evade taxes, willfully fail to file returns, submit false tax forms, or otherwise violate the federal tax laws. They also investigate and prosecute tax violations that have been committed along with other criminal conduct, such as securities fraud, bankruptcy fraud, health care fraud, organized crime, public corruption, mortgage fraud, and narcotics trafficking. In addition, Tax Division attorneys investigate and prosecute domestic tax crimes involving international conduct, such as the illegal use of offshore trusts and foreign bank accounts to conceal taxable income and evade taxes. They also conduct terrorism-related and Organized Crime and Drug Enforcement Task Force (OCDETF) criminal investigations, and prosecute organizers of internet scams. 
The Tax Division’s Criminal Appeals and Tax Enforcement Policy Section (CATEPS) conducts appeals in criminal tax cases prosecuted by Division attorneys and supervises appeals in matters tried by the USAOs around the country. Similar to the initial review of tax cases by criminal trial attorneys, the appellate review plays a vital role in promoting the fair, correct, and uniform enforcement of the internal revenue laws. CATEPS also assists in negotiating international tax assistance treaties and in researching policy issues, such as the application of the sentencing guidelines. 
“Pure Tax Crimes” 
The core of the Tax Division’s criminal work involves so-called “legal source income” cases. These cases encompass tax crimes involving unpaid taxes on income earned legally (e.g., a restaurateur who skims cash receipts or a doctor who inflates deductible expenses.) When these cases involve difficult issues of tax law or complex methods of proof, United States Attorneys’ Offices often call upon the special skills that Tax Division prosecutors bring to the Justice Department’s goal of combating financial fraud and reducing white-collar crime.
Evasion of taxes on income from legal sources significantly erodes the federal tax base. The Division’s enforcement activities are a strong counter to that erosion, providing a significant deterrent to those who contemplate shirking their tax responsibilities. These prosecutions often receive substantial local press and media coverage and assure law-abiding citizens who pay their taxes that tax cheats are not getting away with it. The government’s failure to vigorously prosecute such cases would undermine the confidence of law-abiding taxpayers and jeopardize the government’s ability to operate a revenue collection system whose cornerstone is voluntary compliance. 
During the past year, Division attorneys investigated and/or prosecuted cases involving tax crimes committed by individuals from all walks of life, including corporate executives, business owners, attorneys, doctors, dentists, movie actors, and others. 
In January 2010, in United States v. Pradeep Srivastava, (D. Md.), the defendant, a cardiologist, was sentenced to nearly four years in prison, based on his conviction for tax evasion and filing a false  [*15]  tax return. The defendant attempted to evade more than $16 million in income taxes by filing false income tax returns that failed to report approximately $42 million in capital gains. 
In November 2010, in United States v. John F. Heard, et al. (S.D. TX), John F. Heard Jr., Janet F. Heard, and Gary L. Lambert, along with Superior Protection Inc. (SPI), were convicted by a federal jury of conspiracy to defraud the United States of employment taxes totaling more than $5.7 million. According to court records, from 1987 to 2004, John Heard operated numerous security companies and failed to pay employment taxes of over $5 million. He and his co-conspirators impeded the ability of the IRS to assess and collect the taxes by opening and closing numerous corporations and using fictitious names on tax returns, corporate documents, bank documents, and payroll checks. 
In November 2010, in United States v. James Demuro, et ux. (D.N.J.), a jury found James and Theresa Demuro guilty of conspiracy to defraud the United States and twenty-one counts of willful failure to pay over employment taxes in Trenton, New Jersey. The indictment alleges that the Demuros withheld, but failed to pay over, approximately $500,000 in trust fund taxes from 2002 through 2008. James and Theresa Demuro diverted the withheld employment taxes to pay for business and personal expenses. 
Combating Offshore Tax Schemes
The Tax Division continues to play a lead role in investigations and prosecutions involving the use of foreign tax havens. Increased technical sophistication of financial instruments and the widespread use of the internet have made it easy to instantly move money in and out of the United States, around the world, irrespective of national borders. Using tax havens facilitates evasion of U.S. taxes and the commission of related financial crimes. 
Offshore tax schemes are often difficult to detect and prosecute, so the IRS has allocated resources to target taxpayers who engage in offshore activity for the purpose of underreporting income. Income tax evaders and other criminals use banks located in countries that have strict bank secrecy laws and that will not, or cannot, provide assistance to investigators for the United States. Sophisticated criminals may also use non-traditional tax haven countries, such as Latvia. Despite these difficulties, the Division has been successful in prosecuting these tax cheats. 
In February 2009, in United States v. UBS AG (S.D. Fla.), UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement, admitting guilt on charges of conspiring to defraud the United States by impeding the IRS. As part of the agreement, UBS, based on an order by the Swiss Financial Markets Supervisory Authority, agreed to immediately provide the United States with the identities of, and account information for, a number of United States customers of UBS’s cross-border business. Under the agreement, UBS exited the business of providing banking services to United States customers with undeclared accounts and paid $780 million in fines, penalties, interest, and restitution. 
The prosecution results so far have been encouraging. As of January, 2011, approximately 150 grand jury investigations of UBS clients have been initiated, 24 cases have been charged with 6 awaiting trial, 18 guilty pleas having been entered and a number of facilitators who helped clients hide assets offshore have been indicted. In addition, grand jury investigations have been opened into 8 additional offshore banks across the world, with 3 clients already convicted (two after lengthy jury trials) and a number of facilitators who helped clients hide assets offshore at those banks having been indicted. For example, in August, 2009, in United States v. Bradley Birkenfeld, et. al., (S.D. Fla.), Birkenfeld, a former UBS banker, was sentenced to 40 months in prison following his June 2008, guilty plea to conspiring with an American billionaire real estate developer, Swiss bankers, and his co-defendant,  [*16]  Mario Staggl, to help the developer evade paying $7.2 million in taxes by assisting in concealing $200 million of assets in Switzerland and Liechtenstein. In his plea Birkenfeld admitted that between 2001 and 2006, while employed as a director in the private banking division of Swiss bank UBS, he routinely traveled to and had contacts within the United States to help wealthy Americans conceal their ownership in assets held offshore and evade paying taxes on the income generated from those assets. In August 2009, in United States v. Hansruedi Schumacher, et al. (S.D. Fla.), a grand jury returned an indictment charging the defendants with conspiracy to defraud the United States. Schumacher allegedly worked as an executive manager at Neue Zuercher Bank ("NZB"), a Swiss private bank located in Zurich, while Rickenbach allegedly worked as a Swiss attorney who provided legal advice and services to U.S. clients. Schumacher and Rickenbach allegedly assisted American clients in concealing income and assets in Switzerland from United States authorities, by creating false and nominee offshore entities to hide the assets while their clients retained control over investment decisions, by serving as cash couriers for their clients, and by creating sham documents to disguise ownership and repatriation. 
The Division continues to prosecute UBS clients, using information obtained through the deferred prosecution agreement. For example, in April 2010, in United States v. Harry Abrahamsen (D.N.J.), the defendant pleaded guilty to failing to file a Report of Foreign Bank and Financial Account (FBAR) on income he earned on a UBS bank account, and underreporting personal and business income, resulting in a tax loss of between $325,000 and $550,000. Also in April 2010, in United States v. Paul Zabczuk (S.D. Fla.), the defendant pleaded guilty to filing a false tax return on which he failed to report an offshore UBS bank account and also failed to report income earned on that account. And in April 2010, in United States v. Jack Barouh (S.D. Fla.), the defendant was sentenced to 10 months in jail for filing a false 2007 tax return in which he failed to report his financial accounts at UBS. The tax loss associated with two of the accounts approximated $736,269. In November 2010, in United States v. Jeffrey Chatfield (S.D. Cal.), Chatfield pleaded guilty to filing a false tax return related to a Swiss bank account that he maintained at UBS. According to court documents and statements made in court, Chatfield used a series of offshore banks to conceal nearly $1 million in accounts held in the names of nominee entities. 
Prosecutions have not been limited to bankers and UBS customers. In December 2010, in United States v. Renzo Gadola (S.D. Fla.), Gadola pleaded guilty to conspiring to defraud the United States. Gadola is a citizen and resident of Switzerland and worked at UBS AG as a private banker from approximately 1995 to 2008. Gadola is a registered investment advisor with the SEC and currently works as an independent investment advisor in Switzerland. According to the charging document, Gadola worked with a former UBS banker to manage undeclared accounts for United States clients. The former UBS banker refused to travel to the United States out of concern of being arrested due to his cross-border banking activities, so the two arranged that Gadola would travel to the United States to meet with the clients. On November 6, 2010, Gadola met in a Miami hotel with a Mississippi client of the former UBS banker. The client had an undeclared account at Basler Kantonalbank, a regional bank in Switzerland. Gadola advised one client not to disclose his account at Basler Kantonalbank to United States authorities, indicating that the likelihood that anyone would find out about the account was “practically zero percent” and that there was no "paper trail" associated with the account. Gadola was arrested on November 8, 2010. 
In October 2010, a jury found defendants Mauricio Cohen-Assor and his son, Leon Cohen-Levy, guilty on charges they conspired to defraud the United States, in United States v. Cohen-Assor, et al. (S.D. Fla.). The defendants, who were developers and owners of several residential hotels, made extensive use of nominee entities formed in tax haven jurisdictions, including the Bahamas, the British  ]*17 Virgin Islands, Panama, Liechtenstein and Switzerland, and an account opened at a private bank affiliated with a large international banking firm, all in order to defraud the United States concerning, among other things, taxes pertaining to $33 million in capital gains.

Corporate Fraud and other Financial Crimes 
Through the President’s Financial Fraud Enforcement Task Force, the Tax Division investigates and prosecutes financial crimes such as corporate fraud and mortgage fraud. The Division also cooperates with other law enforcement components in formulating national policies, programs, strategies and procedures in a coordinated attack on financial crime. 
Prosecutions of the promoters of fraudulent tax schemes include cases involving accountants and attorneys at national firms. In December 2009, in United States v. Michael Parker (S.D. Ohio), the defendant pleaded guilty to conspiracy to defraud the United States by claiming more than $240 million in fraudulent deductions related to an illegal tax shelter. Parker, the chief operating officer of an investment company, admitted to conspiring with Daryl Haynor, an accountant who was a KPMG tax partner, and Jon Flask, an attorney, to defraud the IRS with regard to the tax shelter transactions. 
In January 2010, in United States v. Robert Coplan, et al. (S.D. N.Y.), Coplan and Martin Nissenbaum were sentenced to 36 and 30 months in prison, respectively. Richard Shapiro and Brian Vaughn were sentenced to 28 months and 20 months in prison, respectively. In May 2009, Robert Coplan, Martin Nissenbaum, Richard Shapiro, and Brian Vaughn, each a current or former partner of the accounting firm Ernst & Young (E&Y), were found guilty following a ten-week jury trial of conspiracy, tax evasion and other charges relating to the design, marketing and implementation of tax shelters sold by E&Y. All four defendants, as members of E&Y’s national individual tax shelter group led an effort to design and market tax shelter transactions used by wealthy individuals to eliminate, reduce, or defer tax liabilities on annual income that generally exceeded $10 or $20 million. Between 1999 and 2002, tax shelter transactions implemented by the defendants and their co-conspirators generated billions of dollars in non-economic or paper tax losses that were used to offset actual income or gain recognized by the firm’s clients. The defendants and their co-conspirators, which included tax, accounting and financial industry professionals, and law firms, designed, implemented, and defended the transactions in ways intended to conceal the true facts and circumstances from the IRS. 
In January 2011, in United States v. John Ohle and William Bradley (S.D.N.Y.) a federal court sentenced John Ohle to five years in prison and sentenced William Bradley to one year in prison for conspiracy to defraud the IRS and to commit bank fraud and wire fraud. On June 2, 2010, a jury convicted the pair. The jury also found Ohle guilty of tax evasion. Ohle, an attorney and CPA, was the former head of the Chicago office of a bank’s estate and tax planning group for high net worth  [*21]  individuals. Ohle and others created and sold a fraudulent tax shelter called HOMER (short for “Hedged Options Monetization of Economic Remainder”). The HOMER shelter generated more than $400,000,000 in phony losses and evaded more than $100,000,000 in taxes. Ohle, Bradley, and others fraudulently obtained HOMER referral fees by submitting over $1. 2 million in false invoices that fraud-ulently claimed entitlement to referral fees in a number of HOMER transactions, when in fact they had nothing to do with those transactions. 
Mortgage fraud is a growing part of the Tax Division’s criminal case load. For example, in July 2010, in United States v. Thomas E. Parenteau, et al. (S.D. Ohio), a jury convicted Parenteau of 11 counts of conspiracy and money laundering related to negotiating and participating in real estate deals in which he and his co-defendants sold luxury homes for a falsely inflated purchase price from the builder in exchange for an undisclosed or disguised kickback. In many of the transactions, the buyers misrepresented their income and assets in order to obtain financing of the inflated purchase price. This scheme was designed to defraud lending institutions out of millions of dollars. Parenteau is awaiting sentencing. 
International Cooperation to Investigate Evasion of U.S. Taxes 
The Tax Division regularly provides advice and assistance to United States Attorneys and IRS agents seeking extradition, information, and cooperation from other countries for both civil and criminal investigations and cases. Occasionally, the Tax Division provides assistance to attorneys from other agencies and offices of the United States government, including the Federal Bureau of Investigation, the Securities and Exchange Commission, and the Department of Homeland Security. The Tax Division is also working closely with IRS Criminal Investigation - International to develop a nationwide continuing professional education class for Special Agents concerning international tax matters. 
In addition, the Tax Division works to increase cooperation with foreign nations, recognizing that reciprocal engagements ultimately further the Division’s mission. For example, the Division has participated in consultations both with France and Canada in an effort to improve the exchange of information under our income tax treaties with those countries. The Division periodically hosts visiting delegations of tax officials from countries interested in learning more about federal tax enforcement in the United States. The Division continues to work to increase cooperation between the United States and countries in Latin America and the Caribbean by providing instructors for the International Law Enforcement Academy in El Salvador.   
The Tax Division is an important partner in the U.S. negotiating team for Double Taxation Conventions, Tax Information Exchange Agreements, and other international agreements concerning tax information. Recently, the Tax Division participated in the historic negotiations that led to the signing of Tax Information Exchange Agreements with the Principality of Liechtenstein and with Gibraltar. The Tax Division is also involved in negotiations with the governments of Switzerland and Luxembourg concerning historic changes to the exchange of information provisions in our income tax treaties with those countries. Other negotiations are ongoing. 
* * * * 
[Performance Measures] 
Performance Measure 1: Percentage of Cases Favorably Resolved 
FY 2011 Target: 90% for Civil Trial and 95% for Criminal. 
Discussion: The outcome measure for this decision unit is favorable resolution of all cases. The Department of Justice Strategic Plan sets Department-wide goals for the litigating components: 90% of criminal cases favorably resolved Department-wide and 80% of civil cases favorably resolved. As illustrated in the chart “Cases Favorably Resolved (TAX),” the Tax Division has exceeded the Department’s goal for the last several years. In FY 2011, favorable outcomes were achieved in 97% of all civil and 97% of all criminal cases litigated by the Tax Division, including non-tax cases.  [Emphasis supplied by JAT]
Performance Measure 2: Criminal Investigation and Prosecution Referrals Authorized 
FY 2011 Target: N/A 
Discussion: The Tax Division also measures the Number of authorized investigation and prosecution referrals in criminal cases. In FY 2011, the Division authorized 850 grand jury investigations and 1,470 prosecutions of individual defendants. Changes in the number of authorized investigations are largely proportional to the number of investigations initiated by the Internal Revenue Service. 
Consistent with Department guidance, there is no FY 2012 or FY 2013 performance goal for authorized investigations and prosecutions. 
Performance Measure 3: Success Rate for Criminal Tax Cases 
FY 2011 Target: 95% 
Discussion: The Tax Division’s Criminal Trial Sections assume responsibility for some cases at the request of the USAOs, generally multi- jurisdictional investigations and prosecutions, and cases with significant regional or national importance. Although many of these cases are difficult to prosecute, the Division has maintained a conviction rate at or greater than 95%. In FY 2011, the Division’s conviction rate was 97% in tax cases.   [Emphasis supplied by JAT]
For FY 2011, FY 2012, and FY 2013, the Tax Division has established a conviction rate goal of 95%. While the Tax Division is very proud of its conviction rate, the emphasis is on uniform and fair enforcement of the tax laws. 
Criminal Enforcement 
The Division’s criminal enforcement strategy is to vigorously and consistently enforce the criminal tax laws in order to punish offenders, deter future violations, and reassure honest taxpayers that they will not bear an undue share of the federal tax burden. 
The Division’s criminal prosecution activity has matched the vigor of its civil litigation efforts, with a similar increased focus on abusive tax schemes and their promoters. The Division has obtained numerous convictions of promoters of large and complex schemes that were widely marketed. Several recent indictments of promoters illustrate the continuing commitment to resolving this growing problem. The schemes identified in these cases involve a variety of illegal practices, including the use of offshore accounts to evade taxes, the refusal by employers to pay withholding taxes on employee wages, bogus trust arrangements, and abusive tax shelters. Additionally, the Tax Division has redoubled its efforts to prosecute tax crime involving income from a legal source—such as the consultant who reports only part of his income, the restaurant owner who skims from the cash register, or the doctor who keeps two sets of bookkeeping records. The IRS estimates that hundreds of millions in tax revenue is lost yearly through the evasion of taxes on income from legal sources. 
The Division also concentrates on several other types of tax law violations. Every year, the Division prosecutes a number of tax defiers who evade taxes and harass IRS employees. It also investigates and prosecutes tax violations occurring in the course of other criminal conduct, such as narcotics trafficking (supporting the Organized Crime and Drug Enforcement Task Force (OCDETF)), corporate fraud, securities fraud, bankruptcy fraud, health care fraud, mortgage fraud, organized crime, public corruption, and terrorism.
I blogged just yesterday on the IRS CI statistics and noted some doubt about DOJ's claims of 97% success rate.  See IRS CI Statistics (Federal Tax Crimes Blog 9/18/12), here.  I am still dubious but would like to have my doubts removed by someone who has real data.  DOJ Tax refused to enlighten me on this before when I first spotted this claim for an earlier year.  Maybe I will ask again.


  1. One can see a small recognition of the fact that minnows entered OVDI in the report. There is a positive and more accurate improvement in terminology. In the section on Voluntary Compliance on page 2, taxpayers in Voluntary Disclosure programs are characterized as attempting to "return to the fold". It is a much better (and probably more accurate) description of many OVDI and OVDP participants than the "fessing up" terminology which has appeared in other reports and in the media. However, using better terminology does not change the fact that minnows who attempted to comply have paid and still are being compelled to pay disproportionate penalties.

  2. The report must be taken with a large grain of salt. The high success rate in prosecutions is not necessarily an indicator of investigative or legal expertise, but likely simply an indicator that only slam-dunk cases get litigated and others get settled out of court.
    It does bother me that they use words such as "hiding" "concealing" and "evading." No doubt that these words are appropriate for some of the worst cases that have been litigated, but in a large portion of cases (I would guess the majority of the voluntary disclosures) there is little or no intent or effort to do any of these things, simply people not being aware of requirements. For example, before form 8938 came out this year, anyone who was aware of the existence of the FBAR form, and who had studied it carefully, would have read that individual bonds or notes directly held are NOT reportable. Thus someone with even a scintilla of knowledge of the reporting requirements (and associated penalties) could have simply held bonds and notes directly, thus legally eliminating all FBAR requirements and associated penalties and being subject only to penalty on unpaid income taxes. Or the taxes could have been reported while legally keeping the funds abroad.
    Moreover the 33,000 voluntary disclosures are likely a drop in the bucket as far as accounts that should be reported, and those who make the biggest effort to rectify the past and "get back in the fold" are being hit with the biggest penalties and legal/accounting fees.


Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.