Tuesday, March 10, 2015

TRAC Publishes Statistics on Tax and Tax-Related Prosecutions (3/10/15)

Transactional Records Access Clearinghouse ("TRAC"), a major collator and analyzer of Government data regarding criminal and civil enforcement efforts, has posted a web page titled The IRS and the April Surprise, here.  Here are key excerpts (with bold face supplied by me):
Analysis of the latest government case-by-case data obtained by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University shows that during January 2015 a total of 131 taxpayers were prosecuted as a result of IRS investigations.
The data tracking trends also show that many IRS prosecutions are timed to coincide with tax filing season, presumably to help remind taxpayers of their legal obligations to avoid underreporting taxes owed on the returns they file. 
Year after year, April consistently has the greatest number of criminal prosecutions as a result of IRS investigations — two-thirds or more higher than those seen in January. Figure 1 and Table 1 show both the 10-year average as well as prosecution figures from January through December 2014. 
[Table 1. Number of Criminal Prosecutions from IRS Investigations omitted]
[Figure 1. IRS Criminal Prosecutions by Month omitted] 
The odds of criminal prosecution have also varied over time. The long term trend in prosecutions for these matters going back to FY 1994 is shown more clearly in Figure 2. The vertical bars in Figure 2 represent the number of prosecutions of this type recorded each fiscal year. Each presidential administration is distinguished by the color of the bars. While the numbers were highest during the early Clinton administration, the trend was downward and was substantially lower during the Bush administration. After President Obama assumed office, they began rising again. They climbed to 2,010 prosecutions during FY 2013 before falling by 16 percent to 1,689 during FY 2014. 
[Figure 2. IRS Criminal Prosecutions Over The Past 20 Years omitted] 
Top Ranked Lead Charges 
Table 2 shows the top lead charges recorded in the prosecutions of matters filed in U.S. District Court during FY 2014. 
[Table 2. Top Charges Filed omitted, but the ranking at the top is tax perjury (7206(1)), false statement conspiracy (18 USC 286), and tax evasion (7201)]
* "Fraud and False statements" (Title 26 U.S.C Section 7206) was the most frequent recorded lead charge. Title 26 U.S.C Section 7206 was ranked 1st a year ago, while it was the 1st most frequently invoked five years ago. It was ranked 1st ten years ago and 2nd twenty years ago. 
* Ranked 2nd in frequency was the lead charge "Conspiracy to defraud the Government claims" under Title 18 U.S.C Section 286. Title 18 U.S.C Section 286 was ranked 6th a year ago, while it was the 5th most frequently invoked five years ago. It was ranked 7th ten years ago and 9th twenty years ago. 
* Ranked 3rd was "Attempt to evade or defeat tax" under Title 26 U.S.C Section 7201. Title 26 U.S.C Section 7201 was ranked 2nd a year ago, while it was the 2nd most frequently invoked five years ago. It was ranked 2nd ten years ago and 1st twenty years ago. 
Among these top ten lead charges, the one showing the greatest increase in prosecutions — up 37.0 percent — compared to one year ago was Title 18 U.S.C Section 286 that involves "Conspiracy to defraud the Government claims ". This was the same statute that had the largest increase — 888 percent — when compared with five years ago.
Again among the top ten lead charges, the one showing the sharpest decline in prosecutions compared to one year ago — down 48.4 percent — was "Public money, property or records " (Title 18 U.S.C Section 641 ). This was the same statute that had the largest decrease — 28.4 percent — when compared with five years ago. 
[Top Ranked Judicial Districts omitted] 
The reason for the increase in charges for false statement conspiracy is the continuing proliferation of stolen identity fraud via tax return filings.  Note that tax perjury ranks higher in number of prosecutions than tax fraud.  I suspect that, in most of the tax perjury prosecutions, tax evasion could have been charged.  Tax perjury charges generally require less intense prosecutorial resources and, in an environment where most cases are resolved by plea agreement, are easier for a defendant to accept than tax evasion.  And, generally, tax perjury, although a 3-year felony as compared to tax evasion (5-years) will draw the same sentence as to the tax evasion charge because of the way the Guidelines work with the tax loss -- the same for either tax perjury or tax evasion -- being the principal driver in the Guidelines calculations.

I omitted the tables and figures with the data.  I encourage readers, however, to look at those items on the TRAC website linked above.  They are very interesting.  But keep in mind that they are just statistics which can be deployed in the service of truth or deception.  Still, over the years, I have observed TRAC to be honest in the collection, presentation and analysis of the data.


  1. Sandra, re.your last sentence I believe Jack was referring to information provided not through FATCA, but by banks which entered the "OVDP for banks" (as I call it) and are trying to reduce their fines by providing information about their account holders.

    I would agree with you that info such as false bank balances would be necessary to show fraud. I would question whether just circumstantial evidence (such as instructions not to call by phone) would b enough, especially since it would seem to me that, for those transitioning from OVDP to streamline, the IRS could have asked the person to request the information from the bank BEFORE approving the transition request.

  2. I think it might be worthwhile to repeat what information category 2 banks exchange in detail and how they exchange it at this stage.

    From what I understand, category 2 banks are sending over account numbers (without names), balances and transactions to DOJ. They divide them in a "red flag" list which they pay penalties on and a "green light" list which they don't pay penalties on because the account holder is already in compliance or have joined the OVDP (and provided proof to the bank). The information is the same at this stage, except that the "green flag" list include some form of evidence of the requirements, such as a copy of the OVDP acceptance letter. The bank has to receive this from the client, as well as consent to share this info with the DOJ, otherwise they would commit a Swiss banking law crime at this stage.

    Its fair to assume that the "red flag" list will be subject to John Doe requests already being prepared and that more detailed information such as communication between bank and client, account opening papers etc might be included in the John Doe summary.

    One critical issue is if there will be a John Doe request on the "green light" list. I guess it could be possible but would they spend all that resources? And would the Swiss agree to this since it is a huge workload considering the banks are bending backwards already?

    From what I understand at the heart of the deal was what info could be shared (without consent from the client) and that is after all fairly limited. I assume that all clients who are cooperating with the bank are smart enough not to sign a blank POA for the bank to give IRS anything but the specific limited information they need to prove their entry into OVDP.

    So say you have joined the OVDP (or streamlined), you have given proof of this to your bank of this so that they have put you on the "green light" list. As long as you don't lie in your OVDP documentation about basic things like account numbers, balances or transactions (which would be beyond stupid), I have a hard time seeing any other information being shared automatically?

    The only way the DOJ could later get more information on the account would to pressure the client to hand it over within the ODVP process, or, if the balances or account numbers do not add up, use that as an indication of fraud and make a treaty request for that specific account. But again, it is really only things like account numbers, balances and transactions that could be subject to scrutiny here from what I understand and that I assume almost everyone hands over that same data in the OVDP or streamlined process in any case.

    One conclusion from all of this is that it actually might make a lot of sense to cooperate with your category two bank in order to end up on the green list (if it is not too late already). Thereby you control/are aware of the bulk of the information being handed over assuming I am right about the future John Doe requests.

  3. Thanks, The Swede.

    Your point is that U.S. taxpayers resolving their U.S. tax consequences by OVDP, streamlined (by transition or otherwise) or still otherwise might be better off to advise the Swiss Category 2 banks if they have been less than truthful in their resolution of the U.S. tax consequences. A condition of any resolution of the U.S. tax is that the taxpayers be truthful, so those that have not been truthful do bear a risk that the Swiss Category 2 banks might disclose some information on taxpayers in the red light list that they might not disclose on taxpayers in the green light list.

    However, for those taxpayers who have been truthful in the process of resolving their U.S. taxes, it really does not matter what list they are on and therefore have no need to cooperate with Swiss banks in reducing their penalties.

    Jack Townsend

  4. Very valid point Jack.

    But any case has nuances and I could imagine 99% doing a certification are not lying but simply bringing out their best facts, being mute on the rest. I think these people are better off on the green list. I think most people are better off on the green list.

    In reality, who would want DOJ to get more info in the future and take a second look at your case even if you are really confident your facts are solid?

    I guess my question to this audience is if anyone think the green list will be included in a John Doe request for further info in the future automatically?

  5. I am not sure what Jack and others mean by "false certification." Are you referring to certification of objective facts (for example, high account balance) or certification of the conclusion of nonwillfullness? Most people are somewhere in the gray area, and based on circumstantial evidence (activity in the accounts, how the accounts were used etc) the IRS could argue willfulness, and the client would argue nonwillfulness, But I am having a hard time imagining that if the client says these are the facts (and lists them truthfully) and therefore I am not willful that this would be considered a false certification just because the IRS contends that the set of facts shows willfulness, or even if the matter went to court and a judge were to make a determination of wilfulness. After all, in trials plenty of people plead not guilty, are subsequently convicted, but are not prosecuted for perjury as long as the testimony they gave about facts is truthful,

  6. I think it is true that, if the narrative in support of the certification of nonwillfulness is a totally correct and balanced statement of the facts, and then the taxpayer certifies nonwillfulness even though the narrative clearly points to willfulness, the IRS is unlikely to do anything other than deny the certification. However, taxpayers know that in advance and thus will shade their narrative to support their certificaition of nonwillfulness. The problem will come if they shade too much. So, those taxpayers in the gray area of nonwillfulness may not have an issue because their statement of facts will be at best equivocal. It is those not in the gray area who bend or hide the facts that are at risk.

    Jack Townsend


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