Monday, March 28, 2016

Matthews' Article on Damage to IRS CI through Budget Cuts (3/28/16)

Mark Matthews, here, a prominent player in the tax crimes area has written this article:  Mark E. Matthews,  IRS Criminal Investigation: A National Asset Being Damaged, 150 Tax Notes 1319 (MAR. 14, 2016), here.  I highly recommend the article by a thoughtful practitioner who has been involved in enforcement and defense.

Mark begins his piece with the critical role that IRS CI plays in the tax system:
CI is the only enforcement agency pursuing investigations of potential criminal violations of the IRC. There are two key aspects of its work from a tax enforcement perspective. First, unlike IRS civil audit activity, CI's cases are public. CI publicizes its cases to send a message far beyond the individual taxpayer being prosecuted -- to more than 300 million taxpayers. The message has two components: (1) the threat to those tempted to cheat that there is a great risk to tax evasion, and (2) the assurance to those paying their fair share that they are not chumps and that those not paying it are not getting a free pass, or are at least risking their liberty. Second, the prospect of incarceration is a principal motivator to those tempted to cheat. If the only sanction for tax violations were civil penalties, many more would play the audit lottery more aggressively, especially as congressional budgets drive the audit rate lower each year. Yet even the slight prospect of a loss of liberty in one of our federal correctional institutions causes many to focus when they sign the perjury jurat on their returns. 
CI is the most dramatic example of the concept of general deterrence. Tax offenses are the one federal felony that every American confronts each year. We are not all tempted to sell drugs; we are not all in the securities industry or in a position to commit an environmental crime. But we all file returns. Therefore, the IRS must maintain a strong compliance message for the country's 300 million taxpayers, and it has -- in recent history, with as few as 1,500 criminal tax prosecutions each year. Even that low number, however, is dropping. That is far below the number of narcotics prosecutions brought by the federal government in attempting to deter a far smaller group of potential violators. Hence, CI needs publicity to achieve even a minimum enforcement presence. 
The CI chief, Richard Weber, recently made the same point in a conversation with the author: "Taxpayers voluntarily comply because they know it is the right thing to do, but they also want those who cheat the government to be held accountable. They want a level playing field. When they see that criminals get away with not paying their fair share, there is a direct impact on the voluntary compliance rate and the confidence in our entire system begins to erode. IRS-CI restores that confidence by ensuring that we all play by the same rules."
Mark then discusses the data on declining enforcement from declining resources.  I will let Mark's discussion speak for itself.  Highly recommended for readers of this blog.

I will close with my own brief thought.  The IRS is a critical agency, no less important to who we imagine ourselves to be as Americans than any other federal agency.  To the extent that there are problems in the IRS (or any other agency), the solution is to fix them which may even require additional budgeting to insure that the agency is functioning fairly and efficiently to meet the needs of the country.  Politicized budget cuts are going to make the IRS serve this country worse.

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