It’s not your imagination. Those high profile IRS tax crimes cases that you’ve been reading about over the past year or so aren’t blips or glitches. They’re real.
The arrest of Rashia Wilson, the self-proclaimed “Queen of Tax Fraud”? Former Detroit mayor Kwame Kilpatrick? The massive takedown in Miami?
Those really happened in 2013. And they’re not a statistical anomaly or one-offs. They reflect a continuing trend in IRS criminal tax enforcement as investigations, prosecutions and convictions are on their way up.
The numbers are laid out in the Internal Revenue Service – Criminal Investigations (IRS-CI) Annual Report for fiscal year 2013, released this week by IRS. The report shows “significant increases in enforcement actions against tax criminals and a robust rise in convictions.”
According to the report, in 2013, IRS-CI initiated over 5,300 cases and recommended over 4,300 for prosecution. Prosecutors indicted almost 3,800 of those individuals and convicted over 93% of the cases closed this year. The conviction rate is especially important, according to IRS-CI Chief Richard Weber because “it reflects the quality of our casework, our teamwork with federal law enforcement and the U.S. Attorneys’ Offices.”
You might not even have known that IRS has a criminal investigations department. It’s not promoted to be as glamorous as, say, the Federal Bureau of Investigation (FBI) or the Central Intelligence Agency (CIA). And there’s no television show touting how cool it is a la CSI or NCIS. (Psst: I swear tax law can be sexy, too. Hollywood, call me.)
And maybe that’s because we don’t like to think about financial crimes. There’s this little underpinning in our society that wants to believe that financial crimes aren’t all that bad, that they don’t have real consequences. Only they do.
Those identity theft crimes? Those folks steal from legitimate taxpayers and delay much needed refunds. Sometimes, they can turn entire lives upside down as taxpayers fight against ruined credit and improper loans.
That money laundering? Those dollars are funneled in through illegal means and often used for even more terrible crimes like funding drug wars and terrorism.
Public corruption? Those funds are directed out of the coffers of our towns and our cities, away from our schools, emergency personnel and other much-needed services and instead redirected into private accounts.
Tax avoidance? The tax gap – the difference between what the IRS expects to collect and what it actually does – is thought to be around $385 billion. Billion. With a b. When you think about the government shutdown, proposed cuts to the military and our massive deficit, think about that difference. And when you write a bigger check this year because your own taxes have gone up to make up for those not paying their bills? Think about that difference.
The fact is that financial crimes have real consequences. And those consequences affect you and me.
Stopping those crimes is the job of the IRS Criminal Investigation (CI) department. It’s a small division compared to other government agencies with approximately 3,700 employees worldwide. About 70% of those employees are special agents who tackle crimes focusing on tax, money laundering and Bank Secrecy Act laws. CI “follows the money” in many financial crimes cases: while other federal agencies, like the FBI, may also chase financial criminals, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.
IRS-CI has been around since 1919. Originally called the Intelligence Unit, the name changed in 1978. In nearly 100 years – since its inception – the conviction rate for federal tax prosecutions has never fallen below 90%.
That trend continued in fiscal year 2013: the conviction rate for the year reached 93.1%, 0.1% more than the fiscal year 2012 rate. Also up? A 12.5% increase in investigations initiated compared to the prior year and a nearly 18% gain in prosecution recommendations. For the year, CI initiated 5,314 cases and recommended 4,364 cases for prosecution.
It’s worth noting that investigations, prosecutions and convictions were up – even as resources were down. Budget cuts have meant a decrease of more than 5.4% in agent resources. The total number of available agents have decreased dramatically since fiscal year 2009 and are expected to be at their lowest levels in a decade in fiscal year 2014.
As you’d expect, the fight against identity theft was a top priority for CI in 2013. The division initiated over 1,400 investigations and recommended prosecution of over 1,250 individuals who were involved in identity theft crimes during the fiscal year. Those investigations were done in cooperation with over 35 Identity Theft Task Forces, consisting of federal, state and local law-enforcement agencies. One of those task forces, the Tampa Bay Identity Theft Alliance, was recognized as the “2013 Task Force of the Year”, a national award given by the International Association of Financial Crimes Investigators for investigative excellence and outstanding public service.
Those efforts have paid off in dollars. Working together with the civil side of IRS, CI prevented over 1.3 million fraudulent returns related to identity theft from being released. Those fraudulent returns claimed over $7.1 billion in false refunds.
Other target enforcement areas included tax fraud, abusive tax schemes (domestic and/or offshore tax schemes for the purpose of violating the tax laws); refund fraud; financial institution fraud (criminal violations involving fraud against banks, savings and loan associations, credit unions, check cashers, and stockbrokers); public corruption (bribery, extortion, embezzlement, illegal kickbacks, tax fraud and money laundering); gaming and corporate fraud.
What’s next for 2014? Expect continued emphasis on following the money in financial crimes – especially as criminals and their modes of operation become more sophisticated (think Silk Road and Bitcoin).
As for 2013? Chief Weber says, about the report, that it is “just the tip of the iceberg of the complex cases we completed this past year. The dedication and enthusiasm of our employees was a driving force behind these achievements. IRS-CI continues to make our mark in history as the best financial investigators in the world.”