IRS Criminal Investigation Report Highlights Work of Pandemic Year


Over ten billion dollars. It is the amount of money identified by the IRS Criminal Investigations Department, sometimes referred to as CI, as coming from tax evasion and financial crimes in the past fiscal year.

That’s a jaw-dropping figure, almost as much (about 90%) as the IRS ‘entire budget for the fiscal year ended September 30, 2021, according to CI’s recent annual report.

About CI

This is true despite the size of the department. CI has just under 3,000 employees worldwide; about 70% of these employees are special agents who tackle crimes with a focus on tax laws, money laundering and bank secrecy law.

CI “follows the money” in many financial crime cases. And, while other federal agencies, like the Federal Bureau of Investigation, can also prosecute financial criminals, the IRS is the only federal agency that can investigate potential violations of the Internal Revenue Code.

How effective are they? In the last fiscal year, the IRS-CI opened 2,581 investigations, recommending 1,982 potential defendants for trial. The cases, typically prosecuted by the tax department of the attorney general’s office of the US Department of Justice, resulted in 1,268 convictions, a jail rate of nearly 80 percent, CI said.

Money laundering

Over 40% of CI’s investigations focused on money laundering. Money laundering is, in its most basic form, the hiding or returning of money. Most often, it is used to cover up “dirty money” earned through criminal activity so that it can appear “clean” or legitimate. Today, CI claims that criminals are moving illicit earnings using various businesses, such as banks, money issuers, brokerage houses, casinos, and virtual money changers. The flow of illegal funds around the world is estimated at hundreds of billions of dollars.

CI’s special agents are trained to track money through traditional and virtual financial banking systems. CI chief Jim Lee noted that “the speed at which money is flowing today is almost instantaneous,” making it easier for criminals to exploit the latest technological advances. CI is, he said, committed to staying one step ahead of these developments.

Sometimes technological and tax crimes collide. This year, for example, CI saw the very first conviction of a Bitcoin case with a tax component. In this case, a former Microsoft employee, Volodymyr Kvashuk, was convicted in a scheme to embezzle more than $ 10 million from the company, using a bitcoin mixer to hide taxable income. Online mixers are companies that pool cryptocurrency funds and create a series of new transactions to disguise the source of the funds, like an ultra-sophisticated version of money laundering. Kvashuk used the money to buy a waterfront property and a Tesla before being found guilty of 18 counts – including wire fraud, money laundering and filing false claims. income – and sentenced to nine years in federal prison, CI said.

Tax evasion and tax evasion

IRS-CI agents spent most of their investigative hours in the past fiscal year (about 72%) investigating tax-related crimes like tax evasion and tax evasion.

General tax fraud investigations are at the heart of CI’s law enforcement efforts. This is because the integrity of our tax system depends heavily on the willingness of taxpayers to properly file their income tax returns and pay the resulting tax. And most taxpayers – just over 80% according to the IRS – pay voluntarily and on time.

But those who deliberately under-report or omit income from their tax returns represent a sizable balance. According to the Treasury, “the ‘tax gap’ – the difference between taxes due and collected – totals about $ 600 billion a year” and “is equal to 3% of GDP, or all income taxes paid by the lowest paid 90% of taxpayers. . ”

Pandemic fraud

The pandemic has also created opportunities for crooks and criminals. As part of its investigations, CI examined fraudulent claims involving economically impacted payments (i.e. stimulus checks), Paycheck Protection Program (or P3) loans, and credits. employer retention (ERC). In one case, David T. Hines of Miami, Florida pleaded guilty to fraudulently obtaining nearly $ 4 million in PPP loans, which he used to purchase, among other things, a Lamborghini Huracan sports car.

In another case, Dinesh Sah of Coppell, Texas was sentenced to more than ten years in prison, in connection with efforts to secure approximately $ 24.8 million in PPP loans by submitting 15 fraudulent claims. He used the money to pay off mortgages in California, buy homes in Texas and buy several luxury cars, CI said.

Undercover operations

CI uses various techniques in its investigations, including undercover. In FY2021, agents conducted approximately 292 covert operations in areas focused on unscrupulous tax preparers, offshore tax regimes, money launderers, dark web market operators and the ‘tax evasion.

The department has a certain reputation for infiltration: almost 100 years earlier, in 1929, Agent Michael Malone, a member of the new IRS intelligence unit, precursor to CI, had successfully infiltrated the gang of ‘Al Capone in Chicago, resulting in putting Capone behind bars. Malone was an undercover agent in other notable tax evasion cases, including those targeting Irving Wexler, better known as Waxey Gorden, and Leon Gleckman, the “Al Capone of St. Paul.”

If that sounds like the kind of thing that requires special training, you’re not wrong. CI begins training at the National Criminal Investigation Training Academy — NCITA — located at the Federal Law Enforcement Training Center in Brunswick, Georgia. New special constables receive training in areas such as basic criminal investigation skills, federal criminal law, court proceedings, law enforcement operations, interview skills and training on the job. firearms. Despite the challenges of the pandemic, CI graduated 124 new special agents in the past fiscal year.

Annual Report

More information about CI can be found in the annual report, which includes case examples for each U.S. field office, an overview of CI’s international footprint, details of the specialist services provided by CI, and investigation statistics. , broken down by discipline, for the last fiscal year.

“The annual report provides an overview of the important work that our special constables and professional staff have accomplished over the past fiscal year,” said Lee. “They have identified more than $ 10 billion in tax evasion and other financial crimes, including the seizure of $ 3.5 billion worth of ill-gotten cryptocurrency gains.”

But that’s not what Lee focused on.

“Looking back to 2021, I am very proud of our employees,” he said. “They tenaciously overcame personal and professional challenges during the COVID pandemic and continued to serve the American people by protecting the tax system that funds our country’s services and benefits. These aren’t just good numbers for a pandemic year, these are good numbers, period. “

This is a weekly column by Kelly Phillips Erb, the Taxgirl. Erb provides commentary on the latest tax news, tax law and tax policy. Find Erb’s weekly column in Bloomberg Tax and follow her on Twitter at @taxgirl.



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