Criminal Tax Offences: Enforcement Trends in 2022 | Foley Hoag LLP – White Collar Law and Investigations


This is the third article in this year’s series examining important trends in white-collar law and investigations. Our previous post discussed anti-corruption trends. Up next: State AG law enforcement trends.

  • Although the volume of IRS enforcement actions has decreased, it may soon increase.
  • Even at today’s relatively low levels of auditing and investigation, the IRS remains aggressive in the cases it pursues.
  • The IRS is focusing its efforts on cryptocurrency issues, international investigations, and Covid-19 fraud.
  • But the IRS also continues to pursue cases in many traditional areas, where a holistic review of issues before filing is the best approach.

Tax season is here – what better time to discuss trends in federal tax investigations?

In recent years, the overall volume of IRS law enforcement activity has declined, both in civil audits and criminal investigations (see links to recent IRS annual data books here and IRS Annual Criminal Investigation Reports (“IRS-CI”) here). Despite years of requests for additional budgets and staff, and the fact that IRS enforcement is generally a lucrative business for the government, no significant increase in staff and enforcement activities has taken place. The recent Build Back Better bill included an $80 billion budget increase for the IRS over the next decade, but that bill has notoriously gone nowhere. Yet politicians continue to tout the benefits of a stronger IRS. While watching the IRS execution get jolted on Capitol Hill can be mildly entertaining (or incredibly scary), it’s important to remember that less enforcement doesn’t equal less enforcement. zero and, as always, the IRS follows the money.

In terms of fighting white-collar crime, the subject of our blog series, the IRS remains an important and prominent government agency. The IRS-CI is the federal agency responsible for investigating and recommending prosecutions of criminal tax offenses and other related financial crimes to the Department of Justice. It is the only agency that devotes one hundred percent of its time to financial investigations. According to the 2021 IRS-CI Annual Report (“2021 Annual Report”), last year the IRS-CI spent 72% of its time investigating tax-specific crimes (including, but but not limited to the “Exponentially” growing category of cyber crimes), 15.4% of his time investigating non-tax financial crimes such as money laundering (“ongoing tax evasion”) and 11, 2% of his time on narcotics-related cases through his participation in the Organized Crime Drug Enforcement Task Force.

As of October 2020, IRS-CI Chief Jim Lee, a 25-year veteran of the organization, leads the division. Mr. Lee makes it clear that the IRS-CI sticks to its core mission. While the focus on convicting people and sending them to jail is sometimes difficult for the advocates among us to bear, the IRS-CI continues to tout its nearly 90% conviction rate and has pointed out that the consequence of willful non-compliance is jail time, the average being about 43 months last year. There is no doubt that the reputation of the IRS-CI remains strong, and past performance certainly means that taxpayers should take future dealings with the IRS-CI seriously.

Going forward, the IRS-CI under the leadership of Mr. Lee has focused on the following areas of focus in 2022:

Cryptocurrency

In fiscal year 2021, the IRS-CI seized $3.5 billion in cryptocurrency, or 93% of IRS-CI seizures. This included a seizure of $1 billion in undetected bitcoin transactions previously executed by Silk Road, which were the proceeds of illegal activity (Silk Road founder Ross Ulbricht was convicted in 2015 of conspiracy to distribute narcotics and money laundering). Just last week, in an investigation by the IRS-CI, two people were arrested for conspiring to launder stolen cryptocurrency in a 2016 hack of Bitfinex, a virtual currency exchange. This case also involved the largest financial seizure ever by the DOJ, amounting to $3.6 billion. The message from the IRS-CI regarding cryptocurrency is this: it’s not as anonymous as criminals think.

The focus on cryptocurrencies follows the IRS-CI’s growing emphasis on its cybercrime program more generally. Knowledge of cryptocurrency, blockchain, and open source intelligence (OSINT) technologies (in addition to other Internet and Internet-based technologies) is an important focus in IRS-CI’s attempts to unravel cyber-financial criminal schemes complex. With that in mind, IRS-CI plans to launch an Advanced Collaboration & Data Center (“ACDC”) in the Northern Virginia region later this year. The focus of the center will be to bring together data, technology and expert personnel from across Treasury and government to work on high-impact solutions to protect the integrity of tax and financial systems. Although the IRS-CI has been doing this work on a smaller scale for the past five years, the plan is for the ACDC to equip all officers across the country who encounter cybersecurity issues in their investigations with the necessary expertise and resources. to move cases forward.

International partnerships

IRS-CI’s presence extends far beyond the United States, and growing. Currently, IRS-CI has 22 attachés in 11 countries covering all major regions of the world. In addition to its own resources, IRS-CI relies heavily on international partnerships. For example, in this week’s press release regarding the arrests/seizures resulting from the Bitfinex hack, the government noted that police in Germany provided significant assistance. Last year, the IRS-CI marked the third anniversary of the creation of the Joint Chiefs of Global Tax Enforcement, an international group of tax organizations from five countries (including the United States, United Kingdom, Canada , Australia and the Netherlands) known as “J5.” The J5 combats tax crime through collaboration, information sharing and enforcement operations, and will no doubt be an important factor in future enforcement actions.

Fraud related to Covid-19

Fraud related to Covid-19 continues to happen and will be a focus of IRS enforcement. In fiscal year 2021, the IRS-CI initiated more than 300 cases related to Covid-19. Most of these cases relate to money laundering under the Paycheck Protection Program (“PPP”), but the IRS-CI has also found fraud under other Covid-19 relief programs. 19, including the Economic Disaster Loan program, unemployment insurance benefits through the CARES Act, and most recently, the Child Care Tax Credit. Lee stressed that the pace of these investigations is critically important to stopping this type of fraud in its tracks.

While the areas described above are clearly at the forefront of IRS-CI efforts, it is important to remember that the IRS remains incredibly active in many other areas as well. For example, conservation easement cases continue to rise in civil and CI cases, and even despite recent losses in some of these cases (see here and here), the IRS doesn’t seem to be backing down anytime soon. Traditional examinations and enforcement actions against high-income individuals and large corporations will always be the focus of the IRS. In these cases, and many others, the best defense is usually a holistic and thorough pre-filing review, not only of the letter of the law, but also of the many tactics available to the IRS to reinterpret business and financial decisions. of a person or a company. Banking on slippage beyond the reduced audit/investigative presence of the IRS is not a viable plan, because when they take a chance, as Mr. Lee points out, they do whatever they want. they can not miss.

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