Criminal Investigation: The IRS Agent You Never Want to Meet

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Recently, in a widely-viewed Webcast entitled "Criminal Investigation: The IRS Agent You Never Want to Meet," Tax Talk Today explored the largely obscure, yet intriguing process known as Criminal Investigation, at the IRS. Although the Criminal Investigation (CI) branch may be comprised of the agents "you never want to meet," the session confirmed the importance of taking a closer look at the CI process, to grasp exactly how this branch succeeds in furthering confidence in our tax system while promoting compliance.

To provide tax professionals with an even clearer picture of how CI executes its mission today, "Tax Talk Today" spent additional time with program panelist and the Chief of Criminal Investigation at the IRS, Mark E. Matthews. The resounding conclusion of the interview: as the mechanisms by which tax crimes are committed become ever-more advanced, CI must continuously hone and retool its investigation processes. Recent changes such as an increased emphasis on the Electronic Crimes Program, the enactment of a new Fraud Referral Program, and a decision to focus primarily on tax-related cases have helped CI to maintain a solid conviction rate, impeding the rapid proliferation of tax crimes.

The wild fire growth of the Internet in the last decade has unsurprisingly spurred an increase in the number of tax crimes committed through its use. Since 1996, CI has witnessed a growth in the number of crimes committed online, most notably those concerning abusive trusts. Two types of fraudulent schemes – the domestic scheme, in which trusts are formed in the U.S., and the foreign scheme, in which trusts are formed offshore – are frequently seen by CI and are fostered by the use of the Internet. Trusts involved in both the domestic and foreign schemes are vertically layered, with each trust funneling income to the next layer. The goal of the layered distribution is to fraudulently reduce taxable income to nominal amounts. While they give the appearance of separation of responsibility, in reality they are controlled and directed by one taxpayer.

Most recently, a slavery reparation scam, which hoodwinked thousands of African-Americans into believing that they could file claims for reparations that were actually false, gained momentum online. By luring Web surfers in with phony promises of compensation, the promoters scammed people into paying money for counsel and then disappeared before their victims discovered that their claims had been rejected.

To combat the propagation of cyberspace crime, CI has been forced to channel additional resources to this area. With 158 investigations currently open in the abusive trust area alone, it is not hard to see that this is a growing area of importance for CI. The Computer Investigative specialist (CIS) program at CI has managed the computer forensic side of investigations for over 13 years, however a recent restructuring has bolstered the combative strength of the organization. Now known as the "Electronic Crimes Program," the program has a formal structure, and is lead by Tony Whitledge, a former Justice Department attorney armed with a dozen years of experience in computer crime. A Washington, DC based computer research and development center has been established and is working out of temporary quarters. They will be moving to permanent quarters during 2002. The center's purpose is to keep CI on the cutting edge of computer forensics and technology investigations. CI depends on the Electronic Crimes Program to extract electronic evidence from computers seized during searches, and thus to understand the intricacies of advanced encryption technology.

On another front, CI is increasingly relying upon a new Fraud Referral Program to develop and refer potential fraud cases. CI prides itself on selecting the "right" cases to investigate, and hence the crimes that stand the greatest chances for conviction. As the result of a recent reorganization effort, 64 strategically located Fraud Referral Specialists and five group managers have replaced 33 District Fraud Coordinators. CI has also seen the value in working closely with the Small Business/Self Employed Branch of the IRS. This working relationship enables CI to extract leads for investigations of taxpayers committing tax and tax-related violations in legitimate occupations and businesses. Cross-functional partnerships with other IRS operating divisions have been established to similarly strengthen the fraud referral program.

A final, yet equally momentous shifting of focus for CI has been the decision to focus primarily on tax cases, with money laundering and illegal source income cases, following in priority. This decision was drawn from the conclusions of a 1999 report (the Webster Report) which stated that "it is CI and CI alone that is charged with law enforcement of tax crimes."

The Webster report clearly emphasized CI's unique mission in serving the American public, by fostering confidence in the tax system and compliance with the law. This is a mission that those at CI seem not only poised, but proud to assume.

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