IRS Criminal Investigation Division

Criminal Investigation
Badge of an IRS Special Agent
Abbreviation IRS-CI
Agency overview
Formed July 1, 1919
Employees 3,124 (approx.)
Jurisdictional structure
Federal agency United States
Operations jurisdiction United States
General nature • Federal law enforcement
Headquarters 1111 Constitution Ave., NW, Washington, D.C.

Special Agents 2,217 (approx)
Agency executive
  • Don Fort, Chief
Parent agency Internal Revenue Service
Website
https://www.irs.gov/uac/Criminal-Enforcement-1

Internal Revenue Service, Criminal Investigation (IRS-CI) investigates potential criminal violations of the U.S. Internal Revenue Code and related financial crimes in a manner intended to foster confidence in the tax system and deter violations of tax law. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, the Internal Revenue Service (IRS) is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.

Chief Don Fort oversees a worldwide staff of approximately 3,124 CI employees as of June 13, 2017, including approximately 2,217 special agents who investigate and assist in the prosecution of criminal tax, money laundering, and Bank Secrecy Act related crime cases.[1]

According to the 2016 Annual Report, Criminal Investigation initiated 3,395 investigations in fiscal year 2016.[1] In addition, the IRS-CI conviction rate (which is the percentage of convictions compared to the total number of convictions, acquittals, and dismissals) was 93.4% in fiscal year 2014.

History

On July 1, 1919, the Commissioner of Internal Revenue Daniel C. Roper[2] created the Intelligence Unit to investigate widespread allegations of tax fraud. To establish the Intelligence Unit, six United States Post Office Inspectors were transferred to the Bureau of Internal Revenue to become the first special agents in charge of the organization that would one day become Criminal Investigation. Among the first six Elmer L. Irey was designated the Chief, and William H. Woolf the Assistant Chief.[3] They formed the nucleus that became the Intelligence Unit.

The Intelligence Unit quickly became renowned for the financial investigative skill of its special agents. It attained national prominence in the 1930s for the conviction of public enemy number one, Al Capone, for income tax evasion, and its role in solving the Lindbergh kidnapping. From these promising beginnings the Intelligence Unit expanded over the intervening decades, investigating tax evasion by ordinary citizens, prominent businesspersons, government officials, and notorious criminals.

In July 1978, the Intelligence Unit changed its name to Criminal Investigation (CI). Over the years CI's statutory jurisdiction expanded to include money laundering and currency violations in addition to its traditional role in investigating tax violations. However, Criminal Investigation's core mission remains unchanged. It continues to fulfill the important role of helping to ensure the integrity and fairness of the United States tax system.

According to information on the IRS web site, the conviction rate for Federal tax prosecutions from 1919 to the present has never fallen below 90 percent. The IRS asserts that this is a record that is unmatched in Federal law enforcement.[4]

Recent press

Over the years, IRS-CI has continued to maintain a reputation for high levels of expertise in financial investigation and has been involved in a number of high-profile cases in recent years.

2015 FIFA corruption case: In May 2015, fourteen current and former leaders of soccer's international governing body, FIFA, were indicted on charges of widespread corruption, ultimately leading to the arrest of seven top executives. FIFA leaders were accused of accepting bribes from country representatives in exchange for support in their countries' bids to host the World Cup. The 47-count indictment charged defendants with racketeering, wire fraud, and money laundering conspiracies.[5] IRS-CI played an integral role in exposing the scandal, as IRS-CI opened the initial criminal investigation into former CONCACAF General Secretary Chuck Blazer in 2011 for not filing personal income tax returns. IRS-CI put together a tax case against Blazer that was ultimately used to convince Blazer to supply information to, and cooperate with, the government to build a case against other FIFA officials. In cooperation with the FBI's own investigations into FIFA corruption, multiple police agencies, and diplomats in 33 countries, IRS-CI helped to crack what has been described as "one of the most complicated international white-collar cases in recent memory."[6]

Dennis Hastert Scandal: IRS-CI was instrumental in the 2015 indictment of Dennis Hastert, the longest-serving Republican Speaker of the House, on charges of violating banking laws. Hastert served in Congress between 1987 and 2007, and became a high-paid lobbyist after his retirement from Congress.[7] Before his career as a politician, Hastert worked as a High School teacher and wrestling coach at Yorkville High School in Illinois for 16 years.[8] Hastert violated banking laws by structuring cash withdrawals to avoid reporting requirements. Specifically, he made cash withdrawals of less than $10,000 to hide his efforts to pay $3.5 million to an unnamed person to compensate for and conceal prior "misconduct." At the time of the indictment, Hastert had paid the person $1.7 million.[9]

Credit Suisse Guilty Plea: In May 2014, Swiss financial giant Credit Suisse pleaded guilty to conspiring to help U.S. taxpayers file false and misleading income tax returns with the IRS. Eight Credit Suisse executives were also charged with defrauding the United States. The agreement forced Credit Suisse to pay a total of $2.6 billion as a penalty for its tax code violations.[10] Credit Suisse admitted that for several decades before 2009, it had operated an illegal cross-border banking business that helped U.S. clients conceal offshore assets from the IRS to avoid paying taxes. IRS-CI special agents were directly involved in unmasking these tax violations. A Senate investigative report revealed that Credit Suisse had held more than 22,000 accounts for U.S. clients with assets between $10 billion and $12 billion—95% of these accounts were not reported for tax purposes.[11]

Investigation categories

The Criminal Investigation strategic plan is composed of four interdependent programs: Legal Source Tax Crimes; Illegal Source Financial Crimes; Narcotics Related Financial Crimes; and Counterterrorism Financing. These four programs are mutually supportive, and encourage utilization of all statutes within CI's jurisdiction, the grand jury process, and enforcement techniques to combat tax, money laundering and currency crime violations. Criminal Investigation must investigate and assist in the prosecution of those significant financial investigations that will generate the maximum deterrent effect, enhance voluntary compliance, and promote public confidence in the tax system.[1]

Investigating Legal Source Tax Crimes is IRS-CI's primary resource commitment. Legal Source Tax investigations involve taxpayers in legal industries and occupations who earned income legally but chose to evade taxes by violating tax laws.[12]

Illegal source financial crimes

The Illegal Source Financial Crimes Program attempts to detect all tax and tax-related violations, as well as money laundering and currency violations. This program recognizes that money gained through illegal sources is part of the "untaxed underground economy" that threatens the voluntary tax compliance system and undermines public confidence in the tax system.[13]

The Narcotics-Related Financial Crimes Program was established in 1919, and is one of IRS-CI's oldest initiatives. Its goal is to utilize the financial investigative expertise of its special agents to disrupt and dismantle major drug and money laundering organizations.[14] IRS-CI's role in supporting narcotics related investigations was highlighted in the 1996 book, The Phoenix Solution: Getting Serious About Winning the Drug War, by Vincent T. Bugliosi.[15]

Counterterrorism and espionage

Following the terrorist attacks of September 11, 2001, IRS Criminal Investigation actively participates in federal counterterrorism investigations. In addition to standard investigative support, IRS Special Agents add financial investigative and computer forensic expertise to terrorism investigations.[16] IRS CI's support on investigations related to counterterrorism was highlighted in the 2013 book "Treasury's War: The Unleashing of a New Era of Financial Warfare," by Juan Zarate.[17]

Criminal Investigation also actively participates in high-level espionage investigations, for many of the same reasons Special Agents originally worked on liquor bootlegger, organized crime, and public corruption investigations.[18][19] In many high-level, complex investigations criminal actors are well insulated from culpability apportioned through traditional techniques of evidence development. The common weakness of many high level criminal activities remains money or the financial benefit, which is difficult to conceal.

Investigative process

Trainee Special Agents receive advanced training in general criminal investigation technique common to all Federal criminal investigators. Special Agents use judicially accepted methods of investigation depending on the allegation, which may be tax or non-tax. Special Agents receive advanced training in Federal tax law and approved techniques developed within the Criminal Investigation Division and IRS over decades of investigative activity. Part 9, Chapter 5 of the Internal Revenue Manual describes material taught to IRS-CI Agents during their six-month basic training at the Federal Law Enforcement Training Centers (FLETC) in Glynco, Georgia. For tax charges, Special Agents in training focus on three primary "methods of proof" to produce evidence leading to a conviction in Federal court: specific items, net worth, and expenditures. These methods relate primarily to evidence gathering based on how an individual has acquired wealth.[20] Each method seeks to compare a suspect's standard of living and sources of income to that income reported for tax purposes.

Direct - Specific Item Method

Using the Direct-Specific Item Method, the government seeks to substantiate specific items that were not completely or accurately reported for tax purposes. The government must also show that the items of omission were made willfully to understate the subject's tax liability.

There are three broad categories of schemes suited to the Specific Item Method of proof:

  • Understatement of income;
  • Overstatement of expenses;
  • Fraudulent claims for credits or exemptions.

Indirect - Net Worth Method

In the case of Holland v. United States,[21] the U.S. Supreme Court determined the Net Worth Method to be an acceptable method of proof in establishing unreported taxable income in a criminal tax investigation. The formula for calculating the subject's correct taxable income can be broken down into four steps:

  • The special agent must first calculate the change in a subject's net worth (assets less liabilities). This is done by determining the subject's net worth at the beginning and end of a period of time (a taxable year or years) and then subtracting the beginning period's net worth figure from the ending period's net worth figure. This computation will yield a change in net worth (either an increase or decrease in net worth).
  • The amount of this change in net worth is then adjusted for personal living expenses, nondeductible losses, and nontaxable items to arrive at a corrected adjusted gross income figure.
  • The corrected adjusted gross income figure is then adjusted for itemized deductions or the standard deduction amount, and then for exemptions, to arrive at a corrected taxable income figure.
  • Finally, by comparing the corrected taxable income figure with the taxable income reported on the tax return, the special agent can determine whether the subject failed to report any taxable income.[22]

Indirect - Expenditures Method

The Expenditures Method of Proof is a variation of the Net Worth Method of Proof. The Expenditures Method derives in part from United States v. Johnson,[23] United States v. Caserta[24] and Taglianetti v. United States,[25] wherein the respective courts accepted the method to determine unreported income. The Expenditures Method starts with an appraisal of the subject's net worth situation at the beginning of a period. If the expenditures have exceeded the amount reported as income and if the net worth at the end of the period is the same as it was at the beginning (or any difference accounted for), then it may be concluded that income has been underreported. It may be necessary to consider nontaxable receipts during the period in question.[26]

Sources of evidence

Like all other Federal criminal investigators, Special Agents rely on objective, admissible evidence to develop allegations into successful prosecutions brought through the U.S. Department of Justice and the United States Attorney. Allegations of criminal acts actionable within the jurisdiction of the Criminal Investigation Division are received from a myriad of sources, including informants and undercover investigations. Other valuable sources of information include IRS records, general public records, trash (legally acquired from outside of the home's curtilage), business records, reports and records from banks and other government entities, telephone records, court records, criminal histories, and intelligence records. Special Agents also use arrest and search warrants to gather information.

Recommendations for prosecution

Special Agents evaluate allegations of possible criminal acts received from the civil tax sections of the IRS as well as traditional law enforcement sources and direct participation and leadership in Federal task forces and multi-agency investigations. There is no one method by which Special Agents receive information or make recommendations of prosecution to the Department of Justice or the U.S. Attorney.

The criminal referral process in connection with U.S. Federal tax-related offenses generally consists of two stages. An initial stage referral may be made by the Examination or Collection personnel of the Internal Revenue Service to the IRS Criminal Investigation function, using Form 2797.[27][28][29] After the Criminal Investigation Division investigates, evaluates the result of the investigation, and concludes that a recommendation for prosecution should be made, the second stage is a referral made by the Criminal Investigation Division to the U.S. Department of Justice under Internal Revenue Code section 6103(h)(3)(A)[30] and Treasury Order 150-35.[31] At any time before the second stage referral, the Department of the Treasury has the legal authority to reach a compromise settlement of a criminal case arising under the U.S. internal revenue laws; after the second stage referral is made, however, only the Department of Justice may compromise the case.[32]

Investigation priorities

IRS-CI's highest priority is to enforce U.S. tax laws and support the tax administration. IRS-CI identified 10 investigation priorities for fiscal year 2014:

  • Identity Theft Fraud
  • Return Preparer and Questionable Refund Fraud
  • International Tax Fraud
  • Fraud Referral Program
  • Political/Public Corruption
  • Organized Crime Drug Enforcement Task Force (OCDETF)
  • Bank Secrecy Act and Suspicious Activity Report (SAR) Review Teams
  • Asset Forfeiture
  • Voluntary Disclosure Program
  • Counterterrorism and Sovereign Citizens[33]

IRS-CI has also focused on addressing cyber-crime in recent years. For example, Special Agents played an instrumental role in the 2013 prosecution of Silk Road founder Ross William Ulbricht on charges of money laundering, computer hacking and conspiracy to traffic narcotics.[34] In 2014, IRS-CI created a Cyber Crimes Unit to address the increase in tax crimes that contain cyber components—especially those related to internet fraud, identity theft, and related crimes.[35]

Firearms and enforcement operations

Series 1811 Special Agents of the IRS-CI are the only employees within the IRS authorized to carry and use firearms. The authority to carry and use firearms is derived from United States Code Title 26, Section 7608, wherein criminal investigators of the IRS are authorized to make arrests under Federal law. Special Agents are trained in the use of and currently issued Glock handguns, specifically Glock 22, 23, and 27 self-loading pistols. Remington 870 shotguns and Smith and Wesson MP15 rifles are also officially issued and deployed.[36] Special Agents assigned to undercover activities may carry and use virtually any common firearm.

IRS-CI Special Agents are trained to execute arrest and search warrants and conduct authorized undercover operations, including technical surveillance. Consistent with the safe conduct of such operations, Special Agents are trained in building-entry and non-lethal defensive tactics training, in harmony with current Federal law enforcement use-of-force training. Special Agents also serve as dignitary protection staff and in air marshal roles.

See also

References

  1. 1 2 3 "Criminal Investigation (CI) 2016 Annual Report" (PDF). US Department of the Treasury.
  2. ↑ Intelligence Unit, Bureau of Internal Revenue, Treasury Department, Organization, Functions and Activities, A Narrative Briefly Descriptive of the Period 1919 to 1936, Frank J. Wilson, Box 2, Folder 68, Frank Wilson papers, Collection 08312, American Heritage Center, University of Wyoming. p.4
  3. ↑ Intelligence Unit, Bureau of Internal Revenue, Treasury Department, Organization, Functions and Activities, A Narrative Briefly Descriptive of the Period 1919 to 1936, Frank J. Wilson, Box 2, Folder 68, Frank Wilson papers, Collection 08312, American Heritage Center, University of Wyoming, p. 4
  4. ↑ "History of IRS Criminal Investigation (CI)". US Department of the Treasury.
  5. ↑ "Fifa corruption crisis: Key questions answered". BBC News.
  6. ↑ "Follow the money: How FBI and IRS teamed up on Fifa". The Irish Times. 30 May 2015.
  7. ↑ Paul Kane (28 May 2015). "Former House speaker Dennis Hastert indicted by federal grand jury". Washington Post.
  8. ↑ Alexandra Jaffe; Tom LoBianco; Pamela Brown (29 May 2015). "Sources: Dennis Hastert cover-up for sexual misconduct". CNN.
  9. ↑ "U.S. Accuses Ex-House Speaker J. Dennis Hastert of Paying to Hide 'Misconduct'". The New York Times. 29 May 2015.
  10. ↑ "Credit Suisse Pleads Guilty to Conspiracy to Aid and Assist U.S. Taxpayers in Filing False Returns".
  11. ↑ Evan Perez (25 February 2014). "Credit Suisse helped clients hide billions from IRS - Senate report". CNNMoney.
  12. ↑ "Legal Source Tax Crimes - Criminal Investigation (CI)".
  13. ↑ "Illegal Source Financial Crimes - Criminal Investigation (CI)".
  14. ↑ "Narcotics-Related Financial Investigations - Criminal Investigation (CI)".
  15. ↑ The Phoenix Solution: Getting Serious About Winning America's Drug War: Vincent T. Bugliosi: 9780787106829: Amazon.com: Books. ASIN 0787106828.
  16. ↑ "Counterterrorism Financing Activities - Criminal Investigation (CI)".
  17. ↑ Treasury's War: The Unleashing of a New Era of Financial Warfare: Juan Zarate: 9781610391153: Amazon.com: Books. ASIN 1610391152.
  18. ↑ "Tax Charge Is Considered In Navy Spy Case".
  19. ↑ "Hawaii Man Sentenced to 32 Years in Prison for Providing Defense Information and Services to People's Republic of China".
  20. ↑ "Part 9. Criminal Investigation, Chapter 5. Investigative Process, Section 9. Methods of Proof". irs.gov. March 19, 2012.
  21. ↑ 348 U.S. 121 (1954).
  22. ↑ "Internal Revenue Manual - 9.5.9 Methods of Proof".
  23. ↑ 319 U.S. 503, 517 (1943).
  24. ↑ 199 F.2d 905, 907 (3d Cir. 1952).
  25. ↑ 398 F.2d 558, 565 (1st Cir. 1968), aff'd, 394 U.S. 316 (1969).
  26. ↑ Expenditures Method of Proving Income
  27. ↑ Steven R. Toscher, J.D., Dennis L. Perez, J.D., Charles P. Rettig, J.D., LL.M. & Edward M. Robbins, Jr., J.D., LL.M., Tax Crimes, U.S. Income Portfolios, Vol. 636 (3rd ed. 2012), Bloomberg BNA.
  28. ↑ Internal Revenue Manual, IRM 25.1.3.1 (rev. Aug. 5, 2015), Internal Revenue Service, U.S. Dep't of the Treasury.
  29. ↑ See generally Form 2797, Referral Report of Potential Criminal Fraud Cases, Internal Revenue Service, U.S. Dep't of the Treasury.
  30. ↑ See 26 U.S.C. § 6103.
  31. ↑ Treas. Order 150-35 (July 10, 2000, reaffirmed Nov. 11, 2016).
  32. ↑ See subsection (a) of 26 U.S.C. § 7122.
  33. ↑ https://www.irs.gov/pub/foia/ig/ci/REPORT-FY2014-IRS-CI-Annual-Report.pdf
  34. ↑ "DEA.gov / New York News Releases, 10/25/13".
  35. ↑ Aruna Viswanatha (5 May 2015). "Internal Revenue Service Joins Cybercrime Hunt With New Investigation Team". WSJ.
  36. ↑ "Criminal Investigation Skills and Training". Internal Revenue Service.
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