There are ten Fraud Detection Centers across the United States, and these are meant to detect refund fraud and to identify prevention measures. Each of these offices has a Resident Agent in Charge to direct, monitor, and coordinate operations supporting electronic and paper tax filing, and each Center performs activities that include educating Submission Processing Center and Customer Service Center personnel on fraud awareness and detection.
Criminal investigation in the agency started shortly after the Revenue Act of 1913 was passed, and that act imposed a modest tax of 1% on net incomes of individuals, estates, trusts, and corporations. In addition, another tax, or surtax, graduated from 1 to 6%, was applied to income exceeding $20,000. Over time, many laws have been passed that have changed the rates and other aspects of revenue assessment. Tax evasion was noted as early as 1919, when many serious allegations concerning alleged tax frauds were identified by the Internal Revenue Service. The agency started its first narcotics investigation of an opium trafficker in Hawaii in the early 1920's on the basis of tax evasion. The IRS Commissioner decided to establish a group just to investigate fraud and did so on July 1, 1919, when six experienced Postal Inspectors were transferred to the Bureau of Internal Revenue as the first special agents in the Special Intelligence Unit. This first group of agents was responsible for sending numerous notorious gangsters, racketeers, and other criminal figures to prison, the most notable of whom was Public Enemy Number One, Al Capone, who was never prosecuted for his other criminal activities but who was sent to prison for tax evasion.
The IRS investigates three primary crimes: 1) Tax evasion (the intentional conduct to defeat the income tax law -- like tax cheating schemes); 2) Filing a false return (tax returns containing misstatements); and 3) Failure to file a tax return. The IRS has a high success rate in that its investigations lead to successful criminal prosecution of tax crimes some 80% of the time, and about two-thirds of those charged with tax crimes plead guilty.
History Then and Now the CID has not always been as efficient as intended and has kept its failures secret to the degree possible. It was recently noted that the agency has a secret internal file called 75 Years of Criminal Investigation History 1919-1994, a 202-page report not meant for publication. An article about this report notes, "Perhaps such secrecy concerning the report reflects an IRS desire to limit access to its internal investigations. It did a lot to police itself in its early days and continues to do so today. Some of the IRS allegations against its criminal investigators are strikingly similar to what the public heard last year during Senate Finance Committee hearings on IRS abuses."
The files show that "a large number of investigations of charges against [IRS] personnel involving attempted extortion, bribery, collusion and other irregularities." The report also states that "many revenue officers were in league with big bootleggers and others in tax-fraud conspiracies." In 1924, there was an all-time high of 535 investigations against IRS personnel, and this dropped to an all-time low of 33 in 1932. The files say that this was because part of the agency's mission is to "clean house of dishonest employees." In 1936, though, the number of charges involving IRS personnel shot up to 175. It is also noted that the CID had about a 50% conviction record against their own employees, compared to a 90% conviction rate against other taxpayers. It is also thought curious that no figures involving personnel corruption are available past 1936. The General Accounting Office, or GAO, recently tried to review allegations of IRS employee misconduct and found that it could not because of poor record keeping. A journalist reviewing the secret historical file found an IRS obsession with secrecy:
The IRS is very selective. Some cases are pending, others may deal with a confidential source or be considered an invasion of privacy, says Thomas Marusin, the IRS director of freedom of information. In places the report boasts that IRS goes after anyone who hasn't paid taxes, no matter what their standing or influence, but then cases involving such people are blacked out. For example, the IRS boasts it has investigated numerous movie stars, but redacts every such name mentioned in the report. Several high-profile cases are discussed, including that of Vice President Spiro Agnew, who pleaded no contest to one count of evading $13,551 of federal income taxes after having "extorted bribes for almost a decade," according to the IRS file.
The journalist also notes that much of the file praises the Criminal Investigations Unit, offering numerous statistics on conviction rates and detailing investigative techniques, such as sending undercover tax agents to infiltrate mobs and gambler trains.
In 1997, Charles Rossotti was confirmed as commissioner of the IRS and promised a new agency that would emphasize service and uphold taxpayer rights. This assertion was in response to concerns raised by the aforementioned congressional hearings and horror stories in the press. Rossotti emphasized how he would reform the IRS with private-sector principles of customer service. However, by 2002 he had gone so far as to bring back the old IRS practice of subjecting thousands of innocent taxpayers to audits for "research" purposes, one of the practices that brought about the congressional hearings in the first place. Civil libertarians expressed concerns about the so-called National Research Program, which would conduct 50,000 random audits of individual taxpayers to build a database to better target audits. Critics call such investigations call them invasive and grueling for taxpayers and also note that they do not yield nearly as much useful information as promised. The last year such audits were performed under the old Taxpayer Compliance Measurement Program (TCMP) was 1988, and at the time, 54,000 taxpayers were subjected to exhaustive "line-by-line" audits in which they had to prove each item in their tax returns was accurate: "These often were called 'audits from hell,' and the IRS frequently required those subjected to them to produce highly personal documents, including marriage papers and birth certificates for their children."
The IRS wanted to expand this program in 1995 to audit some 153,000 citizens and businesses, but Congress stopped this, comparing the audits to the Spanish Inquisition.
More recently, though, the IRS sees a different atmosphere on Capitol Hill and is taking advantage of it with a "strategic plan" for the agency's Criminal Investigation Division to focus its energies away from illegal activity such as drug dealing and money laundering, and toward prosecuting "legal income cases."
While Congress may want the IRS to focus on tracing money used by terrorists, one critic notes that it is more likely that the IRS will investigate the average citizen, stating, "The IRS likes easy targets. it's the bully mentality. They don't want to go after anyone who can fight back, so they go after people who won't put up a fight."
In 2005, the IRS Criminal Investigation Division (CID) initiated 4,269 investigations for: tax fraud, insurance fraud, excise tax fraud, gaming, abusive return preparers, corporate fraud, money laundering schemes, and narcotics enforcement, and 67% of those investigations resulted in a recommendation for prosecution, with 50% of those recommended prosecutions resulting in criminal convictions.
The statutes covering the activities of the IRS include those in the I.R.C., and crimes under this set of laws have a three-year statute of limitations, with certain exceptions that extend the limitations period to six years. The five I.R.C. sections falling under these exceptions are found in sections 7201, 7202, 7203, 7206, and 7212 (a). The statute of limitations in any case begins to run on the date the taxpayer files the fraudulent document or on the date of the last affirmative act of evasion, and the government needs to file a complaint within the limitations period in order to satisfy the statute of limitations, the government need only file a complaint within the limitations period.
The statute of limitations can be held in abeyance for tax evasion purposes if the accused is a fugitive, is outside the United States, or is involved in related enforcement proceedings. This would prevent a defendant from raising procedural issues to delay a tax violation so as to proceed beyond the statute of limitations period. Felony tax evasion is described in I.R.C. Section 7201, which has been called the "capstone of [this] system of sanctions." In order to prove a violation under section 7201, the government must show first the existence of: a tax deficiency, that there was an affirmative act constituting an evasion or attempted evasion of the tax, and so willfulness. In this process, the government bears the burden of proving each element beyond a reasonable doubt. The existence of a tax deficiency is not clear-cut as courts disagree about what…