• Criminal Tax Attorneys Suggest CI Refocus on Traditional Cases
  • June 20, 2017 | Author: Mark E. Matthews
  • Law Firm: Caplin & Drysdale, Chartered - Washington Office
  • Criminal tax practitioners, including former IRS Criminal Investigation division and tax prosecution officials, think CI should concentrate on more traditional cases.

    CI Chief Richard Weber is resigning (2017-50668) at the end of May after leading the division since 2012, providing an opportune moment to shift gears. Further, CI recently described (Doc 2017-2944) how identity theft refund fraud offenses now involve more cybercrime, as opposed to street crime, and how improved data filters have reduced the need for CI to devote resources to the tax refund identity theft cases that have preoccupied its time recently.

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    To ID Theft, or Not to ID Theft

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    Mark E. Matthews of Caplin & Drysdale, a former CI chief, said Congress assigned the IRS to address identity theft without providing additional resources, to which he likened the time when Congress asked the IRS to administer the Affordable Care Act without providing additional resources. "That's a common congressional approach with respect to the IRS because funding the IRS is not popular, but getting results from the IRS is," he said.

    'Funding the IRS is not popular, but getting results from the IRS is,' Matthews said.

    Matthews said identity theft cases "don't send nearly the same message [as traditional tax cases] and aren't directed at nearly the same global population as the tax cases." He said there is only "a narrow class of fraudsters who are even remotely tempted to start stealing Social Security numbers" in order to file a large number of false returns.

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    Suggested Priorities

    If CI diverts its attention from identity theft cases, where should it go? Recently, CI and the Tax Division have made no secret of their emphasis on employment tax (Doc 2016-23011) and international bank account (Doc 2017-435) cases. The last time there was a thorough examination of CI's priorities may have been the 1999 independent review led by former FBI and CIA Director William H. Webster.

    Matthews said that when clawing back resources freed up by reduced identity theft cases, the emphasis should be on classic tax cases in which the tax violation is the only violation. To the extent that the Organized Crime Drug Enforcement Task Force reimburses CI for work done on narcotics cases, CI should keep doing it, he said. Some think narcotics work may teach CI special agents bad habits, but there are U.S. attorneys who want CI agents on those cases, he said. "I don't see a need to jostle that," he added.

    'I always looked at it, when I was chief, that if there was a good tax case sitting there that could be investigated, it ought to be investigated before you agree to do the next money laundering case,' Matthews said.

    Matthews said that given the emotion surrounding terrorism and the small amount of resources devoted to it - there were 42 investigations initiated with a terrorism aspect in CI's 2016 report - the spending is at an appropriate level. However, the case for devoting significant resources to money laundering cases - that they foster good relations with assistant U.S. attorneys - has been overstated, he said. That justification is valid, but the number of money laundering cases, relative to the number of tax cases, is too high, Matthews said.

    "I always looked at it, when I was chief, that if there was a good tax case sitting there that could be investigated, it ought to be investigated before you agree to do the next money laundering case," Matthews said, adding that this should be even more true when CI's budget decreases. He said that for deterrence purposes, cases have the most impact when they involve only tax crimes. Otherwise, he added, if someone is convicted of a drug-related crime as well as tax evasion, others engaging in tax evasion will recall that they themselves are not also committing narcotics offenses.

    Matthews said that as important and effective as the emphasis on offshore cases has been, it addresses a small fraction of the tax gap. On the other hand, the small business portion of the tax gap dwarfs all other areas at $ 200 billion annually, he said.

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    Some Experience Required?

    Practitioners had differing views on whether the next CI chief should have experience working within the division. All saw potential advantages to promoting someone from inside.

    Matthews, who described himself as the first outside chief, said, "I've always said that on balance, I think most of the time, the chief should be from inside." Campagna agreed the new chief should come from inside, adding, "My experience is that the Service sticks closest to its core mission when trained CI agents are elevated to run CI. So I guess who should head [CI] depends upon whether you want to stress the general tax administration cases or whether you're more interested in supporting other branches of government and other types of investigations."

    . . .

    Case Development

    Matthews said CI case development works better as an administrative case following a fraud referral from a civil tax examination rather than as a grand jury investigation (Doc 2016-21563). The primary benefit is that when CI conducts an administrative investigation and decides the case doesn't rise to the level of a criminal tax violation, it's easy to return the results of the investigation to the civil exam team to complete within the requirements of section 6103, he said. "If the case started in a grand jury, all that information they gathered is held in the grand jury, and if [the grand jury does not indict, CI] can't turn that information over to the revenue agent down the hallway absent a court order," he said.

    Moreover, CI can use administrative summonses in an administrative case, but must depend on an assistant U.S. attorney for grand jury subpoenas in a grand jury case, Matthews said. He added that it's important to give civil investigators incentive to make good fraud referrals to CI. "When you see things like the small business audit rate drop, that invariably means there are going to be fewer cases to choose for CI," he said.