oversight

Tax Administration: IRS' Efforts to Place More Emphasis on Criminal Tax Investigations

Published by the Government Accountability Office on 1997-11-06.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Commissioner, Internal
                Revenue Service



November 1997
                TAX
                ADMINISTRATION
                IRS’ Efforts to Place
                More Emphasis on
                Criminal Tax
                Investigations




GAO/GGD-98-16
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   General Government Division

                   B-275359

                   November 6, 1997

                   The Honorable Michael Dolan
                   Acting Commissioner of Internal Revenue

                   Dear Mr. Dolan:

                   The Internal Revenue Service’s (IRS) Criminal Investigation Division (CID)
                   investigates tax fraud and assists other law enforcement agencies in
                   investigating financial crimes, such as money laundering associated with
                   narcotics trafficking. In the early 1990s, IRS studies raised questions about
                   CID’s investigative priorities because they increasingly comprised nontax
                   investigations that supported national drug and crime policies to the
                   detriment of tax investigations, even as the estimated tax gap grew to
                   about $128 billion for 1992.1 This concern caused CID to revise its
                   investigative strategy, thereby focusing more resources on tax
                   investigations. As part of this revised strategy, in fiscal year 1995 CID
                   established fraud and narcotics as its main investigative program areas.
                   The fraud program was further subdivided between tax gap fraud and
                   other fraud, thus enabling CID to track resources applied specifically to tax
                   gap investigations.

                   This report, which we prepared under our basic legislative responsibilities,
                   discusses the actions CID has taken since the early 1990s to increase the
                   time spent on tax investigations versus nontax investigations. It also
                   highlights the investigations initiated by CID, as well as referrals to U.S.
                   Attorneys for prosecution and court sentences based on these
                   investigations, for fiscal years 1990 through 1996.


                   Between fiscal years 1990 and 1992, IRS data show that the percent of time
Results in Brief   spent on tax gap investigations decreased by 10 percentage points,
                   continuing a downward trend since the early 1980s. On the basis of the
                   recommendations of two IRS studies done in the early 1990s, CID began in
                   October 1993 taking actions designed to increase the amount of time its
                   agents spent conducting tax investigations. Specifically, CID reorganized its
                   administrative functions and operations with the intent of better targeting
                   resource allocations. It also consolidated and recategorized its program
                   areas with an objective of better tracking its investigations. In addition, as
                   of fiscal year 1996 CID established goals for the percent of time to be spent
                   on its investigations, particularly for tax gap investigations.


                   1
                    The tax gap is defined as total tax liability less taxes paid voluntarily. IRS’ tax gap reports do not
                   indicate how much of the tax gap is attributable to fraud.



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             Since these actions were initiated, the percent of time spent on tax gap
             investigations has increased by 13 percentage points from a low of
             46 percent in 1992 to 59 percent in 1996.2 Overall, the 59 percent in fiscal
             year 1996 represented a net increase of 3 percentage points over the fiscal
             year 1990 level.

             Between fiscal years 1992 and 1996, there was an increase in the percent
             of tax gap investigations that CID initiated and in the percent of referrals to
             U.S. Attorneys for prosecution based on tax gap cases; since fiscal year
             1994, the percent of court sentences based on tax gap cases has also
             increased. However, as of fiscal year 1996 the increases in these indicators
             have not been enough to match fiscal year 1990 levels.


             CID carries out IRS’ criminal law enforcement responsibilities under three
Background   principal statutes. Under title 26 U.S.C., IRS has authority to investigate
             alleged criminal tax violations, such as tax evasion and filing a false tax
             return. Under title 18 U.S.C., IRS has authority to investigate a broad range
             of fraudulent activities, such as false claims against the government and
             money laundering. Under title 31 U.S.C., IRS is responsible for enforcing
             certain recordkeeping and reporting requirements of large currency
             transactions, such as cash bank deposits of more than $10,000. In carrying
             out its responsibilities, CID coordinates as necessary with IRS’ District
             Counsel, the Tax Division within the Department of Justice (Justice), and
             local U.S. Attorneys to prosecute violators of these statutes.

             Combating money laundering and other financial crimes is considered a
             high priority by both Justice and the Department of the Treasury
             (Treasury). According to Justice officials, because of CID’s expertise in
             conducting detailed financial investigations, U. S. Attorneys and law
             enforcement agencies routinely rely on CID’s assistance in investigating
             financial crimes, particularly those involving money laundering related to
             narcotics trafficking. In addition, CID agents have access to tax
             information, which they can use to develop financial investigations more
             fully. CID is also involved in ongoing efforts to identify and investigate
             emerging financial crimes, such as health care and bankruptcy fraud.
             According to CID officials, although such assistance places competing


             2
              At our request, CID staff used the characteristics defined in fiscal year 1995 for investigations
             conducted under its main program areas—fraud and narcotics—to identify the amount and percent of
             time applied to these types of investigations between fiscal years 1990 and 1994. The fraud program
             was further broken out by tax gap and other fraud. They did the same for the number and percent of
             (1) CID investigations initiated, (2) referrals to U.S. Attorneys for prosecution based on CID cases, and
             (3) court sentences based on CID cases.



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              demands on CID’s time, it also aids in establishing the cooperative
              environment conducive to getting CID’s tax cases prosecuted and in
              obtaining information that can lead to criminal tax investigations.

              Historically, CID’s total staffing and budget have represented about 5
              percent of IRS’ overall resources. As of the end of fiscal year 1996, CID had
              the full-time equivalent of 4,504 staff, including 3,065 special agents, and a
              budget of $366 million. CID is also reimbursed for some of the assistance it
              provides to other law enforcement agencies, particularly Justice’s
              Organized Crime Drug Enforcement Task Force (OCDETF) program.3


              To determine the actions CID has taken since the early 1990s to increase
Scope and     the time spent on tax investigations relative to nontax investigations, we
Methodology   interviewed senior CID officials in IRS’ National Office, officials from both
              the Tax and Criminal Divisions in Justice, and officials from the Office of
              the Under Secretary for Enforcement in Treasury. We interviewed the CID
              officials because of their responsibilities in managing CID operations and
              setting division policies. Justice and Treasury officials were interviewed to
              obtain their opinions regarding CID’s (1) assistance in narcotics and money
              laundering investigations and (2) increased emphasis on tax
              investigations. We also reviewed CID’s annual goals and objectives and
              annual performance reports for fiscal years 1990 through 1996, as well as
              relevant documentation on the reorganization of its administrative
              functions and operations.

              To determine the types of investigations initiated and the results of
              referrals to U.S. Attorneys for prosecution and sentences resulting from
              these prosecutions, we analyzed IRS’ Criminal Investigation Management
              Information System (CIMIS) data. CID uses CIMIS data to track the status and
              overall results of its criminal investigations, including the direct
              investigative time (DIT) expended on investigations. DIT is the amount of
              time that CID agents spend directly working on investigations. We selected
              fiscal years 1990 through 1996 to identify CID’s investigative trends in order
              to capture data from the time of the IRS studies that raised concerns about
              CID’s investigative priorities through fiscal year 1996, the most recent
              period for which data were available.


              3
               OCDETF is a federal interagency coordinated effort to investigate and prosecute major drug
              organizations, particularly those with connections to organized crime. Under a reimbursement
              agreement with Justice, CID is reimbursed up to the level allowed by Congress for the cost of its
              agents’ salaries when assisting in OCDETF investigations. According to data provided by CID officials,
              between fiscal years 1990 and 1996, CID provided $130 million in assistance to the OCDETF program
              over and above the $205 million received in reimbursement from Justice.



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                       We obtained and analyzed CIMIS data to identify nationwide by fiscal year
                       (1) the number and results of various types of CID investigations, and
                       (2) the principal sources of information that led to CID investigations. CID
                       staff, at our request, reconfigured CIMIS data for fiscal years 1990 through
                       1996 to reflect the current IRS field alignment of 4 regions and 33 districts,
                       as well as CID’s current program areas—fraud and narcotics—with fraud
                       further broken out between tax gap fraud and other fraud. Other than
                       reconciling the totals from CIMIS data extracts to CID annual performance
                       reports, we did not verify the accuracy of the CIMIS data.

                       We did our work from October 1996 to August 1997 in accordance with
                       generally accepted government auditing standards. The work was done at
                       IRS’ National Office and Southeast Regional Office; IRS’ Georgia, South
                       Florida, and Delaware-Maryland District Offices; and at U. S. Attorney’s
                       offices in the Northern District of Georgia, the Southern District of
                       Florida, and the Maryland District. We selected the offices we visited
                       because of the proximity of our staff working on this assignment.

                       We requested comments on a draft of this report from the Acting
                       Commissioner of Internal Revenue and the Attorney General. Their
                       comments are discussed at the end of this letter.


                       In the early 1990s, concerns raised in IRS studies regarding CID’s
Actions to Increase    investigative priorities spurred CID to take actions to increase the amount
Direct Investigative   of time its agents spent on tax investigations. Between fiscal years 1990
Time Spent on Tax      and 1992, the percent of DIT spent on tax gap investigations decreased
                       from 56 percent to 46 percent; since then, the percent of DIT spent on tax
Investigations         gap investigations increased to 59 percent as of fiscal year 1996. CID has
                       established a range of 57 to 61 percent of DIT to be spent on tax gap
                       investigations as its goal for fiscal year 1997 and beyond.

                       Subsequent to hearings on IRS employee misconduct in 1989 before the
                       Subcommittee on Commerce, Consumer and Monetary Affairs, House
                       Committee on Government Operations, the Commissioner of Internal
                       Revenue appointed an independent panel to review various concerns
                       raised during the hearings, including issues relating to criminal
                       investigations. In its October 1990 report, the panel stated that there had
                       been a significant decrease in CID resources applied to tax investigations
                       and a corresponding increase in resources applied to nontax
                       investigations. The panel believed that CID’s work priorities were not
                       properly aligned with IRS’ strategic goal of increasing taxpayers’



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B-275359




compliance with the tax laws. The panel recommended that CID
(1) establish a criminal enforcement policy in line with IRS’ overall efforts
to increase compliance with the tax laws, (2) ensure that its allocation of
resources and mix of cases are consistent with such a policy, and
(3) closely monitor and control implementation of this policy through the
National Office.

Also, to address concerns about whether CID’s workload was properly
balanced between tax and nontax investigative efforts, IRS convened a
study group that included representatives from Justice and Treasury. The
study group’s August 1991 report found that CID resources used for tax
investigations had declined about 18 percentage points between fiscal
years 1980 and 1990; on that basis, the study group recommended that
resources devoted to tax investigations be increased and that future
resources devoted to narcotics investigations be limited to the amount
expended in fiscal year 1991. The IRS Executive Committee agreed with
these recommendations, and in June 1992 CID initiated an action plan to
implement them.

The actions led to a reorganization of CID, which began in October 1993
and was fully implemented in October 1994. The reorganization was done
in part with the intent of giving CID’s national office a better means to
control and monitor field activities to keep them aligned with national
policies and objectives as recommended by the review panel and the study
group. In terms of its organizational structure, CID was reduced from 7
regions and 63 districts to 4 regions and 34 districts.4 In addition, the
position of Director of Investigation (DI), reporting directly to the IRS
National Office Assistant Commissioner for Criminal Investigation, was
established in each region to oversee and coordinate investigative
activities. The DIs replaced seven former Assistant Regional
Commissioners for Criminal Investigation, who reported directly to the
Regional Commissioners. The DIs are responsible for ensuring that CID field
offices adhere to national office program objectives and policies.

Another action CID took to better track the allocation of its resources to
tax versus nontax investigations was to consolidate its major program
areas and to establish a specific category for tax gap investigations. In
fiscal year 1995, CID consolidated the five program areas under which
investigations had been categorized and tracked—narcotics, organized
crime, public corruption, financial compliance, and other illegal

4
 CID was subsequently reduced to 33 districts when IRS’ district office reorganization took place in
fiscal year 1996.



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crime—into two principal program areas—fraud and narcotics. The fraud
program was subdivided into tax gap fraud and other fraud. Tax gap fraud
pertains to investigations of legal industries with alleged criminal tax
violations.5 The other fraud category involves investigations of illegal
industries or money laundering investigations with no tax-related charges.6
The narcotics program primarily relates to investigations of money
laundering activity by individuals and organizations involved in narcotics
trafficking.

Beginning in fiscal year 1996, CID set specific national goals for the percent
of DIT to be used on tax gap and narcotics investigations to help ensure
that additional resources would be allocated to tax gap investigations. The
fiscal year 1996 DIT goals were 58 percent for tax gap
investigations—1 percent higher than the actual DIT for fiscal year
1995—and 24 percent for narcotics investigations—the same as the actual
DIT for fiscal year 1995.


Since CID began taking these actions, DIT applied to tax gap investigations
has increased. (See fig. 1.) According to data provided by IRS, the percent
of time applied to tax gap investigations for fiscal years 1993 through 1996
increased 13 percentage points. As of fiscal year 1996, CID applied
59 percent of DIT to tax gap investigations, exceeding its goal by
1 percentage point, while applying 22 percent of DIT to narcotics
investigations, 2 percentage points short of its goal.




5
 According to CID officials, although tax gap investigations usually result in prosecution and
sentencing for Title 26 violations, they may also involve certain Title 18 violations, such as defrauding
the government or filing a false claim. They further stated that they prefer prosecution and sentencing
under Title 26, but they will opt to use Title 18 when they feel certain that Title 26 charges will not hold
up in court.
6
 Investigations of illegal industries with alleged criminal tax violations are included in the other fraud
program.


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Figure 1: Percent of Nationwide DIT by
Type of Criminal Investigation—Fiscal
Years 1990 Through 1996                  Percent
                                         100




                                         80




                                         60




                                         40




                                         20




                                           0
                                               1990           1991           1992     1993         1994        1995        1996
                                               Fiscal year
                                                             Tax gap fraud
                                                             Narcotics
                                                             Other fraud


                                         Source: GAO analysis of IRS data.




                                         According to CID national office officials, the goal for the amount of DIT to
                                         be allocated to tax gap investigations in fiscal year 1997 is a range of 57 to
                                         61 percent, and the goal for narcotics investigations is a range of 23 to
                                         25 percent. They stated that these goals, which are expected to be the
                                         goals for the next few years, were developed with input from the DIs. It is
                                         CID officials’ judgment that these goals will enable CID to (1) conduct
                                         investigations in support of IRS’ strategic goal of increasing compliance
                                         with the tax laws; (2) contribute to the government’s efforts in combating
                                         narcotics and money laundering; and (3) continue allocating some of its
                                         investigative time to cases involving emerging financial crimes, such as
                                         health care fraud.




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                           CID considers completed investigations that merit referral to the U.S.
Trends in the Number       Attorneys for prosecution as an important step toward the eventual
and Results of CID         prosecution, conviction, and sentencing for criminal tax violations and
Investigations for         related financial crimes. By publicizing convictions, CID hopes to deter
                           others from engaging in such criminal activity and to promote voluntary
Fiscal Years 1990          compliance with the tax laws. Consequently, CID uses statistical data from
Through 1996               CIMIS to track the number and percent of investigations initiated, as well as
                           the number and percent of referrals made to U.S. Attorneys for
                           prosecution and sentences handed down by the U.S. courts based on CID
                           cases. CIMIS data show that the percent of tax gap investigations initiated,
                           the percent of tax gap cases referred to U.S. Attorneys for prosecution,
                           and the percent of court sentences based on tax gap cases have all begun
                           to increase since CID increased the time spent on tax gap investigations.
                           However, as of fiscal year 1996, the increases have not been enough to
                           match fiscal year 1990 levels for these indicators.


Trends in the Types of     As shown in figure 2, tax gap investigations represented 54 percent of all
Investigations Initiated   CID investigations initiated in fiscal year 1996. This is an increase over the
                           fiscal year 1992 level of 47 percent and just under the fiscal year 1990 level
                           of 55 percent. The figure also shows that between fiscal years 1990 and
                           1996, narcotics investigations decreased from 30 percent to 25 percent of
                           all CID investigations initiated. Other fraud investigations were
                           6 percentage points higher in fiscal 1996 than in fiscal year 1990.




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Figure 2: Percent of Criminal
Investigations Initiated Nationwide by
Type—Fiscal Years 1990 Through 1996      Percent
                                          100




                                          80




                                          60




                                          40




                                          20




                                           0
                                                1990            1991            1992         1993       1994         1995         1996
                                                N = 5,279     N = 5,218        N = 6,538   N = 6,148   N = 5,346   N = 5,000   N = 5,334
                                                Fiscal year
                                                               Tax gap fraud
                                                               Narcotics
                                                               Other fraud


                                         Source: GAO analysis of IRS data.




Trends in Investigations                 Figure 3 shows that, in general, the percent of CID cases being referred to
Referred to the U.S.                     the U.S. Attorneys for prosecution for tax gap fraud since fiscal year 1992
Attorneys for Prosecution                has increased, while the percent of other types of referrals—narcotics and
                                         other fraud cases—either declined or remained somewhat stable.
                                         Specifically, tax gap referrals represented 47 percent of all CID referrals in
                                         fiscal year 1996 compared to 39 percent in fiscal year 1992 and 49 percent
                                         in fiscal year 1990.




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Figure 3: Percent of Referrals for
Prosecution Nationwide by Type of
CID Investigation—Fiscal Years 1990   Percent
Through 1996                          100




                                       80




                                       60




                                       40




                                       20




                                        0
                                            1990            1991           1992        1993         1994           1995          1996
                                            N = 3,230      N = 3,677      N = 4,252   N = 4,267   N = 3,745      N = 3,615    N = 3,605

                                            Fiscal year
                                                          Tax gap fraud
                                                          Narcotics
                                                          Other fraud


                                      Note: Referrals for prosecution in a particular fiscal year do not necessarily relate to the year the
                                      case was initiated.

                                      Source: GAO analysis of IRS data.




Trends in Sentences From              Court sentences—including incarceration, probation, and fines—based on
Cases Referred to the U.S.            tax gap investigations decreased from 54 percent of all court sentences
Attorneys for Prosecution             based on CID investigations in fiscal year 1990 to a low of 37 percent in
                                      fiscal year 1994. Since that time tax gap sentences have increased to
                                      44 percent of all court sentences for CID cases as of fiscal year 1996.
                                      Overall, sentences based on narcotics investigations increased from
                                      32 percent to 39 percent of all court sentences based on CID investigations
                                      between fiscal years 1990 and 1993, then decreased to 31 percent as of
                                      fiscal year 1996. (See fig. 4.)




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Figure 4: Percent of Sentences
Nationwide by Type of CID
Investigation—Fiscal Years 1990   Percent
Through 1996
                                  100




                                   80




                                   60




                                   40




                                   20




                                     0
                                         1990          1991         1992        1993         1994       1995         1996
                                         N = 2,409   N = 2,785     N = 2,635   N = 3,052   N = 3,235   N = 2,801   N = 2,777
                                      Fiscal year

                                                     Tax gap fraud
                                                     Narcotics
                                                     Other fraud


                                  Note: Sentences in a particular fiscal year do not necessarily relate to the year the case was
                                  initiated or referred to a U.S. Attorney for prosecution.

                                  Source: GAO analysis of IRS data.




                                  Additional information relating to CID’s investigations between fiscal years
                                  1990 and 1996 is shown in appendixes I, II, III, and IV. Appendix I shows
                                  the number of staff days applied nationwide by type of criminal
                                  investigation. Appendix II contains information on the percent of DIT
                                  applied to each type of criminal investigation by IRS location. Appendix III
                                  shows the numbers of investigations, referrals to the U.S. Attorneys for
                                  prosecution, and court sentences by type of criminal investigation.
                                  Appendix IV discusses the principal sources of information on which CID’s
                                  investigations were based.




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                     IRS and the Department of Justice each provided comments on a draft of
Agency Comments      this report. Each agency generally agreed with the information presented
and Our Evaluation   in the report and offered technical comments, which we have incorporated
                     where appropriate.


                     Copies of this report are being sent to the Chairmen and Ranking Minority
                     Members of the Senate Committee on Finance, the Senate Committee on
                     Governmental Affairs, the House Committee on Ways and Means, and the
                     House Committee on Government Reform and Oversight; the Chairman
                     and Ranking Minority Member of the Subcommittee on Treasury, General
                     Government, and Civil Service, Senate Committee on Appropriations; and
                     the Chairman and Ranking Minority Member of the Subcommittee on
                     Treasury, Postal Service, and General Government, House Committee on
                     Appropriations; various other congressional committees; the Secretary of
                     the Treasury; the Attorney General; and other interested parties. We will
                     also make copies available to others upon request.

                     Major contributors to this report are listed in appendix VI. Please contact
                     me on (202) 512-9110 if you or your staff have any questions about this
                     report.

                     Sincerely yours,




                     Lynda D. Willis
                     Director, Tax Policy and
                       Administration Issues




                     Page 12                          GAO/GGD-98-16 IRS’ Criminal Investigation Division
Page 13   GAO/GGD-98-16 IRS’ Criminal Investigation Division
Contents



Letter                                                                              1


Appendix I                                                                         18

Investigative Time
Applied Nationwide
by Type of Criminal
Investigation in Fiscal
Years 1990 Through
1996
Appendix II                                                                        19

Percent of Direct
Investigative Time
Applied to CID
Investigations in
Fiscal Years 1990
Through 1996
Appendix III                                                                       24

The Number and
Results of CID
Investigations in
Fiscal Years 1990
Through 1996




                          Page 14   GAO/GGD-98-16 IRS’ Criminal Investigation Division
                        Contents




Appendix IV                                                                                           26

Sources of
Information That
Resulted in CID
Investigations in
Fiscal Years 1990
Through 1996
Appendix V                                                                                            28

Comments From the
Internal Revenue
Service
Appendix VI                                                                                           29

Major Contributors to
This Report
Tables                  Table I.1: Number of Direct Staff Days Applied Nationwide by                  18
                          Type of Criminal Investigation in Fiscal Years 1990 Through 1996
                        Table II.1: Percent of Total DIT Applied to Tax Gap Investigations            19
                          by Location in Fiscal Years 1990 Through 1996
                        Table II.2: Percent of Total DIT Applied to Narcotics                         20
                          Investigations by Location in Fiscal Years 1990 Through 1996
                        Table II.3: Percent of Total DIT Applied to Other Fraud                       22
                          Investigations by Location in Fiscal Years 1990 Through 1996
                        Table III.1: Number of CID Investigations Initiated Nationwide in             24
                          Fiscal Years 1990 Through 1996
                        Table III.2: Number of CID Investigations Referred to the U.S.                24
                          Attorney for Prosecution Nationwide in Fiscal Years 1990
                          Through 1996
                        Table III.3: Number of Sentences Nationwide Resulting from CID                25
                          Investigations in Fiscal Years 1990 Through 1996

Figures                 Figure 1: Percent of Nationwide DIT by Type of Criminal                        7
                          Investigation—Fiscal Years 1990 Through 1996




                        Page 15                        GAO/GGD-98-16 IRS’ Criminal Investigation Division
Contents




Figure 2: Percent of Criminal Investigations Initiated Nationwide               9
  by Type—Fiscal Years 1990 Through 1996
Figure 3: Percent of Referrals for Prosecution Nationwide by                   10
  Type of CID Investigation—Fiscal Years 1990 Through 1996
Figure 4: Percent of Sentences Nationwide by Type of CID                       11
  Investigation—Fiscal years 1990 Through 1996
Figure IV.1: Percent of Investigations Initiated Nationwide by                 26
  Selected Sources—Fiscal Years 1990 Through 1996




Abbreviations

CID        Criminal Investigation Division
CIMIS      Criminal Investigation Management Information System
DI         Director of Investigation
DIT        Direct Investigative Time
IRS        Internal Revenue Service
OCDETF     Organized Crime Drug Enforcement Task Force


Page 16                         GAO/GGD-98-16 IRS’ Criminal Investigation Division
Page 17   GAO/GGD-98-16 IRS’ Criminal Investigation Division
Appendix I

Investigative Time Applied Nationwide by
Type of Criminal Investigation in Fiscal
Years 1990 Through 1996
                                           This appendix presents the nationwide number of staff days applied
                                           directly to the major types of Criminal Investigation Division (CID)
                                           investigations. This does not include staff days applied to noninvestigative
                                           activities, such as training.


Table I.1: Number of Direct Staff Days Applied Nationwide by Type of Criminal Investigation in Fiscal Years 1990 Through
1996
                                                                  Number of staff days by fiscal year
Type of investigation                          1990             1991            1992            1993            1994             1995             1996
Fraud
  Tax gap                                   273,192         262,544         253,245         278,261          301,640         328,595         361,494
  Other                                      43,906          66,923         110,107         115,942           96,753           98,002            98,032
Narcotics                                   160,988         169,882         170,665         168,116          159,357         138,356         134,794
Information items                              9,757         15,444           16,516          17,391          11,383           11,530            18,381
Total direct staff days                     487,842         514,793         550,533         579,711          569,133         576,483         612,702
                                           Note 1: Investigative time spent following up on information provided to CID that indicates
                                           potential criminal violations prior to initiation of an investigation is categorized as information
                                           items.

                                           Note 2: Totals do not add due to rounding.

                                           Source: GAO analysis of IRS data.




                                           Page 18                                        GAO/GGD-98-16 IRS’ Criminal Investigation Division
Appendix II

Percent of Direct Investigative Time Applied
to CID Investigations in Fiscal Years 1990
Through 1996
                                           This appendix shows the percent of direct investigative time (DIT) applied
                                           to the major types of CID investigations nationwide, by regions, and by
                                           district offices from fiscal years 1990 through 1996. For fiscal year 1996,
                                           CID set national DIT goals of 58 percent for tax gap investigations and
                                           24 percent for narcotics investigations. To achieve these goals, CID
                                           requested that the Directors of Investigation for each region help to ensure
                                           that the regional DIT was within a range of 58 to 60 percent for tax gap
                                           investigations and 24 to 26 percent for narcotics investigations.


Table II.1: Percent of Total DIT Applied to Tax Gap Investigations by Location in Fiscal Years 1990 Through 1996
                                                                            Percent of DIT by fiscal years
Location                                               1990       1991        1992       1993       1994        1995          1996
Nationwide                                               56          51         46         48          53          57           59

Midstates Region                                         51          45         40         43          47          54           56
Midwest                                                  52          46         44         50          55          57           62
Arkansas-Oklahoma                                        55          40         34         43          49          57           57
Houston                                                  55          50         45         52          54          56           49
Illinois                                                 61          56         47         50          50          55           59
Kansas-Missouri                                          54          53         44         42          48          53           61
North Central                                            58          48         53         56          60          64           73
North Texas                                              47          38         37         33          33          49           56
South Texas                                              26          26         18         20          32          46           34

Northeast Region                                         61          57         53         53          56          58           61
Brooklyn                                                 71          70         65         62          66          62           60
Connecticut-Rhode Island                                 61          60         58         58          64          69           74
Manhattan                                                55          44         50         47          51          52           56
Michigan                                                 60          58         55         55          58          58           60
New England                                              49          51         44         48          49          50           58
New Jersey                                               64          62         57         54          63          64           64
Ohio                                                     60          48         42         45          50          55           63
Pennsylvania                                             64          64         51         52          52          57           62
Upstate New York                                         72          64         64         64          66          63           64

Southeast Region                                         54          49         46         49          55          58           59
Delaware-Maryland                                        56          51         47         52          55          59           59
Georgia                                                  59          50         47         59          56          57           60
Gulf Coast                                               65          54         57         57          64          64           61
Indiana                                                  70          63         58         59          60          67           66
                                                                                                                        (continued)



                                           Page 19                             GAO/GGD-98-16 IRS’ Criminal Investigation Division
                                           Appendix II
                                           Percent of Direct Investigative Time Applied
                                           to CID Investigations in Fiscal Years 1990
                                           Through 1996




                                                                              Percent of DIT by fiscal years
Location                                                1990         1991         1992         1993         1994     1995         1996
Kentucky-Tennessee                                         60           52           44           47           58      58           57
North-South Carolina                                       39           36           41           39           50      55           57
North Florida                                              46           45           41           40           46      49           52
South Florida                                              39           39           34           41           51      50           55
Virginia-West Virginia                                     61           55           53           50           60      65           64

Western Region                                             55           51           41           45           50      56           60
Central California                                         56           58           53           53           58      56           58
Los Angeles                                                60           52           45           50           60      62           68
Northern California                                        61           51           36           47           45      54           57
Pacific Northwest                                          49           50           43           47           50      49           57
Rocky Mountain                                             54           49           34           38           48      57           60
Southern California                                        51           48           41           37           42      53           58
Southwest                                                  55           49           38           49           53      59           62

                                           Note: Percentages have been rounded to the nearest whole percent.

                                           Source: IRS Criminal Investigation Management Information System data.




Table II.2: Percent of Total DIT Applied to Narcotics Investigations by Location in Fiscal Years 1990 Through 1996
                                                                            Percent of DIT by fiscal years
Location                                                1990         1991         1992         1993         1994     1995         1996
Nationwide                                                 33           33           31           29           28      24           22

Midstates Region                                           37           38           36           35           32      25           26
Midwest                                                    33           39           37           32           29      25           26
Arkansas-Oklahoma                                          21           28           27           25           21      19           16
Houston                                                    34           35           37           32           33      30           40
Illinois                                                   30           31           33           28           28      24           24
Kansas-Missouri                                            34           34           34           33           30      23           21
North Central                                              34           34           29           22           24      19           12
North Texas                                                33           34           36           41           39      22           19
South Texas                                                65           63           54           64           50      34           46

Northeast Region                                           28           29           28           26           26      25           23
Brooklyn                                                   14           14           17           15           19      23           23
Connecticut-Rhode Island                                   31           25           23           21           19      13           10
Manhattan                                                  38           43           36           36           35      35           32
                                                                                                                            (continued)



                                           Page 20                                  GAO/GGD-98-16 IRS’ Criminal Investigation Division
                         Appendix II
                         Percent of Direct Investigative Time Applied
                         to CID Investigations in Fiscal Years 1990
                         Through 1996




                                                            Percent of DIT by fiscal years
Location                              1990         1991         1992         1993         1994     1995        1996
Michigan                                 27           26           27           25           24      26          25
New England                              43           34           30           23           25      22          20
New Jersey                               25           25           28           26           26      24          21
Ohio                                     26           32           29           31           26      26          22
Pennsylvania                             26           25           30           28           29      25          25
Upstate New York                         21           25           21           22           23      17          12

Southeast Region                         34           35           30           28           26      23          21
Delaware-Maryland                        35           36           31           30           30      23          26
Georgia                                  29           32           29           23           27      25          21
Gulf Coast                               27           30           25           24           23      20          22
Indiana                                  18           18           20           20           21      18          17
Kentucky-Tennessee                       25           26           18           21           19      16          14
North-South Carolina                     43           45           34           35           30      23          23
North Florida                            37           35           29           25           22      17          12
South Florida                            56           52           46           39           33      35          27
Virginia-West Virginia                   30           31           30           29           25      21          19

Western Region                           33           31           32           28           28      23          19
Central California                       36           34           26           19           21      19          14
Los Angeles                              36           34           31           31           29      21          19
Northern California                      28           28           33           26           28      22          22
Pacific Northwest                        35           28           27           24           26      26          20
Rocky Mountain                           33           32           32           27           27      21          18
Southern California                      41           39           39           35           34      29          24
Southwest                                25           27           37           30           26      17          12

                         Note: Percentages have been rounded to the nearest whole percent.

                         Source: IRS Criminal Investigation Management Information System data.




                         Page 21                                  GAO/GGD-98-16 IRS’ Criminal Investigation Division
                                           Appendix II
                                           Percent of Direct Investigative Time Applied
                                           to CID Investigations in Fiscal Years 1990
                                           Through 1996




Table II.3: Percent of Total DIT Applied to Other Fraud Investigations by Location in Fiscal Years 1990 Through 1996
                                                                           Percent of DIT by fiscal years
Location                                                1990        1991        1992       1993        1994        1995         1996
Nationwide                                                 9          13           20         20          17         17           16

Midstates Region                                          11          15           21         19          18         19           17
Midwest                                                   11          11           16         13          11         15           10
Arkansas-Oklahoma                                         20          30           36         29          28         22           25
Houston                                                    9          13           17         14          12         12           10
Illinois                                                   6            8          16         18          18         17           14
Kansas-Missouri                                           10          10           19         22          19         22           15
North Central                                              7          16           17         20          15         15           13
North Texas                                               18          25           27         25          27         28           24
South Texas                                                9          10           28         15          18         19           20

Northeast Region                                           8          11           16         18          15         14           13
Brooklyn                                                  13          12           15         19          12         12           13
Connecticut-Rhode Island                                   5          12           16         19          15         16           14
Manhattan                                                  6            9          10         13          11         10            9
Michigan                                                  10          13           14         15          14         11           12
New England                                                6          12           22         25          23         24           20
New Jersey                                                 8            9          13         18          10         11           13
Ohio                                                      10          16           23         20          20         15           11
Pennsylvania                                               7            9          18         19          17         16           10
Upstate New York                                           6          10           13         12          10         19           22

Southeast Region                                           9          13           21         20          16         17           18
Delaware-Maryland                                          6            9          19         16          14         16           13
Georgia                                                    8          15           22         17          16         18           18
Gulf Coast                                                 6          13           15         16           9         15           16
Indiana                                                    8          15           17         16          13         10           12
Kentucky-Tennessee                                        14          20           35         29          20         23           26
North-South Carolina                                      16          18           24         24          18         21           19
North Florida                                             14          17           26         31          27         30           31
South Florida                                              4            7          16         15          12         11           15
Virginia-West Virginia                                     7          12           15         18          13         13           15

Western Region                                             8          15           24         25          19         19           19
Central California                                         7            6          18         27          19         23           27
Los Angeles                                                2          12           22         17           9         14           11
                                                                                                                          (continued)


                                           Page 22                                GAO/GGD-98-16 IRS’ Criminal Investigation Division
                      Appendix II
                      Percent of Direct Investigative Time Applied
                      to CID Investigations in Fiscal Years 1990
                      Through 1996




                                                        Percent of DIT by fiscal years
Location                           1990         1991         1992         1993         1994     1995        1996
Northern California                    8           17           28           25           24      22          18
Pacific Northwest                     12           18           27           27           21      22          20
Rocky Mountain                        10           18           32           33           24      20          20
Southern California                    3            8           16           25           20      15          15
Southwest                             15           20           22           19           18      20          23

                      Note: Percentages have been rounded to the nearest whole percent.

                      Source: IRS Criminal Investigation Management Information System data.




                      Page 23                                  GAO/GGD-98-16 IRS’ Criminal Investigation Division
Appendix III

The Number and Results of CID
Investigations in Fiscal Years 1990 Through
1996
                                            This appendix presents information on the number of CID investigations
                                            that were initiated, the number of investigations in which CID
                                            recommended prosecution, and the number of sentences resulting from
                                            prosecutions from fiscal year 1990 through fiscal year 1996. According to
                                            CID officials, completing an investigation and subsequently prosecuting and
                                            sentencing the subject of the investigation may take a year or more. As a
                                            result, the number of prosecution recommendations and sentences shown
                                            in a particular fiscal year in tables III.2 and III.3 may not have resulted
                                            from the investigations initiated in the corresponding fiscal year in table
                                            III.1.


Table III.1: Number of CID Investigations Initiated Nationwide in Fiscal Years 1990 Through 1996
                                                                   Number of investigations initiated by fiscal year
Type of investigation                                    1990         1991         1992         1993         1994     1995        1996
Fraud
  Tax gap                                                2,895        2,530       3,098        2,927        2,602    2,506       2,857
  Other                                                    781          822       1,345        1,396        1,103    1,201       1,144
Narcotics                                                1,603        1,866       2,095        1,825        1,641    1,293       1,333
Total investigations                                     5,279        5,218       6,538        6,148        5,346    5,000       5,334
                                            Source: IRS Criminal Investigation Management Information System data.




Table III.2: Number of CID Investigations Referred to the U.S. Attorney for Prosecution Nationwide in Fiscal Years 1990
Through 1996
                                                                   Number of investigations referred by fiscal year
Type of investigation                                    1990         1991         1992         1993         1994     1995        1996
Fraud
  Tax gap                                                1,574        1,561       1,642        1,805        1,535    1,579       1,708
  Other                                                    430          605         937        1,009          889      891         865
Narcotics                                                1,226        1,511       1,673        1,453        1,321    1,145       1,032
Total referrals for prosecution                          3,230        3,677       4,252        4,267        3,745    3,615       3,605
                                            Source: IRS Criminal Investigation Management Information System data.




                                            Page 24                                  GAO/GGD-98-16 IRS’ Criminal Investigation Division
                                          Appendix III
                                          The Number and Results of CID
                                          Investigations in Fiscal Years 1990 Through
                                          1996




Table III.3: Number of Sentences Nationwide Resulting From CID Investigations in Fiscal Years 1990 Through 1996
                                                                     Number of sentences by fiscal year
Type of investigation                                  1990         1991         1992         1993         1994     1995        1996
Fraud
  Tax gap                                              1,310        1,344       1,203        1,225        1,194    1,104       1,223
  Other                                                  333          402         459          630          805      736         691
Narcotics                                                766        1,039         973        1,197        1,236      961         863
Total sentences                                        2,409        2,785       2,635        3,052        3,235    2,801       2,777
                                          Source: IRS Criminal Investigation Management Information System data.




                                          Page 25                                  GAO/GGD-98-16 IRS’ Criminal Investigation Division
Appendix IV

Sources of Information That Resulted in CID
Investigations in Fiscal Years 1990 Through
1996
                                         CID relies on various sources of information for initiating its investigations,
                                         including information from (1) within IRS, such as from the Examination
                                         Division; (2) other government sources, such as U.S. Attorneys;
                                         (3) currency transaction reports; and (4) the public. Although information
                                         from other government sources may result in various types of CID
                                         investigations, including tax fraud, information from within IRS
                                         predominantly results in tax fraud investigations. Information provided
                                         from within IRS and by other government sources accounted for about
                                         75 percent of the total CID investigations initiated each year for fiscal years
                                         1990 through 1996. As shown in figure IV.1, investigations based on
                                         information provided by other government sources increased from about
                                         45 percent in fiscal year 1990 to about 51 percent in fiscal year 1996.
                                         Investigations based on information provided from within IRS fluctuated
                                         from about 32 percent in fiscal year 1990 to about 29 percent in fiscal year
                                         1996.


Figure IV.1: Percent of Investigations
Initiated Nationwide by Selected
Sources—Fiscal Years 1990 Through        Percent
1996                                     100




                                          80




                                          60




                                          40




                                          20
                                               1990           1991           1992      1993       1994        1995        1996

                                               Fiscal year

                                                             IRS referrals

                                                             Government non-IRS referrals


                                         Source: GAO analysis of IRS data.




                                         Page 26                                       GAO/GGD-98-16 IRS’ Criminal Investigation Division
Appendix IV
Sources of Information That Resulted in CID
Investigations in Fiscal Years 1990 Through
1996




In 1991, a study group convened to examine CID’s workload and to
recommend changes to better balance, direct, and strengthen its future
investigative activities recommended that IRS reemphasize its internal
fraud referral program. In an effort to increase the quality of internal fraud
referrals from other IRS groups to CID that may lead to tax fraud
investigations, IRS established formal fraud referral procedures effective
for fiscal year 1996. This included establishing the position of fraud
coordinator in each district office to act as a focal point for fraud referrals.
According to CID officials, the objective of these procedures is to increase
coordination between CID and other IRS functions, particularly the
Examination Division, in an effort to ensure that only cases involving
potential criminal fraud, rather than civil fraud, are referred to CID. CID
officials further stated that it is too soon to determine the overall success
of the new procedures.




Page 27                               GAO/GGD-98-16 IRS’ Criminal Investigation Division
Appendix V

Comments From the Internal Revenue
Service




              Page 28    GAO/GGD-98-16 IRS’ Criminal Investigation Division
Appendix VI

Major Contributors to This Report


                        Charlie Daniel, Assistant Director
General Government      Mark Gillen, Assistant Director
Division, Washington,   Robert McKay, Evaluator-in-Charge
D.C.                    James O’Donnell, Evaluator
                        Charles W. Woodward, III, Senior Evaluator


                        A. Carl Harris, Assistant Director
Atlanta Field Office    Clarence Tull, Senior Evaluator
                        Sally P. Gilley, Evaluator




(268768)                Page 29                          GAO/GGD-98-16 IRS’ Criminal Investigation Division
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