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. Page 1 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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. Page 2 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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. Page 3 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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’ Page 4 GAO/GGD-98-16 IRS’ Criminal Investigation Division 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. Page 5 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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. Page 6 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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. Page 7 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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. Page 8 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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. Page 9 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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.) Page 10 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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. Page 11 GAO/GGD-98-16 IRS’ Criminal Investigation Division B-275359 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 Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. 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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)