Term Paper on "Criminal Investigation Division of the IRS"

Term Paper 16 pages (5371 words) Sources: 15

[EXCERPT] . . . .

IRS-CID

The Internal Revenue Service is the bane of the existence of many taxpayers, and evne the most law-abiding taxpayer may have fears about an IRS audit or investigation. This remains true even after the IRS decided to be friendlier after Congressional hearings a few years ago brought out numerous horror stories about the way the IRS had treated taxpayers and ruined many businesses by the way the agency sought to recover money owed. One reason for the fears many people have is that they have only a minimal understanding of the way the IRS investigates taxpayers, the mechanisms involved, and the specific agency that does the investigating and why it institutes an investigation. Many people also fail to differentiate between the civil and criminal investigatory powers of the IRS and how they are kept separate by law. Within the structure of the IRS, the Criminal Investigation Division has its particular roles, ways of approaching the cases brought to it, laws governing its actions, and duties to find the evidence needed for prosecution in an increasingly more complex technological environment.

The Criminal Investigation Division

American taxpayers are often beset by the fear of being audited by the Internal Revenue Service (IRS), fearing that the IRS may discover some evidence of taxpayer mis-reporting and seek retribution. In such circumstances, taxpayers face the threat of a hefty monetary penalty, and the fear is that this may emerge from a routine civil tax audit. In addition, there is sometimes the threat of criminal punishment as well. When called in for an audit, then, taxpayers may fear that the true purpose of an IRS investigation is to gain evidence to support a criminal prosecution. An IRS examination may indeed commence as a civil audit, and IRS agents also may frequently use information gathered during a civil investigation to instigate criminal proceedings against unsuspecting citizens.

The agency divides the responsibility for enforcing the tax laws between its civil and criminal divisions. In a typical civil tax investigation, an IRS agent has the primary responsibility of determining the correctness of a tax return as filed. In a criminal tax investigation, on the other hand, the agent's main objective is to determine whether the taxpayer has engaged in fraudulent tax reporting: "Interestingly, the most frequent catalyst of a criminal investigation is the civil audit itself. However, the juncture where a civil examination turns criminal is not always clear."

Under the American legal system, there are strict constitutional safeguards to protect individuals subject to criminal investigations, leading to a concern that IRS regulations must prohibit civil agents from circumventing these safeguards by using the civil audit to gather evidence for a criminal prosecution. Most taxpayers fear a situation in which they will permit an IRS agent to examine their private books and records during the course of a routine audit, and the agent will then use this information for criminal prosecution. Because of this concern, the IRS has explicitly enacted regulations prohibiting an IRS agent from developing a criminal case against a taxpayer in this manner. Should an agent uncover evidence of criminal wrongdoing during the course of a civil audit, that agent must then refer the case to the criminal division for prosecution, keeping the two divisions separate in terms of actions and responsibilities. Still, it is true that revenue agents often gather the same evidence as their criminal division counterparts and then offer this evidence to the criminal division.

Such a fact has consequences, as a recent review of the issue notes:

These transgressions severely threaten the American voluntary tax reporting system. The present revenue collection system centers on the self-reporting and voluntary compliance of taxpayers. However, if taxpayers are uncertain as to whether tax investigations are criminal or civil in nature, they will not submit to routine tax examinations and the system of voluntary compliance will collapse. While the IRS properly requests permission to examine books and records of taxpayers to collect tax revenue, use of such information to secure evidence for criminal prosecution poses a danger to the entire system.

Taxpayers often have little recourse against such misconduct, since legislation fails to specify a remedy for violations of taxpayers' constitutional rights even though these actions clearly violate IRS regulations.

Criminal investigations are addressed under I.R.C. [subsection] 7201, 7202, 7203, 7206, and 7212(a) of the tax code. The Examination Division investigates civil tax cases, and the Criminal Investigation Division ("CID") investigates potential criminal violations. The latter serve two purposes, according to the Internal Revenue Manual. The first is to enforce the tax laws, and the second is to encourage voluntary compliance by setting an example of what a failure to comply might mean. The CID focuses on individuals participating in illicit activities utilizing sophisticated criminal schemes or on high-dollar financial transactions, and the IRS is also more likely to press a case against a prominent taxpayer than against a relatively obscure person. This also leaves few agents available to audit returns among the general population, which further reduces the percentage of total returns audited: "The IRS's focus on prominent individuals and illicit activities may be insufficient to significantly enhance voluntary compliance." (for this and other journal surveys, the data can be found in several annual reviews, often virtually identical, though listed with different authors. Presumably this is a custom for law review material.)

CID special agents in the division are responsible for investigating allegations of criminal violations under the I.R.C. And related provisions of Title 18 of the United States Code. A special agent is charged with conducting an administrative investigation when he or she is notified of a matter with the potential of criminal prosecution or that warrants further inquiry. If the special agent determines that the matter warrants prosecution, he or she prepares a special agent's report ("SAR") that explains the details of the investigation, its results, and the recommendations of the agent. If warranted, the matter is then referred to IRS counsel, and that person then makes the referral to the Department of Justice ("DOJ"), Tax Division or directly to the U.S. Attorneys Office. A referral to the Tax Division terminates the CID's authority to use the administrative investigation process. The Tax Division acts under the guidance of the Assistant Attorney General and authorizes prosecution in criminal tax cases. The Tax Division also supports and coordinates tax litigation. U.S. Attorneys have responsibility for litigating criminal tax cases.

The special agents are financial investigators and serve a unique purpose in federal law enforcement. These agents have to analyze the types of sophisticated scheme to defraud the government that are common today, and to combat this, investigators require the analytical ability to wade through complex paper and computerized financial records. Because of the greater use of automation for financial records, IRS special agents are trained to recover computer evidence and can use specialized forensic technology to recover financial data even if it has been encrypted, password protected, or hidden by other electronic means.

Structure

The Chief of Criminal Investigation is in the IRS headquarters office located in Washington, DC, and the Chief directs the policies and programs for IRS Criminal Investigation nationwide.

Among the responsibilities for the Chief are the enforcement of the criminal statutes relative to tax administration and related financial crimes; violations of the Bank Secrecy Act, and the Money Laundering Control Act. The Criminal Investigation strategic plan consists of three interdependent programs: Legal Source Tax Crimes; Illegal Source Financial Crimes; and Narcotics Related Financial Crimes. The three are mutually supportive and involve utilization of all statutes within the agency's jurisdiction, the grand jury process, and enforcement techniques to combat tax, money laundering, and currency crime violations: "Criminal Investigation must investigate and assist in the prosecution of those significant financial investigations that will generate the maximum deterrent effect, enhance voluntary compliance, and promote public confidence in the tax system."

CID is divided into thirty-five field offices, and each field office has a Special Agent in Charge to direct, monitor, and coordinate the criminal investigation activities within that office's area of responsibility. Each field office has several smaller posts-of-duty as well. There are specialized units for particular responsibilities, such as the High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces. These were mandated in the National Money Laundering Strategy and occupy the flagship role in the nation's efforts to disrupt and dismantle large-scale money laundering systems and organizations. This group serves to concentrate law enforcement efforts at the federal, state, and local levels for combating money laundering in high-intensity money laundering zones, whether based on drug trafficking or other crimes. These units today are located in the Northern District of Illinois (Chicago), the Northern District of California (San Francisco), and in New York/New Jersey, San Juan/Puerto Rico, Los Angeles, and a "systems HIFCA" that was designed to address cross-border currency smuggling in Texas/Arizona to and from Mexico. Each of these groups is composed of all relevant federal, state, and local enforcement authorities; prosecutors; and federal financial supervisory agencies as needed,… READ MORE

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