TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

Statistical Portrayal of the Criminal Investigation Function’s Enforcement Activities From Fiscal Year 2000 Through Fiscal Year 2006

 

 

 

June 6, 2007

 

Reference Number:  2007-10-083

 

 

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

 

Phone Number   |  202-927-7037

Email Address   |  Bonnie.Heald@tigta.treas.gov

Web Site           |  http://www.tigta.gov

 

June 6, 2007

 

 

MEMORANDUM FOR CHIEF, CRIMINAL INVESTIGATION

 

FROM:                            Michael R. Phillips /s/ Michael R. Phillips

                                         Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – Statistical Portrayal of the Criminal Investigation Function’s Enforcement Activities From Fiscal Year 2000 Through Fiscal Year 2006  (Audit # 200710025)

 

This report presents the results of our review of statistical information that reflects activities of the Criminal Investigation function (the function).  The overall objective of this review was to provide statistical information and trend analyses of the function’s enforcement activities for Fiscal Years (FY) 2000 through 2006.  We initiated this review as part of the Treasury Inspector General for Tax Administration’s FY 2007 Annual Audit Plan.  

Impact on the Taxpayer

During this annual review, we analyzed information from the function’s management information system reports to determine the trends and changes in the major areas of criminal enforcement.  Although some indicators showed an increase in FY 2006, several key performance measures declined, such as the number of criminal investigations initiated or in process and the number of subjects convicted of a crime.  There is a need for continued progress in enforcement of criminal tax and tax-related violations to enhance voluntary compliance and foster confidence in the integrity of the tax system.

Synopsis

We previously reported that the function showed improvements in tax-related enforcement from FYs 2004 to 2005.[1]  For example, the total numbers of subject investigations[2] initiated, subjects convicted, and subjects sentenced had increased and the percentage of direct investigative time had increased slightly.

In FY 2006, although the percentage of tax-related subject investigations initiated and the percentage of direct investigative time applied to tax-related subject investigations increased,  several key performance measures showed decreases from FY 2005.  For example, the number of subject investigations initiated decreased 8.5 percent, the number of subject investigations in open inventory decreased 5.8 percent, the number of subject investigations referred for prosecution decreased 4.9 percent, the number of subjects convicted of a crime decreased 6.1 percent, and the number of subjects sentenced for a crime decreased 3.6 percent.

In addition, the pipeline inventory was at a 6-year high of 3,943 subject investigations, which is almost the same as the number of subject investigations open in inventory.  This resulted in the function spending more direct investigative time to prepare these investigations for adjudication instead of initiating new investigations.  Concerned with the continued increases in pipeline inventory, the function’s Office of Planning and Strategy completed a review of the pipeline inventory.  The study determined the pipeline inventory for FYs 2002 through 2005 increased over 40 percent and the United States Attorney’s Offices’ operational priorities were not optimally aligned with the function’s priorities.  The Chief, Criminal Investigation, requested that we evaluate whether limited resources at the United States Attorney’s Offices will continue to affect the function’s pipeline inventory.  We have scheduled that review to commence in FY 2007.

In addition, increasing overall special agent staffing remains a challenge as the function continues to lose experienced special agents to attrition faster than it is replacing them.  We raised concerns in last year’s report that this staffing trend might adversely affect the current levels of and improvements in productivity the function had experienced in FY 2005.[3]  We believe the flat staffing pattern has partially attributed to the decreases reported for several of the FY 2006 yearend performance measures.

Recommendations

We made no recommendations in this report.  However, key Criminal Investigation function management officials reviewed the report prior to its issuance and provided written comments to add perspective on areas such as the function’s legal source program and direct investigative time relating to narcotics-related investigations.  In addition, the response requested we remove several paragraphs that the function did not believe were relevant to the FY 2006 statistical accomplishments.  However, we disagree and believe these areas give perspective to the reader on Congressional concerns in areas that can affect the function’s future accomplishments in the Questionable Refund Program area.  Management’s complete response to the discussion draft report is included as Appendix VII.

Copies of this report are also being sent to the Internal Revenue Service managers affected by the report information.  Please contact me at (202) 622-6510 if you have questions or Nancy A. Nakamura, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Program), at (202) 622-8500.

 

 

Table of Contents

 

Background

Results of Review

Several Key Performance Measures Declined in Fiscal Year 2006

Challenges Remain to Complete Investigations and Reduce Pipeline Inventory

Declining Trends Related to Legal Source Income Tax and Tax-Related Investigations Cause Concern

Challenges Remain to Increase the Number of Special Agents

Congressional Concerns About the Criminal Investigation Function’s Questionable Refund Program Continue

Investigations Initiated From External Sources Increased Slightly

Appendices

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Related Treasury Inspector General for Tax Administration Audit Reports

Appendix V – Glossary of Terms

Appendix VI – Detailed Charts of Statistical Information

Appendix VII – Management’s Response to the Discussion Draft Report

 

Abbreviations

 

BPR

Business Performance Review

CIMIS

Criminal Investigation Management Information System

FY

Fiscal Year

IRS

Internal Revenue Service

U.S.C.

United States Code

 

 

Background

 

In 1999, overall Internal Revenue Service (IRS) enforcement activities began to erode, and a survey conducted in 2003 indicated 17 percent of the survey population believed it was acceptable to cheat on their taxes.  Since then, the IRS Commissioner has emphasized the importance and role of tax enforcement in overall tax compliance by recognizing the need to enhance levels of enforcement activity to provide a proper balance between service and enforcement.  A 2006 Taxpayer Attitude Survey conducted by the IRS Oversight Board[4] indicated there is now stronger taxpayer support for compliance.  Approximately 86 percent of those participating in the Survey agreed that it is “not at all” acceptable to cheat on their income taxes.  In addition, 63 percent were in favor of additional funding so the IRS can enforce the tax laws and ensure taxpayers pay what they owe.

The IRS Strategic Plan for Fiscal Years (FY) 2005 to 2009 provides that enforcing tax compliance, both civilly and criminally, is critical to maintaining the American taxpayers’ expectation that the tax system is fair.  It also outlines several objectives to meet the goal of enhanced enforcement, including discouraging and deterring noncompliance with emphasis on corrosive activity by corporations, high-income individual taxpayers, and other contributors to the tax gap (the difference between taxes owed and paid).

The Criminal Investigation function (the function) has the authority to investigate criminal tax violations.  The vigorous enforcement of criminal statutes within the function’s jurisdiction is an integral component of the IRS’ efforts to enhance voluntary compliance and foster confidence in the fairness and integrity of the tax system.

Over the last few decades, Congress and the Department of the Treasury have expanded the function’s jurisdiction to also cover offenses under money-laundering and currency-reporting statutes.[5]  Accordingly, the function has been investigating tax violations involving both legal and illegal sources of income, including those involving organized crime and narcotics.

In April 1999, Judge William Webster issued a report[6] on his review of the function’s operations and concluded the function had drifted away from its primary mission of investigating criminal violations of the Internal Revenue Code (United States Code [U.S.C.] Title 26).  Judge Webster recommended the function refocus on its primary mission of investigating criminal violations of the internal revenue laws.

The function addressed many of the Webster Report concerns by creating a revised mission statement, developing a compliance strategy designed to guide the function to develop and investigate cases that foster confidence in the tax system, reducing the resources placed on narcotics-related investigations, publicizing the results of its investigations, and conducting an empirical study to determine the effect investigations have on voluntary compliance.  Function executives continue to emphasize the importance of developing and investigating those cases that have the greatest effect on tax administration, whether the sources of income in those investigations are derived from legal or illegal industries.

We initiated this review as part of the Treasury Inspector General for Tax Administration’s FY 2007 Annual Audit Plan.  While our trend analyses covered FYs 2000 through 2006, our report concentrates on providing a perspective for the 2 most current fiscal years.

Our data analyses were performed in the Treasury Inspector General for Tax Administration Chicago, Illinois, office during the period January 2007 through March 2007 using data accumulated by the function.  The audit was conducted in accordance with Government Auditing Standards.  However, we relied on information accumulated by the function and did not verify its accuracy.  Much of the data in this report were updated from our prior report on criminal enforcement trends.[7]  Detailed information on our audit objective, scope, and methodology is presented in Appendix I.  Major contributors to the report are listed in Appendix II.  Detailed charts and tables referred to in the body of the report are included in Appendix VI.

 

 

Results of Review

 

Several Key Performance Measures Declined in Fiscal Year 2006

We previously reported the function had continued to show improvements from FY 2004.[8]  For example, the total numbers of subject investigations initiated, subjects convicted, and subjects sentenced had increased and the percentage of direct investigative time had increased slightly.

Although the percentage of tax-related subject investigations initiated and the percentage of direct investigative time applied to tax-related subject investigations increased in FY 2006,[9] several key performance measures showed decreases from FY 2005.  For example, the number of subject investigations initiated decreased 8.5 percent, the number of subject investigations in open inventory decreased 5.8 percent, the number of subject investigations referred for prosecution decreased 4.9 percent, the number of subjects convicted of a crime decreased 6.1 percent, and the number of subjects sentenced for a crime decreased 3.6 percent.[10]  In addition, the pipeline inventory is at a 6-year high of 3,943 subject investigations, which is almost the same as the number of subject investigations open in inventory.[11]

Further, the Department of Justice acceptance rate decreased 4.1 points from FY 2005, to 92.2 percent.  Similarly, the United States Attorney’s Offices’ acceptance rate decreased 3.9 percent from FY 2005.

The function attributed the decreases in subject investigations initiated, subject investigations referred for prosecution, and subjects convicted of a crime to planned reductions in resources applied to narcotics-related investigations, increased time applied to pipeline investigations, and continued emphasis on complex tax and tax-related investigations.  In addition, function management cited a Washington Post article about severe staffing shortages at the United States Attorney’s Offices and indicated this presents a significant challenge to the function in reducing its pipeline inventory.  This area of concern has been brought to the attention of the Attorney General by the Honorable Henry A. Waxman (D-California) and the Honorable John Conyers (D-Michigan), who, in a letter dated July 24, 2006, stated that the lack of staff and resources force Federal Government prosecutors to forego prosecutions in some important investigations and to reach plea bargains in others.  In its FY 2008 budget request, the Department of Justice requested $5.2 million for the Tax Division to enhance “Operation Continued Follow-Through,” a tax law enforcement initiative that supports the President’s focus on reducing tax fraud.  We believe this additional funding, if approved, might alleviate some of the delays the IRS is experiencing with the Department of Justice.

Challenges Remain to Complete Investigations and Reduce Pipeline Inventory

The function projected it would complete 3,945 subject investigations during FY 2006.  It actually completed 4,157 subject investigations, exceeding the FY 2006 performance goal outlined in the IRS FY 2008 Congressional Budget Submission.  Of these 4,157 completed investigations, 65.4 percent were referred for prosecution, a 4.9 percent decrease in the number of investigations referred for FY 2005.[12]  The number of subjects convicted of a crime was 2,019, which is 11 percent below the FY 2006 performance plan number (2,260) and a decrease of 6.1 percent from FY 2005.  In addition, the number of subjects sentenced decreased 3.6 percent from FY 2005 (from 2,095 to 2,020).[13]

In 2003, the IRS Commissioner raised concerns about the length of time it takes to recommend an investigation for prosecution.  Since then, the function has emphasized reduction of cycle time.  The function’s Office of Planning and Strategy conducted a study to determine the desired cycle time range and established a benchmark figure for legal source income tax and illegal source income investigation completions (415 calendar days to 425 calendar days) because these investigations closely align with the function’s mission and measure investigative efficiency.

In FY 2006, the function reported average elapsed days for legal source income tax and illegal source income investigation completions at 436.6 calendar days.  This was 2.7 percent above the benchmark range; yet, it was 5.7 percent below the FY 2005 average of 463.2 calendar days.  The national average of elapsed days to recommend an investigation for prosecution and to discontinue an investigation showed slight improvements from FY 2005 to FY 2006.[14]

The function’s FY 2007 Annual Business Plan includes a business strategy to “Improve Efficiency and Reduce Elapsed Time on Criminal Subject Investigations.”  The function plans to accomplish this through appropriate management oversight and direction to maintain optimum workload levels and ensure all investigations progress appropriately.  We are encouraged by management’s efforts to reduce elapsed days to complete an investigation and believe their constant oversight should result in continued improvements in this area.

Pipeline inventory continues to increase

The pipeline inventory continues an upward trend.  The FY 2006 inventory was the highest in the last 6 years with 3,943 subject investigations, a 2.5 percent increase over FY 2005.  The ratio of pipeline inventory to open subject criminal investigations had dramatically increased to 97.7 percent as of September 30, 2006.  This is an increase from the FY 2002 level of 62.2 percent.[15]

Concerned with the continued increases in pipeline inventory, the function’s Office of Planning and Strategy completed a review of the pipeline inventory and determined the pipeline inventory for FYs 2002 through 2005 increased over 40 percent.  During that period, the number of legal source income tax investigations in the pipeline increased 56 percent, while illegal source income and narcotics-related pipeline inventory increased 51 percent and 12 percent, respectively.[16]  By the end of FY 2005, the function’s pipeline inventory comprised 47 percent of total[17] subject criminal investigations and had used 19 percent of the function’s direct investigative time.  Furthermore, this study concluded the United States Attorney’s Offices’ operational priorities were not optimally aligned with the function’s priorities.

According to data reported in the Business Performance Review (BPR) document for FY 2006, the number of investigations categorized for the Department of Justice Tax Division increased at a slower rate between FYs 2002 and 2006 than the number of investigations categorized as preindictment or postindictment at the Department of Justice.  For example, the Tax Division’s inventory increased from 345 investigations in FY 2002 to 366 investigations in FY 2006, whereas the United States Attorney’s Offices’ preindictment inventory increased from 937 investigations in FY 2002 to 1,516 investigations in FY 2006.  Further, the postindictment inventory increased from 1,451 investigations to 2,065 investigations during the same period.

The amount of direct investigative time applied to the pipeline inventory has increased 7 percentage points in the last 5 fiscal years, from 14.5 percent to 21.5 percent.  The function indicated the timely resolution of these pipeline investigations will remain a challenge.  We are still concerned that a continuing expansion of the pipeline inventory will affect future productivity levels because fewer new investigations will be initiated.

The Chief, Criminal Investigation, requested that we evaluate whether limited resources at the United States Attorney’s Offices will continue to affect the function’s pipeline inventory.  We had previously discussed this area with the Deputy Chief, Criminal Investigation, and have included this review in our FY 2007 audit plan.[18]

Declining Trends Related to Legal Source Income Tax and Tax-Related Investigations Cause Concern

The function’s Annual Business Plans have consistently described legal source income tax investigations as a top investigative priority, and we believe these investigations are an important component of all tax-related investigations.  We previously challenged the function’s efforts to show progress toward increasing the level of legal source income tax investigations, despite its articulation of a focus on these types of investigations in its strategic documents.[19]  Although we could not conclusively determine whether the function was conducting enough legal source income tax investigations or to what extent it can or should increase the number, we identified several areas in which the function could make improvements to the legal source income tax investigative program and more effectively measure the program’s impact on tax compliance.

In FY 2006, the percentage of direct investigative time spent on legal source income tax and tax-related investigations was at a 7-year high, increasing 6.4 percentage points and 8.7 percentage points, respectively, since FY 2000.  During FY 2006, the function spent 67.1 percent of its time investigating tax-related cases and 48.2 percent of its time on legal source income tax investigations.[20]

Although the function reported it was spending more time investigating legal source income tax and tax-related investigations, overall investigations initiated decreased, thus affecting the number of legal source income tax and tax-related investigations initiated during FY 2006.  For example, the number of legal source income tax investigations initiated decreased 10 percent (from 1,693 in FY 2005 to 1,524 in FY 2006) yet was higher than that reported in FY 2004.  Likewise, the number of tax-related investigations initiated decreased 7.1 percent during the same period, yet tax-related initiations were higher than what was reported in FY 2004.[21]  As previously mentioned, the function indicated the lower numbers of initiations were a result of its planned reductions in resources applied to narcotics-related investigations, increased time applied to pipeline investigations, and continued emphasis on complex tax and tax-related investigations, which have the greatest impact on tax compliance.

In addition, the total open subject investigation inventory decreased from FY 2005, as did the number of legal source income tax and tax-related investigations in open inventory.  The function had 2,121 legal source income tax investigations in open subject investigation inventory at the end of FY 2005.  This decreased 5.4 percent to 2,006 in FY 2006; however, there was a slight increase in the percentage of total open inventory that was legal source.[22]  In addition, the number of tax-related investigations in open inventory decreased 3.8 percent, from 3,258 in FY 2005 to 3,134 in FY 2006.  However, the percentage of total open inventory that was tax-related increased 1.6 percentage points during this time.[23] 

Case completions also showed declining statistics from FY 2005.  The numbers of legal source income tax and tax-related investigations referred for prosecution decreased 12.3 percent and 7.1 percent, respectively.[24]  The function attributed these decreases to the steady increase in direct investigative time applied to pipeline inventory and to flat staffing levels.

Further, while the number of subjects convicted of a legal source income tax crime decreased 9.6 percent from FY 2005, the number of subjects sentenced for a legal source income tax crime increased slightly during this time.[25]  Although the number of subjects sentenced for a tax-related crime decreased during FY 2006, the percentage of tax-related sentences is at a 7-year high of 49.3 percent.[26]

We are concerned that the pending FY 2008 budget initiative to increase the direct investigative time on narcotics-related cases, to a range of 12 percent to 14 percent, may continue to affect the function’s ability to investigate legal source income tax and tax-related crimes.  While this range is lower than those reported by the function in the years following issuance of the Webster Report, it is an increase from the overall direct investigative time of 9.6 percent reported in FY 2006.  According to the BPR document for FY 2006, the function will increase narcotics-related direct investigative time for FY 2007 by redirecting resources from the nontax-related portion of illegal source income investigations.  If the pending proposal for FY 2008 is approved, we believe the function should continue to look for opportunities to redirect resources from the nontax-related categories to minimize any impact on the legal source income tax and tax-related investigations program.

Tax compliance and publicity

Research suggests that higher levels of criminal sentences lead to higher tax compliance.  The average number of months a subject is incarcerated has increased since FY 2000.  The percentage increase in the number of months a subject is incarcerated for legal source income tax investigations rose 13.3 percent between FYs 2000 and FY 2006.  During the same period, incarceration time increased 37 percent (from an average of 27 months to 37 months) for illegal source income investigations and 23.7 percent (from 76 months to 94 months) for narcotics-related investigations.[27]

In an effort to ensure voluntary compliance, the function changed its philosophy to allow for more publicity of its tax investigations.  It continues to increase the publicity on tax prosecutions, and the overall publicity rate of 75.6 percent for prosecutions in FY 2006 was an all time high.  The 81.3 percent publicity rate for legal source income tax investigations is also an all time high.[28]  This increased exposure indicates the function is receiving media attention and sending the message to taxpayers that violations of the Internal Revenue Code and related financial crimes are being investigated and prosecuted.

Challenges Remain to Increase the Number of Special Agents

While total special agent staffing[29] increased 2.6 percent between FYs 2000 and 2006, the number of field office special agents was near the same level in FY 2006 as in FY 2000.  According to staffing data provided by the function, 189 positions were classified as special agent recruits in training in FY 2005.  Some of these recruits graduated during FY 2006, resulting in an increase in the number of field special agents from 2,416 in FY 2005 to 2,511 in FY 2006.[30]

While there was growth in the number of field special agents, increasing special agent staffing remains a challenge as the function continues to lose experienced special agents to attrition faster than it can replace them.  According to its most recent estimates, the function’s planned hiring will not offset the FY 2006 attrition of 142 agents or the FY 2007 expected attrition of approximately 150 agents.

Last year[31] we expressed our concern that the decrease in staffing may adversely affect the current levels of and improvements in productivity the function experienced in FY 2005.  We believe the flat staffing patterns have partially attributed to the lower numbers of subject investigations initiated, subject investigations per special agent, investigations referred for prosecution, and subjects convicted of a crime.

Trends related to the number of investigations per special agent

The function uses the average inventory of subject investigations per special agent and the average total inventory per special agent as business results measures.  The average inventory calculation includes only open subject investigations, whereas the total inventory calculation includes primary investigations, open subject investigations, and pipeline subject investigations.

In FY 2004, the average inventory of subject investigations per special agent was 1.84.  This increased to 1.94 in FY 2005 but decreased to 1.76 in FY 2006.  In addition, the total inventory per special agent, which we believe is a better indicator of a special agent’s workload, decreased from 5.19 percent in FY 2005 to 4.77 percent in FY 2006.[32]

As previously stated, function management indicated the planned reductions in resources applied to narcotics-related investigations, increased direct investigative time applied to pipeline investigations, and increased emphasis on complex tax and tax-related investigations resulted in the lower numbers of open subject criminal investigations per agent.

Congressional Concerns About the Criminal Investigation Function’s Questionable Refund Program Continue 

Refund fraud continues to grow.  Between Processing Years 2003 and 2005, the number of fraudulent[33] or potentially fraudulent returns detected increased 36.2 percent and the total amount of refunds stopped increased 53.8 percent.[34]  As part of its continuing efforts to increase enforcement and combat refund fraud, the function has increased staffing dedicated to refund fraud by 33.1 percent since FY 2003.

However, the statistics for Processing Year 2006 reflect the recent problems the function has experienced with the Questionable Refund Program.  In Processing Year 2005, the function identified approximately $511 million in fraudulent or potentially fraudulent refunds, compared to approximately $274 million in Processing Year 2006.  In addition, the function actually stopped 53.4 percent fewer fraudulent dollars, stopping $191 million in Processing Year 2006 compared to about $410 million in Processing Year 2005.  However, even with the unavailability of the Electronic Fraud Detection System for all of Processing Year 2006, 69.6 percent of the dollars associated with identified fraudulent refunds were eventually stopped, compared to 80.1 percent in Processing Year 2005.[35] 

In our opinion, these differences were largely due to the unavailability of the Electronic Fraud Detection System.[36]  As expected, the number of fraudulent returns detected also significantly decreased (60.4 percent) from 132,054 in Processing Year 2005 to 52,338 in Processing Year 2006.[37]

During the past couple of years, Congressional concerns with the function’s Questionable Refund Program have increased.  The concerns began with the number of fraudulent prisoner refunds being issued; more recently, they have related to the operation of the Electronic Fraud Detection System and the Questionable Refund Program process of freezing taxpayer accounts.

In April 2005, at the request of the House Ways and Means Subcommittee on Oversight, we conducted a limited-scope review[38] concerning refund fraud committed by individuals who are incarcerated in Federal and State prisons, which has grown significantly in recent years.  We reported that inaccurate and missing information from the prisoner data file prevented the IRS from detecting all fraudulent refund returns filed by prisoners.  In addition, Internal Revenue Code § 6103[39] generally prohibited the IRS from sharing Federal tax information with other agencies such as State prison authorities, except under limited circumstances.  We made no recommendations in that report; however, the President’s FY 2008 Budget included a legislative proposal to permit the IRS to disclose tax return information to prison officials.

In January 2006, the National Taxpayer Advocate issued the 2005 Annual Report to Congress reporting significant problems with the Questionable Refund Program.  Shortly thereafter, the Senate Finance Committee and the House Ways and Means Oversight Subcommittee sent letters to the Secretary of the Treasury and the IRS Commissioner expressing concern that taxpayers whose refunds were frozen were not always notified.  Congress requested a review of the Questionable Refund Program, and on January 24, 2006, the IRS Commissioner announced he had initiated an internal review.  We included the IRS’ resulting changes to the Questionable Refund Program in our audit and issued a report[40] indicating that, while we are encouraged by the IRS’ actions to address stakeholder concerns and restore balance between taxpayer rights and effective administration of the tax laws, we are concerned some of the changes will not stop millions of dollars of potentially fraudulent refunds from being issued.  IRS management agreed with three of our seven recommendations, partially agreed with one recommendation, and neither agreed nor disagreed with three other recommendations.  For the three agreed-to recommendations, IRS management plans to obtain more current time periods for completing verification; to collaborate with the Department of Justice on referral criteria; and, through a task force, to consider revising review procedures.  For the other four recommendations, the IRS proposed different types of actions and plans to evaluate the results from the 2007 Questionable Refund Program, make recommendations on any adjustments to procedures for the 2008 Filing Season, and work with relevant parties to discuss initiating a legislative proposal.

Investigations Initiated From External Sources Increased Slightly

The function initiates investigations from many different sources, both within and outside the IRS.  The primary internal sources include fraud referrals from the Compliance offices and investigations developed by the Criminal Investigation function itself through the Questionable Refund and Return Preparer Programs.  The primary external sources of investigations include the United States Attorney’s Offices and other Government agencies, both Federal and State.  In addition, the function initiates investigations based on information received from public sources, including the media and informants.

During FY 2006, about 53.4 percent of the 3,907 subject investigations initiated came from the United States Attorney’s Offices or other Government agencies.  This was a slight increase from 53.1 percent in FY 2005.  In contrast, during FY 2006, about 35.2 percent of subject investigations initiated originated from within the IRS.  This is a decline from the 36.2 percent reported in FY 2005 but is still an increase from 31.6 percent and 30.1 percent reported in FYs 2003 and 2004, respectively.  Further, in FY 2006, the number of subject investigations initiated from a public source increased to 11.5 percent of the total investigations initiated, from 10.7 percent in FY 2005.[41]

The function’s FY 2007 Annual Business Plan states it will maintain its investigative resources applied to quality legal source income tax investigations by continuing to work closely with the Compliance offices and will pursue significant investigations involving illegal source income and other financial crimes that adversely affect tax administration.  We continue to believe that, because investigations generated from internal sources are more likely to be legal source income tax investigations, the function should remain vigilant when evaluating whether the level of cases initiated from sources external to the IRS maintains a proper balance with the stated priorities.

Fraud referral program successes

In response to our prior report on the legal source income tax program,[42] the function committed to taking several steps to enhance the fraud referral program, such as establishing fraud referral coordinator positions in each field office, fostering relationships with other IRS operating divisions, and incorporating language into the managers’ commitments.  As a result of these changes, the function succeeded in accomplishing its FY 2006 compliance strategy to strengthen the fraud referral program.  While the number of fraud referrals received in FY 2006 decreased 3.5 percent from FY 2005, the acceptance rate increased 2.7 percentage points in FY 2006, indicating the IRS Compliance offices are improving the quality of their criminal fraud referrals.  The FY 2006 acceptance rate of 71.5 percent was the highest in the last 7 years.  The rate of acceptance has increased 20.7 percentage points since FY 2000.[43]

The fraud referral program remains a high priority with the function, which continues to work with the Small Business/Self-Employed Division in assessing the program’s effectiveness.[44]  A critical issue facing the program is the inconsistency among the various United States Attorney’s Offices in accepting Title 26 investigations for prosecution.  The function is currently conducting a study to determine whether all the United States Attorney’s Offices have consistent policies regarding Title 26 prosecutions.  The goal of this study is to identify inconsistencies and assist the Small Business/Self-Employed Division in modifying local referral criteria to conform to the prosecution thresholds of the United States Attorney’s Offices.

Because fraud referrals remain a viable and important source of legal source income tax investigations, we are encouraged by the recent results demonstrated by the fraud referral program.  We believe the function and the Compliance offices should continue to emphasize the importance of these types of investigations as they relate to tax administration and the IRS’ efforts to improve voluntary compliance.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of this review was to provide statistical information and trend analyses of the Criminal Investigation function’s enforcement activities for FYs 2000 through 2006.

To accomplish our objective, we reviewed IRS data publications and function management information to analyze data and identify trends.  We relied on information accumulated by the IRS and the function in established reports and the function’s management information system and did not verify its accuracy.  The major issues we focused on included:

·         Special Agent[45] Staffing.

·         Investigation Initiations.

·         Open Investigations.

·         Pipeline Investigations.

·         Investigation Closures.

·         Investigations Referred for Prosecution.

·         Subsequent Legal Actions.

·         Compliance Strategy Programs.

 

Appendix II

 

Major Contributors to This Report

 

Nancy A. Nakamura, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs)

John R. Wright, Director

Diana M. Tengesdal, Audit Manager

Janice A. Murphy, Lead Auditor

Todd M. Anderson, Senior Auditor

 

Appendix III

 

Report Distribution List

 

Acting Commissioner  C

Office of the Commissioner – Attn: Chief of Staff  C

Deputy Commissioner for Services and Enforcement  SE

Chief Counsel  CC

National Taxpayer Advocate  TA

Director, Office of Legislative Affairs  CL:LA

Director, Office of Program Evaluation and Risk Analysis  RAS:O

Office of Internal Control  OS:CFO:CPIC:IC

Audit Liaison:  Director, Planning and Strategy, Criminal Investigation  SE:CI:S:PS

 

Appendix IV

 

Related Treasury Inspector General for Tax Administration Audit Reports

 

  1. The Criminal Investigation Function Has Made Progress in Investigating Criminal Tax Cases; However, Challenges Remain (Reference Number 2005-10-054, dated March 2005).
  2. The Internal Revenue Service Needs to Do More to Stop the Millions of Dollars in Fraudulent Refunds Paid to Prisoners (Reference Number 2005-10-164, dated September 2005).
  3. Statistical Portrayal of the Criminal Investigation Function’s Enforcement Activities From Fiscal Year 2000 Through Fiscal Year 2005 (Reference Number 2006-10-074, dated May 2006).
  4. The Electronic Fraud Detection System Redesign Failure Resulted in Fraudulent Returns and Refunds Not Being Identified (Reference Number 2006-20-108, dated August 9, 2006).
  5. Actions Have Been Taken to Address Deficiencies in the Questionable Refund Program; However, Many Concerns Remain, With Millions of Dollars at Risk (Reference Number 2007-10-076, dated May 31, 2007).

 

Appendix V

 

Glossary of Terms

 

Business Performance Review Quarterly, the Criminal Investigation function (the function) reports on its performance measures, business results, employee and customer satisfaction, and other items of importance to the function.

Compliance Strategy – The function strategy comprised of three interdependent program areas:  Legal Source Tax Crimes, Illegal Source Financial Crimes, and Narcotics-Related Financial Crimes.

Criminal Investigation Management Information System (CIMIS) A database that tracks the status and progress of criminal investigations and the time expended by special agents.

Cycle Time – Elapsed calendar days on completed investigations.

Direct Investigative TimeTime spent by special agents conducting investigations and other law enforcement activities.

Discontinued InvestigationA subject investigation that resulted in a determination that there was no prosecution potential.

Elapsed DaysThe number of calendar days between the initiation of a subject investigation and another date, such as the date the investigation was discontinued or referred for prosecution.

Electronic Fraud Detection System – The primary computer system used by the function that greatly enhances its ability to identify and stop fraudulent filings.

Field Special AgentA special agent in 1 of the function’s 29 field offices.

Filing Season – The period from January through mid-April when most individual income tax returns are filed.

Fraud Detection Center – The function organization responsible for identifying and detecting refund fraud, preventing the issuance of false refunds, and providing support for the function field offices.

Grand Jury Investigation – An investigation conducted through use of a Federal grand jury to determine if a subject should be charged with a crime.  Use of the Federal grand jury to investigate the potential crime(s) may be initiated by the function or by an attorney for the Federal Government. 

Illegal Source Financial CrimesThose crimes involving illegally earned income.  They include crimes involving money laundering, U.S.C. Title 18 Sections (§§) 1956 and 1957, sections of U.S.C. Title 31, and U.S.C. Title 26 violations investigated in conjunction with other agencies.

Inventory per AgentThe number of open subject investigations divided by the number of field special agents whose salary grade level is 13 or below and who have various position descriptions, including those of coordinator and reviewer.

IRS Data Book – Provides information on activities conducted by the IRS such as taxes collected, enforcement, taxpayer assistance, budget, workforce, and other selected activities.

IRS Oversight BoardA nine-member independent body charged to oversee the IRS in its administration, management, conduct, direction, and supervision of the execution and application of the internal revenue laws and to provide experience, independence, and stability to the IRS so it may move forward in a cogent, focused direction.

Lead Development CenterCoordinates local and national projects initiated to identify specific areas/industries of noncompliance.  It is the focal point for the fraud referral program, coordinating all referrals to and from the operating divisions and providing fraud awareness training to operating division employees.  

Legal Source Tax CrimesThose crimes involving legal industries and occupations and legally earned income.

Narcotics-Related Financial CrimesThose crimes involving tax and money laundering that are related to narcotics and drug trafficking.

National Taxpayer AdvocateAn independent organization within the IRS to help taxpayers resolve problems with the IRS and recommend changes that will prevent the problems.  

Pipeline Inventory – Investigations in which the function has made a prosecution recommendation but for which the subsequent legal process has not been completed.  Function personnel may still be actively involved with pipeline cases, to assist with trial preparation or to testify as witnesses.

Primary Investigation – An evaluation of an allegation that an individual or entity is in noncompliance with the internal revenue laws and related financial crimes.

Processing Year – Refers to the year in which taxpayers file their tax returns with the IRS.  Generally, returns for Tax Year 2005 were processed during Calendar Year 2006, although returns for older years were also processed in 2006.

Questionable Refund ProgramA nationwide, multifunctional program designed to identify fraudulent returns, stop the payment of fraudulent refunds, and refer identified fraudulent refund schemes to the function field offices.

Referred for ProsecutionA subject investigation that resulted in the determination of prosecution potential referred to the Department of Justice or a United States Attorney’s Office.

Return Preparer ProgramA program that pursues unscrupulous return preparers who knowingly claim excessive deductions and exemptions on returns prepared for clients.  The clients may or may not have knowledge of the false claims.

Special AgentA function law enforcement employee who investigates potential criminal violations of the internal revenue laws and related financial crimes.

Subject InvestigationAn investigation of an individual or entity alleged to be in noncompliance with the laws enforced by the IRS and having prosecution potential.

Subject Seizure Investigation – An investigation to locate and seize assets that are subject to seizure or forfeiture under various U.S.C. titles and sections such as 26 U.S.C. § 7302 or 18 U.S.C. §§ 981, 982, or 984.

Tax-Related Violation A violation involving Title 26, Title 33 sections, or one of the following Title 18 sections:  § 286, § 287, § 371 or § 514 associated with a Title 26 violation or § 371 associated with a Title 26 and a Title 31 violation. 

Title 18U.S.C. Title 18 (Crimes and Criminal Procedure).  Various sections of Title 18 apply to violations that are within the jurisdiction of the function.  Examples include § 286, Conspiracy to Defraud the Government with Respect to Claims; § 287, False, Fictitious, or Fraudulent Claims; § 371, Conspiracy to Commit Offense or to Defraud United States; and §§ 1956 and 1957, Laundering of Monetary Instruments and Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity.  The most common section investigated under this statute is money laundering.

Title 26U.S.C. Title 26 (Internal Revenue Code).

Title 31 – U.S.C. Title 31 (Money and Finance).  Several sections of Title 31 apply to violations that are within the jurisdiction of the function.  Examples include § 5322, Criminal Penalties (for willful violations of Title 31 sections), and § 5324, Structuring Transactions to Evade Reporting Requirement Prohibited.

Title 33 – U.S.C. Title 33 (Taxation and Finance – Virgin Islands).  Several sections of Title 33 apply to violations that are within the jurisdiction of the function.  Examples include § 1521, Attempt to Evade or Defeat Tax; § 1522, Conspiracy to Evade or Defeat Tax; and § 1523, Willful Failure to Collect or Pay Over Tax.

 

Appendix VI

 

Detailed Charts of Statistical Information

 

Figure 1 – Special Agent and Field Special Agent Staffing at the End of Each Fiscal Year

Figure 2 – Special Agent Direct Investigative Time Expended Each Fiscal Year

Figure 3 – Percentage of Direct Investigative Time Spent on Legal Source and Tax-Related Investigations Each Fiscal Year

Figure 4 – Number of Subject Investigations Initiated and the Number Initiated per Field Special Agent Each Fiscal Year

Figure 5 – Number of Subject Investigations Initiated Each Fiscal Year for a Tax-Related or Nontax-Related Violation and the Percentage That Is Tax-Related

Figure 6 – Number of Subject Investigations Initiated Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes

Figure 7 – Number of Subject Investigations Initiated Each Fiscal Year by Principle U.S.C. Title

Figure 8 – Number of Subject Investigations Initiated Each Fiscal Year by Source of the Allegation or Information

Figure 9 – Number of Fraud Referrals Received and the Percentage Accepted Each Fiscal Year           

Figure 10 – Number of Open Subject Investigations and the Total of All Investigations at the End of Each Fiscal Year and the Number per Nonsupervisory Special Agent in Field Offices

Figure 11 – Number of All Types of Investigations Open in Various Stages at the End of Each Fiscal Year

Figure 12 – Number of Open Subject Investigations Each Fiscal Year for a Tax-Related or Nontax-Related Violation and the Percentage That Is Tax-Related

Figure 13 – Number of Open Subject Investigations Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes

Figure 14 – Number of Open Subject Investigations at the End of Each Fiscal Year by Type of Investigation:  Grand Jury or Nongrand Jury Investigation

Figure 15 – Number of Subject Investigations Discontinued or Referred for Prosecution Each Fiscal Year and the Percentage Referred for Prosecution

Figure 16 – Average Elapsed Days of Subject Investigations Discontinued and Referred for Prosecution Each Fiscal Year

Figure 17 – Number of Subject Investigations Referred for Prosecution Each Fiscal Year for a Tax-Related or Nontax-Related Violation and the Percentage That Is Tax-Related

Figure 18 – Number of Subject Investigations Referred for Prosecution Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes

Figure 19 – Number of Subject Investigations Referred for Prosecution Each Fiscal Year by Principle U.S.C. Title

Figure 20 – Number of Subject Investigations Referred for Prosecution Each Fiscal Year by Type of Investigation:  Grand Jury or Nongrand Jury Investigation

Figure 21 – Number of Tax-Related and Nontax-Related Subject Investigations in the Pipeline Each Fiscal Year and the Percentage That Is Tax-Related

Figure 22 – Number of Subject Investigations in the Pipeline Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes

Figure 23 – Number of Subjects Convicted of and Sentenced for a Crime Each Fiscal Year

Figure 24 – Number of Subjects Convicted of a Crime Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes

Figure 25 – Number of Subject Investigations Initiated, Referred for Prosecution, Indicted, and Convicted Each Fiscal Year

Figure 26 – Number of Subjects Sentenced for a Crime Each Fiscal Year for a Tax-Related or Nontax-Related Violation and the Percentage That Is Tax-Related

Figure 27 – Number of Subjects Sentenced for a Crime Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes

Figure 28 – Number of Subjects Sentenced for a Crime Each Fiscal Year by Principle U.S.C. Title

Figure 29 – Average Number of Months a Subject Is Incarcerated Each Fiscal Year by Compliance Strategy Program

Figure 30 – Percentage of Investigations That Received Publicity Each Fiscal Year by Compliance Strategy Program

Figure 31 – Number of Paper and Electronic Returns Determined to Be Fraudulent or Potentially Fraudulent by the Criminal Investigation Function Questionable Refund Program

Figure 32 – Dollar Amounts of Fraudulent Refunds Identified and Stopped by the Criminal Investigation Function Questionable Refund Program

Figure 1:  Special Agent and Field Special Agent Staffing at the End of Each Fiscal Year.

 

Figure 1 was removed due to its size.  To see Figure 1, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 2:  Special Agent Direct Investigative Time Expended Each Fiscal Year.[46]

 

Figure 2 was removed due to its size.  To see Figure 2, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 3:  Percentage of Direct Investigative Time Spent on Legal Source and Tax-Related Investigations Each Fiscal Year.

 

Figure 3 was removed due to its size.  To see Figure 3, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 4:  Number of Subject Investigations Initiated and the Number Initiated per Field Special Agent Each Fiscal Year.

 

Figure 4 was removed due to its size.  To see Figure 4, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 5:  Number of Subject Investigations Initiated Each Fiscal Year for a Tax-Related or Nontax-Related Violation and the Percentage That Is Tax-Related.

 

Figure 5 was removed due to its size.  To see Figure 5, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 6:  Number of Subject Investigations Initiated Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes.

 

Figure 6 was removed due to its size.  To see Figure 6, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 7:  Number of Subject Investigations Initiated Each Fiscal Year by Principle U.S.C. Title.

 

Figure 7 was removed due to its size.  To see Figure 7, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 8:  Number of Subject Investigations Initiated Each Fiscal Year by Source of the Allegation or Information.  The IRS sources include fraud referrals from the Compliance offices and investigations developed by the Fraud Detection Centers and Lead Development Centers.

 

Figure 8 was removed due to its size.  To see Figure 8, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 9:  Number of Fraud Referrals Received and the Percentage Accepted Each Fiscal Year.

 

Figure 9 was removed due to its size.  To see Figure 9, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 10:  Number of Open Subject Investigations and the Total of All Investigations at the End of Each Fiscal Year and the Number per Nonsupervisory Special Agent in Field Offices.[47]

 

Figure 10 was removed due to its size.  To see Figure 10, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 11:  Number of All Types of Investigations Open in Various Stages at the End of Each Fiscal Year.

 

Figure 11 was removed due to its size.  To see Figure 11, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 12:  Number of Open Subject Investigations Each Fiscal Year for a Tax-Related or Nontax Related Violation and the Percentage That Is Tax-Related.

 

Figure 12 was removed due to its size.  To see Figure 12, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 13:  Number of Open Subject Investigations Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes.

 

Figure 13 was removed due to its size.  To see Figure 13, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 14:  Number of Open Subject Investigations at the End of Each Fiscal Year by Type of Investigation:  Grand Jury or Nongrand Jury Investigation.

 

Figure 14 was removed due to its size.  To see Figure 14, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 15:  Number of Subject Investigations Discontinued or Referred for Prosecution Each Fiscal Year and the Percentage Referred for Prosecution.

 

Figure 15 was removed due to its size.  To see Figure 15, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 16:  Average Elapsed Days of Subject Investigations Discontinued and Referred for Prosecution Each Fiscal Year.[48]

 

Figure 16 was removed due to its size.  To see Figure 16, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 17:  Number of Subject Investigations Referred for Prosecution Each Fiscal Year for a Tax-Related or Nontax-Related Violation and the Percentage That Is Tax-Related.

 

Figure 17 was removed due to its size.  To see Figure 17, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 18:  Number of Subject Investigations Referred for Prosecution Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes.

 

Figure 18 was removed due to its size.  To see Figure 18, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 19:  Number of Subject Investigations Referred for Prosecution Each Fiscal Year by Principle U.S.C. Title.

 

Figure 19 was removed due to its size.  To see Figure 19, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 20:  Number of Subject Investigations Referred for Prosecution Each Fiscal Year by Type of Investigation:  Grand Jury or Nongrand Jury Investigation.

 

Figure 20 was removed due to its size.  To see Figure 20, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 21:  Number of Tax-Related and Nontax-Related Subject Investigations in the Pipeline Each Fiscal Year and the Percentage That Is Tax-Related.

 

Figure 21 was removed due to its size.  To see Figure 21, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 22:  Number of Subject Investigations in the Pipeline Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes.

 

Figure 22 was removed due to its size.  To see Figure 22, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 23:  Number of Subjects Convicted of and Sentenced for a Crime Each Fiscal Year.

 

Figure 23 was removed due to its size.  To see Figure 23, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 24:  Number of Subjects Convicted of a Crime Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes.

 

Figure 24 was removed due to its size.  To see Figure 24, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 25:  Number of Subject Investigations Initiated, Referred for Prosecution, Indicted, and Convicted Each Fiscal Year.  Because actions on a specific investigation may cross fiscal years, the data shown in investigations initiated may not always represent the same universe of investigations as that shown in other actions within the same fiscal year.

 

Figure 25 was removed due to its size.  To see Figure 25, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 26:  Number of Subjects Sentenced for a Crime Each Fiscal Year for a Tax-Related or Nontax-Related Violation and the Percentage That Is Tax-Related..

 

Figure 26 was removed due to its size.  To see Figure 26, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 27:  Number of Subjects Sentenced for a Crime Each Fiscal Year by Compliance Strategy Program and the Percentage That Is Legal Source Tax Crimes.

 

Figure 27 was removed due to its size.  To see Figure 27, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 28:  Number of Subjects Sentenced for a Crime Each Fiscal Year by Principle U.S.C. Title.

 

Figure 28 was removed due to its size.  To see Figure , please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 29:  Average Number of Months a Subject Is Incarcerated Each Fiscal Year by Compliance Strategy Program.  Incarceration may include prison time, home confinement, electronic monitoring, or a combination thereof.

 

Figure 29 was removed due to its size.  To see Figure 29, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 30:  Percentage of Investigations That Received Publicity Each Fiscal Year by Compliance Strategy Program.

 

Figure 30 was removed due to its size.  To see Figure 30, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 31:  Number of Paper and Electronic Returns Determined to Be Fraudulent or Potentially Fraudulent by the Criminal Investigation Function Questionable Refund Program.[49]  PY refers to processing year.

 

Figure 31 was removed due to its size.  To see Figure 31, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Figure 32:  Dollar Amounts of Fraudulent Refunds Identified and Stopped by the Criminal Investigation Function Questionable Refund Program.  Processing Year 2000 includes a refund fraud scheme that involved 1,672 tax returns with over $215 million in false refunds claimed and more than $214 million stopped.  Processing Year 2004 figures do not include 2 returns that claimed refunds totaling more than $1.8 billion.

 

Figure 32 was removed due to its size.  To see Figure 32, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Appendix VII

 

Management’s Response to the Discussion Draft Report

 

The response was removed due to its size.  To see the response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.



[1] For more information, see Appendix IV, report 3.

[2] See Appendix V for a glossary of terms used in this report.

[3] For more information, see Appendix IV, report 3.

[4] See Appendix V for a glossary of terms used in this report.

[5] United States Code (U.S.C.) Title 18 Sections (§§) 1956 and 1957 (2004) and U.S.C. Title 31 (Money and Finance) sections.

[6] Review of the Internal Revenue Service’s Criminal Investigation Division (Publication 3388; 4-1999), also known as the Webster Report.

[7] For more information, see Appendix IV, report 3.

[8] For more information, see Appendix IV, report 3.

[9] See Appendix VI, Figures 3 and 5.

[10] See Appendix VI, Figures 4, 11, 15, and 23.

[11] See Appendix VI, Figure 22.

[12] See Appendix VI, Figure 15.

[13] See Appendix VI, Figure 23.

[14] See Appendix VI, Figure 16.

[15] See Appendix VI, Figure 11.

[16] See Appendix VI, Figure 22.

[17] Total subject investigations include subject investigations currently under active investigation and those referred for prosecution and adjudication (pipeline).

[18] Coordination With the Department of Justice on Pipeline Inventory (Audit # 200710026).

[19] For more information, see Appendix IV, report 1.

[20] See Appendix VI, Figure 3.

[21] See Appendix VI, Figures 6 and 5.

[22] See Appendix VI, Figure 13.

[23] See Appendix VI, Figure 12.

[24] See Appendix VI, Figures 18 and 17.

[25] See Appendix VI, Figures 24 and 27.

[26] See Appendix VI, Figure 26.

[27] See Appendix VI, Figure 29.

[28] See Appendix VI, Figure 30.

[29] Includes new recruits, part-time special agents, field and Headquarters office managers and program analysts, and Lead Development Center and Fraud Detection Center special agents.

[30] Appendix VI, Figure 1.

[31] For more information, see Appendix IV, report 3.

[32] See Appendix VI, Figure 10.

[33] The function recently advised us it had begun to refer to these returns as “potentially fraudulent” because an actual fraud determination could not be made without the taxpayer’s explanation. 

[34] See Appendix VI, Figures 31 and 32.

[35] See Appendix VI, Figure 32.

[36] For more information, see Appendix IV, report 4.

[37] See Appendix VI, Figure 31.

[38] For more information, see Appendix IV, report 2.

[39] Internal Revenue Code § 6103 (2006).

[40] For more information, see Appendix IV, report 5.

[41] See Appendix VI, Figure 8.

[42] For more information, see Appendix IV, report 1.

[43] See Appendix VI, Figure 9.

[44] The Office of Audit Small Business Programs unit is conducting an audit to evaluate the Examination function’s fraud program and referrals to the Criminal Investigation function (Audit # 200630009).

[45] See Appendix V for a glossary of terms used in this report.

[46] In FY 2006, the function revised its calculation formula for direct investigative time on tax and tax-related investigations; therefore, the numbers reflected in Figures 2 and 3 may not agree with those in prior reports.

[47] During FY 2006, the function revised its formula for determining total inventory.  The new formula does not include subject seizure information or open primary investigations if they had a corresponding subject investigation.  As a result, the inventory numbers reported in Figures 10 and 11 for the prior fiscal years changed and may not agree with those in our prior reports.  The total inventory includes primary investigations not yet elevated to a subject investigation, open subject investigations currently being worked in the field office, and subject investigations that have been referred for prosecution (pipeline).

[48] The function revised its calculation formula in FY 2006 to include discontinued investigations that had been closed due to lack of resources.  As a result, the numbers reported in Figure 16 for prior fiscal years may have changed and may not agree with those in our prior reports.

[49] Due to the unavailability of the Electronic Fraud Detection System in Processing Year 2006, function management advised us they were unable to calculate the electronic and paper filed returns for Processing Year 2006.  As a result, the chart presentation for Figure 31 changed from those shown in our prior reports to include just total returns detected.