IRS Criminal Investigation Chief Richard Weber made it sound almost simple. “Whether we are talking about complex offshore tax evasion cases, employment taxes, or other core mission taxes, or even a cyber case involving the dark net — the investigation methods are basically the same,” he said in the agency’s 2016 annual report. “We follow the money and there is simply no one better at doing that than Internal Revenue Service – Criminal Investigation … special agents and the professional staff that support and carry out our mission on a daily basis.”
IRS criminal cases comprise some of the most intriguing and important investigations on any court docket. While tax fraud and evasion schemes are obvious examples of IRS cases, the Criminal Investigation division works a steady stream of financial institution, corporate, bankruptcy, and healthcare fraud cases. It helps put corrupt public officials behind bars by following where the money flows. The division also works outside the country, tracking narcotics and terrorism, money laundering, and Bank Secrecy Act violations.
In the Trump era of proposed de-regulation in Washington, the administration has promised to cut the size of the federal government. Unfortunately, cuts to the IRS Criminal Investigation division would send precisely the wrong message to the taxpaying public. Fraudsters would certainly look forward to getting even less scrutiny.
The reality is that IRS-CI has been cutting its staffing size for years. It has years of experience of trying to do more with less, doing what senior officials generously call “strategic investments in personnel.” The division has also improved its use of technology and increasingly partners with law enforcement in the U.S. and abroad, to compensate for reduced staffing.
But the clear message being sent in the 2016 annual report is that decreases in staff can equal fewer cases in the pipeline. With 2,217 special agents as of September 30, 2016, the number of agents in the division was down more than 4 percent from a year earlier. Professional support staff saw a similar decline. Did that save money, or cost taxpayers?
Although you can sometimes do more with less, more often you wind up doing less with less. There was plenty of activity in fiscal year 2016, but it’s undeniable that the division started fewer investigations and brought fewer cases to conviction and sentencing in 2016 than in 2015 or 2014. And IRS cases continue to get more complex.
Since its historic high of 3,363 agents in 1995, IRS-CI division staffing has declined steadily. Just in the past five years, agent staffing has decreased 19 percent. Weber and other high-level IRS officials see a clear link between reduced staffing and fewer cases. It takes trained professionals and time to follow the money in the modern era.
It’s no big secret that tax fraud prosecutions directly impact voluntary compliance. Big fraud cases provide a reminder — usually via the mainstream press — that paying taxes is for everyone. (Those who can afford offshore accounts may be less concerned, but when there are leaked documents, there is risk.)
These days, the twenty-three IRS field offices spend a large amount of time and resources investigating identity theft and the compromise of large data collection systems. It’s part of a nationwide effort to stem the flow of fraud emanating from data breaches, but it takes away from more traditional work.
Whether it’s identity theft fraud, tax fraud food stamp fraud, phony refund schemes, or fraud perpetrated by return preparers, fraud impacts lawful taxpayers because it reduces federal revenues and increases federal deficits. Vigorous investigation not only improves the federal revenue stream; it also sends the message that cheaters don’t always prosper, and that legitimate occupations don’t carry the risk of being jailed.
IRS Criminal Investigation also plays an integral role in working white-collar investor fraud schemes that cost citizens countless millions each year. One example: the case of Dave Clark, former CEO of Cay Clubs vacation rentals. Before he was sentenced to 40 years in prison, Clark was a key participant in a hustle that took investors seeking vacation condos out of $300 million. Las Vegas was among the locations where the condos were sold and oversold.
Bottom line: the division plays an invaluable law enforcement role. If government cost-cutters in the Trump era are looking for ways to reduce the federal deficit, they’d do all taxpayers a favor by expanding IRS Criminal Investigation’s staffing. So why do I have the uneasy feeling that the reverse is more likely to happen?
John L. Smith is a longtime Las Vegas journalist and author. Contact him at jlnevadasmith@gmail.com. On Twitter: @jlnevadasmith.
