The IRS Criminal Investigation Division’s Areas of Focus

The IRS Criminal Investigation Division, or CI, is the part of the IRS that investigates potential criminal violations of the tax code and other financial crimes. They have a lot of different areas that they focus their investigations on.

Abusive Return Preparer Program

One big area for CI is going after abusive tax return preparers. These are preparers who intentionally prepare false returns to get bigger refunds for their clients, or who mislead taxpayers about their eligibility for credits and deductions. Some common schemes include:

• Claiming fake deductions and expenses on Schedule A and Schedule C
• Claiming false dependents or falsely claiming head of household status
• Fabricating or inflating business income to maximize credits like the Earned Income Tax Credit

CI investigates return preparers who show patterns of this type of fraud across multiple returns. They use data analytics to identify suspicious preparers for investigation. Then they may do undercover audits by having agents pose as customers looking to get fraudulent returns prepared [1].

Employment Tax Evasion

Another major focus area is employment tax evasion. This is when employers intentionally fail to pay over payroll taxes that were withheld from employees’ wages. Often this involves treating employees as independent contractors, paying them off the books, or filing false employment tax returns.

CI targets the worst offenders who repeatedly evade payroll taxes as part of their business model. These cases often involve [2]:

• Construction, restaurants, bars, nail salons, and other cash-heavy businesses
• Misclassifying employees as independent contractors
• Paying employees off the books with cash
• Filing false employment tax returns

These cases can involve millions in unpaid taxes over multiple years. CI conducts surveillance, interviews witnesses, and gathers records to prove business owners intentionally evaded payroll taxes they knew were due.

Identity Theft Refund Fraud

Identity theft refund fraud is a huge problem investigated by CI. This involves fraudsters stealing Social Security numbers and filing fake tax returns to claim refunds. Some schemes include:

• Filing returns early with stolen SSNs before the real taxpayers file
• Creating fake W-2s to show false wages and withholding
• Claiming bogus dependents and credits like EITC

CI uses data analytics to spot likely identity theft returns and trace them back to the preparers involved. They may do undercover audits to gather evidence against fraudulent preparers participating in these schemes.

Offshore Tax Evasion

CI also investigates taxpayers with offshore accounts and assets used to evade taxes. Examples include:

• Not reporting foreign accounts on an FBAR
• Not reporting foreign income on a U.S. return
• Routing U.S. income through shell companies in tax havens

CI relies on whistleblowers and leaks of offshore account data to identify evaders. They dig through records, interview witnesses, and gather evidence to prove willful tax evasion and filing of false returns.

Other Financial Crimes

While tax crimes are the main focus, CI also investigates other financial crimes including[5]:

• Money laundering
• Bankruptcy fraud
• Healthcare fraud
• Public corruption

These cases often overlap with tax crimes like employment tax evasion or offshore tax evasion. CI works with other federal agencies like the FBI and Department of Justice on these cases.

How Investigations Get Started

There are a few main ways CI investigations get started[2]:

• Referrals from civil side of IRS
• Information from informants
• Data analysis pointing to suspicious activity
• Undercover audits and operations

A review team determines if an investigation is warranted based on the Criminal Tax Manual policies. Then a special agent is assigned to start gathering records, interviewing witnesses, surveilling suspects, and building a case.

Putting Together a Case

Once an investigation is started, CI gathers evidence to document the tax crime and prove intent. This can include[3]:

• Interviewing suspects, witnesses, informants
• Obtaining business, bank, and other financial records
• Surveillance and undercover operations
• Tracing funds through accounts

The special agent puts together a report documenting the evidence and elements of the crime for prosecution. CI’s goal is to develop evidence that will lead to a conviction.

Working With Prosecutors

After completing an investigation, CI provides a report and evidence to IRS attorneys or the Department of Justice for prosecution. For major cases they may work with federal prosecutors to obtain[4]:

• Indictments from a grand jury
• Plea agreements
• Search and arrest warrants
• Summonses for records and testimony

Prosecutions can lead to criminal fines, restitution, asset forfeiture, and imprisonment for convicted tax criminals.

Oversight and Delegation of Authority

CI follows procedures in the Internal Revenue Manual to safeguard taxpayer rights. Special agents must obtain approval at various steps in an investigation. This oversight includes [6]:

• Case initiation reviews
• Approval before contacting taxpayers or third parties
• Reviews of special agent reports
• Consultation with IRS attorneys on prosecutions

This delegation of authority provides checks and balances to ensure CI investigations are proper and taxpayers are treated fairly.