Taxpayers Referred for Criminal Prosecution by IRS Reach New Low
The latest available data from the Justice Department show that during January 2018 the government reported receiving 135 new referrals for prosecution from the Internal Revenue Service. According to referral-by-referral data obtained by the Transactional Records Access Clearinghouse (TRAC), this number was down substantially from its peak four years ago. For the most recent twelve month period this meant that IRS referred only 1,824 taxpayers for criminal prosecution, compared with the same twelve month period four years ago when it had referred more than twice that number (3,896).
While there is considerable month-to-month variability, a time series graph clearly shows the extent of the decline. Indeed, IRS referrals have not been this low since the Center's tracking began in FY 1986 during the Reagan Administration.
One reason for this decline is that IRS has fewer criminal investigators as a result of congressional cuts to its annual appropriations. Since 2010, the number of IRS criminal investigators has fallen 22 percent, from 2,749 down to 2,153. But as the annual time series chart of IRS criminal investigators on the payroll at the end of each fiscal year shows, the drop off of IRS special agents available to investigate criminal violations of the tax laws was not as steep as the drop off in IRS criminal referrals.
What explained the more rapid drop in referrals than in staffing? To the extent that the criminal sentences for convictions resulting from IRS referrals provide an indirect measure of whether IRS concentrated on more important or complex cases during this period, no significant change was observed in the average prison sentence. Those convicted as a result of an IRS referral have received a prison sentence which was unchanged, averaging around 26 months.
There was, however, a slight rise in the median prison sentence during this period from around 12 months to 15 months. (This measure as compared to the average looks at what the middle sentence was. That is, half receive less, half receive more.)
The types of crimes that were the focus of IRS attention also showed modest change. For example, convictions for money laundering offenses dropped the most between FY 2014 and FY 2017 as compared with convictions for tax fraud.
During FY 2017 fully half (51%) of all convictions resulting from IRS referrals were for tax fraud, and 22 percent were for other types of white collar crime. Only 16 percent were for government regulatory offenses, chiefly money laundering. An additional 6 percent were for narcotics and drug offenses.
TRAC offers free monthly reports on program categories such as white collar crime, immigration, drugs, weapons and terrorism and on selected government agencies such as the IRS, FBI, ATF and DHS. For the latest information on prosecutions and convictions, go to http://trac.syr.edu/tracreports/bulletins/. In addition, subscribers to the TRACFed data service can generate custom reports for a specific agency, judicial district, program category, lead charge or judge via the TRAC Data Interpreter.