TaxProf Blog

Editor: Paul L. Caron, Dean
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Friday, October 5, 2018

NY Times: Hobbled by Budget Cuts, The IRS Brings Fewer Tax Fraud Cases; Provided You’re Not An Associate Of President Trump, There May Never Be A Better Time To Be A Tax Cheat

New York Times, Hobbled by Budget Cuts, the I.R.S. Brings Fewer Tax Fraud Cases:

Tax evasion is at the center of the criminal cases against two associates of the president, Paul Manafort and Michael D. Cohen. The sheer scale of their efforts to avoid paying the government has given rise to a head-scratching question: How were they able to cheat the Internal Revenue Service for so many years?

The answer, researchers and former government auditors say, is simple. The I.R.S. pursues fewer cases of tax evasion than it did less than 10 years ago. Provided you’re not a close associate of President Trump, there may never be a better time to be a tax cheat.

Last year, the I.R.S.’s criminal division brought 795 cases in which tax fraud was the primary crime, a decline of almost a quarter since 2010. “That is a startling number,” Don Fort, the chief of criminal investigations for the I.R.S., acknowledged at a New York University tax conference in June.

Bringing cases against people who evade taxes on legal income is central to the revenue service’s mission. In addition to recouping lost revenue, such cases are supposed “to influence taxpayer behavior for the hundreds of millions of American citizens filing tax returns,” Mr. Fort said. With fewer cases, experts fear, Americans will get the message that it’s all right to break the law.

Starting in 2011, Republicans in Congress repeatedly cut the I.R.S.’s budget, forcing the agency to reduce its enforcement staff by a third. But that drop doesn’t entirely explain the reduction in tax fraud cases.

Over time, crimes only tangentially related to taxes, such as drug trafficking and money laundering, have come to account for most of the agency’s cases. “Due to budget cuts, attrition and a shift in focus, there’s been a collapse in the commitment to take on tax fraud,” said Chuck Pine, who used to be the third-ranking criminal enforcement officer at the I.R.S. and is now a managing director at BDO Consulting. “I believe there are thousands of individuals who have U.S. tax obligations and are not complying with U.S. tax laws.”

The result is huge losses for the government. Business owners don’t pay $125 billion in taxes each year that they owe, according to I.R.S. estimates.That’s enough to fund the Departments of State, Energy and Homeland Security, with the National Aeronautics and Space Administration tossed in for good measure. Unlike wage earners who have their income separately reported to the I.R.S., business owners are often on the honor system. ...

Budget cuts have diminished the criminal investigation division, trimming the number of agents by a fifth since 2010. Recently, the I.R.S. closed four of its 25 field offices, according to Mr. Fort. In New York State, home of the country’s financial industry, the revenue service is down to 161 agents, about a hundred fewer than it had 15 years ago.

It doesn’t help that many agents prefer chasing flashier crimes than tax evasion. Rob Warren, a research associate at Catholic University who previously spent a quarter-century at the I.R.S., interviewed 30 former special agents. He asked them which of their cases had been their favorite. The answers, Mr. Warren said, typically were only tangentially related to taxes.

“It was usually narcotics, Ponzi schemes, some public corruption,” he said. “Agents loved Ponzi cases because there was a real victim, an old lady or something like that.”

IRS News, Tax | Permalink


And could the IRS's reduced funding have something to do with its efforts to silence conservative and pro-Israel non-profits? Almost certainly.

Posted by: Michael W. Perry | Oct 5, 2018 12:55:00 PM

Does the New York Times know who was President of the United States during most of these years? Hint: I can tell them. I think who was President has a lot to do with the course of the country. So, NYT, feel free to call me to discuss.

Posted by: Abe Carnow | Oct 5, 2018 3:40:17 PM

Per Tax Notes Today (10/06/18), IRS plans to hire 250 new CID Special Agents over next 18 months. Also, IRS leaning more to artificial intelligence to identify tax cheats.

Posted by: Bradley Burnett | Oct 6, 2018 4:08:34 AM


Which branch of government controls the budget? And which party has controlled Congress since 2010? Back to middle school with you.

Posted by: Unemployed Northeastern | Oct 7, 2018 10:57:08 PM

And yet, the IRS' own tax gap estimate hasn't budged. It was essentially the same 15 years ago, and 10 years ago, and probably today if they did an estimate...

Posted by: MM | Oct 8, 2018 8:36:09 AM