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IRS Criminal Investigation snapshot reflects digital shift

The agency overview highlights the amount of data seized during tax fraud and other financial crimes investigations in the last year: 1.76 petabytes. How much is that? It is huge and equivalent to 4,000 digital photos a day over your lifetime. Our brains are estimated to store memory data equivalent to 2.5 petabytes.

Tax crimes related statistics included 1,714 tax crime investigations with prosecutions recommended in 1,050. The overall agency conviction rate remains high at about 92 percent. Identified tax fraud accounted for nearly $10 billion. In this post, we discuss continuing areas of focus.

Abusive tax schemes

The IRS taxes worldwide income. It’s clear that offshore account compliance remains a priority even though the voluntary amnesty program ended in September. In these cases, domestic or international structures – trusts or foreign corporations – obscure true ownership and control of assets, so that a U.S. taxpayer avoids tax obligations.

Employment tax fraud

Paying employees in cash is the classic form of employment tax fraud. Some of the others listed include:

  • Employee leasing: Professional employer organizations (PEOs) are a co-employment model, however, problems arise if the PEO fails to correctly calculate or pay state or federal taxes
  • Failing to file or filing falsified payroll tax returns: These violations can result in a civil Trust Fund Recovery Penalty equal to the amount of unpaid payroll (trust fund) taxes against any person with authority over funds who directs disbursements, including Payroll Service Providers (PSPs) and PEOs

Allegations of pyramiding continue to draw close scrutiny from IRS-CI. These situations occur when a business owner accrues a significant liability after collecting but failing to forward payroll taxes, then starts a new business entity.

Criminal tax fraud referrals

A fine line often exists between a mistake or negligence and willful action (criminal conduct). Most contact with the IRS starts with a tax audit. Then an auditor who believes he or she has uncovered evidence of criminal activity - multiple sets of books/records, improper deductions for business expenses that appear personal (first-class vacation travel, Bottega Veneta bags or visits to a spa) or hiding money in an offshore account - will refer a case for investigation.

With the high IRS-CI conviction rate, it is crucial to resolve issues before an investigation or in the early stages. At the first notice of an IRS audit seek the counsel of an experienced tax attorney.

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