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IRS Criminal Investigation Is Still Active Despite Fewer Investigations – Ask Caterpillar

Forbes IRS Watch - Mon, 04/10/2017 - 14:57

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IRS Criminal Investigation (CI) recently released their 2016 Annual Report. The report tries to put the best face on the continually diminishing number of investigations. From 2013 through 2016, the number of investigations initiated by IRS CI has dropped an amazing 36%. During that same time period, the number of IRS Special Agents has dropped almost 13%.

The investigations initiated are only a portion of the story. Out of 15 identified categories at the end of the annual report, the top category for the number of investigations initiated is Money Laundering (1201), followed by Narcotics (788). The next highest category of investigations initiated is Identity Theft (573) and then Bank Secrecy Act violations (504).  The problem so far is that these categories exclude the vast majority of old fashioned run of the mill tax cheats.

Where do the regular mom and pop tax cheats show up? They typically pop up in the Questionable Refund Program (495), International Operations (221), Non-Filer (206) and Employment Tax (137).  Rounding out the typical categories are Corporate Fraud (62) and Abusive Tax Scheme (56).

What do these investigation numbers show? They show that the dwindling resources of IRS  are not being focused on old fashioned tax cheats. Many tax professionals wonder how low the resources of IRS CI will go before a portion of the taxpaying public simply stops trying to comply with the tax laws and actively works to routinely evade them. Some tax professionals believe we could already be in a dangerous era of criminal noncompliance that is going unchecked.  No matter how low the resources and initiated investigations for IRS Criminal Investigation dip, it is important to remember that once an IRS investigation of you or your business commences, the odds of being investigated are 100%.

So the question is how does IRS CI make a statement with so few resources to complete its mission of having tax prosecutions directly impact voluntary compliance via criminal deterrence? The real answer is to increase IRS budgets so the IRS can support a strong voluntary compliance tax system through increased examinations and investigations. Unless (or until) staffing is increased, IRS Criminal Investigation will pursue high impact cases to make taxpayers all over the country remember that Uncle Sam is looking for taxpayers whom it believes are intentionally violating the tax laws just as they did with Caterpillar.

It has been widely reported that the IRS (with other U.S. Government agencies) recently raided Caterpillar’s U.S. Headquarters.  Many speculate the focus of the action is Caterpillar’s potentially aggressive tax avoidance strategies. Will other taxpayers across the country think twice before taking similar aggressive actions; probably yes.  This remains true even though the Caterpillar case is merely at the investigative stage when the target of the IRS criminal investigation is presumed innocent and the investigation should be a private matter.  Since the IRS does not identify investigations, as happens all too often, the public sees and takes pictures of the raid (search and seizure) in real time and when as with the Search And Seizure Warrants themselves (without the accompanying affidavits), the documents are on the internet. Caterpillar identified in their recent public 10-K that the company had previously received subpoenas requesting documents and information including relating the purchase and resale of replacement parts by Caterpillar Inc. and non-U.S. Caterpillar subsidiaries, dividend distributions of certain non-U.S. Caterpillar subsidiaries, and Caterpillar SARL and related structures. The Company also stated in the same filing that it  is cooperating with the government. Finally, it is interesting to note that Caterpillar Inc. confirmed on March 22, 2017 that the recent search warrants are not part of a previously disclosed $2 billion tax case that involves the company’s offshore dealings.

Will everyday taxpayers pay attention and change their behavior this tax season?  I believe they will. While President Trump publicly proclaimed, “I love Caterpillar,” just seven days before the IRS raid, most taxpayers would not want to be the focus of that type of attention.

 

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