The Internal Revenue Service is seeing some success in its fight against identity theft and tax fraud despite successive rounds of budget cuts.
The IRS’s Criminal Investigation unit released itsannual report Tuesday, showing the agency has been making progress in areas such as ID theft, international tax fraud, tax return preparer and questionable tax refund fraud, public corruption, Bank Secrecy Act violations, money-laundering investigations and terrorist-financing cases.
“Generally speaking, ID theft continues to be one of our top priorities,” said IRS Criminal Investigation Division chief Richard Weber during a conference call with reporters Wednesday. “Over the past year we’ve spent about 17 to 18 percent of our investigative time just working on ID theft and tax refund fraud investigations. We’re around the same rate of investigative time that we spent in the past year as we did last year.”
He noted that the civil side of the IRS is also doing a better job at stopping fraudulent tax refunds from leaving the front door. “We have additional filters that are in place, and after this filing season, we’ll be in a better position to know specifically how much we were able to stop from leaving the Service, but I do believe that we made tremendous progress on the pre-refund stage,” said Weber. “In terms of the criminal investigations, I think we’ve made tremendous progress as well. We had a lot of significant cases that really highlight the sentences of some of these ID theft criminals. We’ve had sentences ranging from 40 months to over 240 months.”
Some of the criminal activity is now seen as international in scope. “We believe that we’re seeing some trends in terms of some of the street-level cases that we saw a couple of years ago morphing into some larger international type cases that we’re focusing our time on, as well as recently we’re seeing some of the data breach ID theft refund fraud cases,” said Weber. “So although I think we probably worked fewer ID theft cases this year, I think over the next year we’re still going to be involved in this area, and we’re looking closely at some of these larger data breach type cases.”
He defined data breaches as cases in which there has been an attack on a company’s computer infrastructure and criminals are attempting to steal personally identifiable information, such as Social Security numbers and W-2 information. “The reason why that is of great concern to us in CI is because if someone is going to end up stealing real information from either funeral services or software companies, or [other] legitimate businesses, it’s going to be difficult for our filters to catch that type of fraud,” said Weber. “We are trying to work closely with the private industry to get a good handle on this, but our commitment to working on ID theft is as strong as ever.”
While on a national basis, the average is about 18 percent of IRS CI’s investigative time spent on identity theft and tax refund fraud investigations, in areas such as Tampa and Miami, Fla., where identity theft-related tax fraud has been rampant, nearly 50 percent of IRS CI’s time is spent working on ID theft cases.
“We’ve seen a drop over the last year,” said Weber. “I think it was closer to 55 percent for a time last year and the year before. It’s under 50 percent now, but it’s still a significant area that we’re focusing on and will continue to devote resources to.”
The annual report includes case summaries that represent a wide range of CI investigations, including international cases. Two of the highest-profile cases this year, involving Credit Suisse and Bank Leumi, are included in the report. In the largest criminal tax case ever filed, Credit Suisse pleaded guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and agreed to pay a total of $2.6 billion.
Following the Credit Suisse investigation, CI led the case against Bank Leumi Group, a major Israeli international bank that admitted to conspiring to aid and assist U.S. taxpayers to prepare and present false tax returns. The agreement marks the first time an Israeli bank has admitted to such criminal conduct. Bank Leumi Group will pay the U.S. a total of $270 million and cease to provide banking and investment services for all accounts held or beneficially owned by U.S. taxpayers.
The report also highlighted how successive rounds of budget cuts have put a dent in criminal investigation activity by the IRS (see IRS Opened 19% Fewer Criminal Cases in 2014, Report Says).
Weber noted that the agency has been facing budget challenges in recent years. In the past five years, CI’s staff has been reduced approximately 11 percent, bringing staffing to levels not seen since the 1970s.
“We’re projected at the end of this fiscal year, fiscal year 2015, to have 2,300 special agents,” said Weber. “We’ve lost about 11 percent of our special agent workforce over the last several years. We lose anywhere from 120 to 160 special agents per year due to retirement, and we’re hiring no special agents this current year. Our last special agent class graduated from the academy just a few weeks ago and that gave us 23 special agents. When it comes to our special agent resources, we are significantly down in resources. We’re at the same levels that we were at in the 1970s, but when you look at the cases we’re working and our investigative priorities and our mandate, it’s quite tremendous.”