IRS CRIMINAL INVESTIGATION DIVISION FACTS AND CASE EXAMPLES

The IRS’ (Internal Revenue Service) Criminal Investigation (CI) division issues informative reports for every fiscal year in order to highlight its main areas of focus. There were some important issues highlighted in the report for fiscal year 2013 published earlier this year in February. There was a 12.5% increase from 2012 in criminal investigations completed in 2013. Prosecution recommendations increased by 17.9% and convictions increased 25.7% from last year. One important point to note from the CI report is the staggeringly high conviction rate – a whopping 93.1%. Once convicted, 84.9% of those charged received sentencing. 80.1% of those sentenced went to prison; the rest received a combination sentencing of federal prison, halfway house or home detention.

A large majority of the cases investigated by the Criminal Investigation division of the IRS stem from fraud referrals provided by the civil IRS divisions such as Small Business/ Self-Employed division, Wage and Investment division and Large Business division. Criminal Investigators and special agents use research techniques to investigate several charges such as underreporting or omitting (“skimming”) income, falsifying records in business books, claiming personal expenses as business, claiming false deductions, and hiding or transferring assets in foreign account to avoid payment of taxes.

Some examples of cases prosecuted last year include the following:

An Idaho home builder was sentenced to 27 months in prison for concealing business receipts between 2005 and 2008. The builder directed some of his customers to make checks payable to him rather than his corporation. He then ensured that the checks were deposited to his personal account. He also had to pay a restitution of $429,000.

Failure to file and pay taxes can cost taxpayers dearly, as reflected by the conviction of Robert D. Forsyth, a physician from Nevada, who was ordered to pay $306,171 and sentenced to 27 months in prison. Forsyth earned income from 1999-2008 from his medical practice, expert witness fees and social security benefits, but he did not file taxes and therefore failed to report his income. He deposited all his income in a third party business account and primarily used cash to avoid being under the IRS scanner.

CI also has special agents in 10 foreign countries, including China, Colombia, Barbados, Germany, Canada, Australia, Panama, England, The Netherlands and Mexico. The International Lead Development Center (ILDC) specifically focuses on researching potential offshore criminal investigations.

Edward J.S. Picardo, a surgeon from South Dakota, was sentenced to prison by a federal jury for hiding his earning in foreign accounts in nations such as Ireland, Hungary, Cyprus, Isle of Man, Jersey and Guernsey. All of the money in these offshore accounts, totaling to over $ 1 Million, was eventually deposited into a trust in the name of a corporation set up for Picardo in Nevis, a Caribbean island.

Peter Troost of Skokie, Illinois was sentenced to 12 months and 1 day in prison. He was accused of transferring hundreds of thousands of US dollars from 1999 to 2009. He evaded taxes on income and interest income. He had to pay $1,039,343 in back taxes in addition to $32,500 in fees. Similarly, Sameer Gupta on Newark, New Jersey was sentenced to 19 months in jail and assessed a $20,000 fine in addition to $259,045 FBAR penalties. Gupta diverted $822,916 in income from his wholesale mnerchandise business to 17 different business and personal accounts. He then transferred more than $250,000 of this money into six different offshore accounts in HSBC India. He also failed to file FBARs from 2006 through 2008.

These specific cases demonstrate that in 2013, Fraud Referral, International Tax Fraud and Voluntary Disclosure Program were some of the important areas of focus for the Criminal Investigation branch of the IRS. As noted previously, the CI division’s conviction rate is alarmingly high. If you are ever contacted by the IRS, immediately retain counsel before you speak to the IRS. The Offshore Voluntary Disclosure Program (OVDP) is reaching its deadline soon. Admission into the OVDP program can help you avoid large penalties and prosecution if you have unfiled FBARs or unreported foreign income.