After Budget Cuts, the IRS’s Work Against Tax Cheats is Facing “Collapse”
October 1, 2018
The following are excerpts from the article:
Last year, the IRS’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 IRS, acknowledged at an NYU 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,” Fort said. With fewer cases, experts fear, Americans will get the message that it’s all right to break the law.
“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 IRS 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 IRS estimates. That’s enough to finance the departments of State, Energy and Homeland Security, with NASA tossed in for good measure. Unlike wage earners who have their income separately reported to the IRS, business owners are often on the honor system.
But the rate at which the agency audits tax returns has plummeted by 42 percent since the budget cuts started. Criminal referrals were always rare and are becoming rarer still, dropping from 589 referrals in 2012 to 328 in 2016. With the government conducting 1.2 million audits in 2016, that’s one criminal referral for roughly every 3,600 audits.
In addition, current and former IRS agents say that audits are not as intensive as they used to be. Because the IRS pushes agents to close audits more quickly, they make fewer requests for records and interviews.
Budget cuts have diminished the criminal investigation division, trimming the number of agents by a fifth since 2010. Recently, the IRS closed four of its 25 field offices, according to 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.
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