IRS referrals for tax-fraud prosecutions still falling in state, nation

A new report says the IRS is less likely than it has been in years to refer a taxpayer for criminal prosecution for tax fraud, a fact the agency attributes to “steep budget declines.” (Photo by via Creative Commons)

WASHINGTON – The number of taxpayers the IRS referred for criminal prosecutions fell last year to the lowest levels of the Obama administration, and the agency said it expects numbers will continue to drop in coming years.

Data compiled by TRAC, a Syracuse University-based database of federal records, showed that the rate of criminal referrals from the IRS fell nationally by almost 30 percent over the last two years.

In Arizona, the number of prosecutions stemming from those referrals also fell, TRAC data showed, from 69 in 2010 to 19 last year.

One tax watchdog said the agency is likely finding other ways to enforce tax laws without “hauling people into court.” But the IRS said the math is simple: “Several years of steep budget declines” have left the agency with too few investigators.

“There are many different ways to look at our criminal investigation statistics,” the IRS said in a statement Tuesday to Cronkite News. “From any perspective, it’s clear these numbers show that less agents mean less cases that can be worked and fewer criminals are brought to justice.”

The statement said that staffing in the IRS criminal investigations division is at its lowest level since the 1970s, with the 2,316 special agents on board at the end of fiscal 2015 representing a 6 percent drop from the year before. The agency said the 45 agents it had hired in the last three years have barely allowed it to keep up with attrition.

The statement said the IRS saw “numerous enforcement categories reach their lowest levels in a decade” last year, including criminal investigation.

-Cronkite News video by Samantha Witherwax

The TRAC report said the number of criminal investigators at IRS fell 16 percent from 2010 to 2015. It linked the drop in staffing to the drop in criminal prosecution referrals, which fell from 13.3 cases per million people in fiscal 2013 to 9.2 per million in fiscal 2015.

But Steve Ellis, vice president of Taxpayers for Common Sense, said the lack of support for the IRS is a problem of “their own making.”

“It’s not surprising that if you reduce the funding to the IRS … you reduce the funding for enforcement … then you’re going to get reduced numbers of enforcement actions,” Ellis said.

Another tax watchdog said the IRS has been starving the one department that it should be funding if it wants to head off criminal prosecutions in the first place: taxpayer services.

“You might get better compliance with the tax laws by putting more money into services for taxpayers, helping them to understand the law so that they will comply voluntarily in the first place,” said Pete Sepp, president of National Taxpayers Union.

“A court referral, a prosecution is probably the last stop, the last place we want IRS enforcement dollars to go,” Sepp said. “Because that means that all other efforts before have failed.”

The IRS statement said the agency’s fiscal 2017 budget request, if funded, would help it boost taxpayer services and other tax enforcement categories. It would also fund important information technology investments and related operations support.

But Sepp said that “tax-related prosecutions need to be monitored carefully.”

“The IRS has among the most strict enforcement powers and the broadest enforcement powers in the entire federal government,” he said. “We need to constantly oversee the agencies activities to make sure that innocent taxpayers aren’t being trampled in the process.”