The IRS Criminal Investigation division found nearly $10 billion in tax fraud in fiscal year 2018—four times more than last year thanks to its focus on using data analytics.
The unit identified $9.7 billion in tax fraud in 2018, up from $2.5 billion in 2017. The team also found $10.4 billion in other financial crimes, a steep hike from the $1.1 billion identified in fiscal year 2017.
The report comes as tax administrations around the world are trying to combat tax evasion and cross-border financial crimes by using data at their fingertips. The U.S., U.K., Canada, Australia, and the Netherlands formed the Joint Chiefs of Global Tax Enforcement earlier this year to share data, intelligence, technology, and methods to fight offshore tax crime.
“We prioritized the use of data in our investigations in fiscal 2018,” Don Fort, chief of the Criminal Investigation division, said in a statement. “The future for CI must involve leveraging the vast amount of data we have to help drive case selection and make us more efficient in the critical work that we do. Data analytics is a powerful tool for identifying areas of tax non-compliance.”
The number of special agents working on the CI team fell below 2,100 by the end of the unit’s 2018 fiscal year because of retirements and hiring freezes, leading CI to look at everything from bank records to the dark web to help investigate cases, according to the statement.
‘Tip of the Iceberg’
The IRS’s emphasis on using data “should terrify those who play games with their taxes,” Jeffrey Neiman, a partner at Marcus Neiman & Rashbaum LLP in Fort Lauderdale, Fla., said, adding it was the best way for the IRS to continue enforcement activity after years of budget cuts.
“We know that corporate America has become geniuses at going through customer data to make them more efficient in marketing. Just imagine if the IRS was half as efficient with their own data,” Neiman said. “We’re going to be dealing with a completely different animal.”
The figures are also a testament to the Department of Justice’s crackdown on U.S. taxpayers hiding money in Swiss banks, because a “huge amount of money” is now entering the system, said Neiman, who worked at the DOJ’s tax and criminal divisions and in investigations into Switzerland’s largest bank, UBS Group AG.
But the combined $20 million discovered in fiscal 2018 is “just the tip of the iceberg,” according to Betty J. Williams, managing shareholder of Law Office of Williams & Associates, P.C. in Sacramento, Calif.
“Just as quickly as criminals become more crafty in the way they commit crimes, the Criminal Investigation division is trying to keep up with how to detect those crimes. And while they’re catching more criminals, there are more criminals to catch,” said Williams, who works on criminal tax controversy issues.
Criminal tax attorney Robert J. Fedor of Robert J. Fedor Esq., LLC in Cleveland said the CI division seemed to have increased focus on employment tax obligations, corruption, and non-filers, while it decreased focus on cases related to identity theft issues. That shows “the revenue generated from employment tax investigations and restitution is much greater than ID theft restitution,” Fedor said.