Sidelining IRS’s Criminal Tax Counsel Would Harm Taxpayers

Any institution tasked with sensitive work needs a devil’s advocate to reflect the gravity of the task and a commitment to getting it right—and ultimately to ensure that decision-making remains sound and credible.

So it’s concerning that the Treasury Department reportedly plans to revise IRS procedures so that attorneys at the IRS’s Office of Chief Counsel have less of a role in vetting criminal tax prosecutions.

Before any federal tax offense is charged or even investigated, law enforcement must comply with detailed procedures, more so than with most other crimes. These procedures exist to protect taxpayers.

A tax case is intrusive. Tax investigators pull information that taxpayers are compelled to report on their returns, and they use that data to make broad and detailed requests to financial institutions, credit bureaus, business partners, accountants, and customers. Investigators populate voluminous spreadsheets, eventually painting a comprehensive portrait of their target’s financial life.

When a tax crime is charged, the taxpayer’s financial portrait is laid bare, picked over, and publicly scrutinized, with large financial penalties and often substantial jail time hinging on the outcome of tax assessments and on determinations of the alleged tax cheat’s state of mind. The government wields tremendous power in such a case.

As the comic books teach us, with great power comes great responsibility. And as James Madison could’ve told you, responsibility is most reliably exercised when stakeholders with distinct ambitions, views, and incentives are involved.

The government’s key stakeholders in criminal tax cases include the Criminal Investigation component of the IRS, or IRS-CI—the only federal law enforcement agency with jurisdiction over tax crimes—and the various US Attorneys’ Offices that handle most criminal tax litigation on a day-to-day basis.

But, at least historically, there have been two other important players.

First, the Department of Justice’s Tax Division (where I used to work) has played a critical gatekeeping role. Even where US attorneys are doing the litigating, the Tax Division must approve any tax charge before an indictment is sought.

In fact, a grand jury investigation can’t even be opened on a potential tax offense without Tax Division approval. The idea is to bring a specialist’s eye to more complex tax questions and to ensure uniformity in tax enforcement across the country.

The DOJ has committed to dismantling the Tax Division, but it isn’t yet clear how this will play out—or who will inherit these gatekeeping functions. The Tax Division’s authorities are set forth in regulations that have yet to be revised.

The final player is the IRS’s Criminal Tax Counsel, a component of lawyers who provide analysis to the special agents and supervisors at IRS-CI. Critically, Criminal Tax reports up to the IRS’s Chief Counsel and not to the Chief of IRS-CI.

That independence is by design, meant to ensure the legal advice rendered to IRS-CI is candid. Yet Criminal Tax merely makes recommendations about what special agents should do in a case. It can’t change or reject proposed charges in the way that Tax Division can. It simply opines as to whether the requirements for criminal liability are met, or whether there are procedural issues or evidentiary shortcomings in a case.

But those opinions are invaluable. Ordinarily, in any potential prosecution, DOJ’s Tax Division receives a report from IRS-CI setting forth proposed charges, together with significant items of underlying evidence. With this packet comes a memorandum from Criminal Tax, which contains the IRS lawyers’ own analysis and recommendations. These usually concur with IRS-CI’s, but not always.

As a Tax Division attorney, I reviewed hundreds of prosecution referral packets to make my own assessments and recommendations to the assistant attorney general about what, if any, charges should be authorized in a case. Virtually every time, I read Criminal Tax Counsel’s memo first. If the case had problems, it most likely would be highlighted there. The Criminal Tax Counsel attorneys were more in the weeds than I could get in the brief time I had to conduct a case review.

I knew that they were more removed and detached than the IRS-CI special agents, bringing a lawyer’s temperament—and often, the skeptical scrutiny of a devil’s advocate—to contextualize the agents’ natural, essential zeal to get their man.

It would be a shame if this perspective were lost. If Tax Division’s role is also diminished, some taxpayers would be charged irresponsibly, accused of crimes on tenuous evidentiary bases. In other cases, fixable problems with a case would go unspotted, threatening the viability of worthy prosecutions.

When an institution dispenses with a devil’s advocate, it betrays a lack of confidence in doing things the right way. If this idea really is rattling around the halls at the Treasury, then someone should nip it in the bud.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Joseph A. Rillotta is a partner at Meadows Collier and has served as a prosecutor with the Department of Justice’s Tax Division and as counselor to former IRS Commissioners John Koskinen and Danny Werfel.

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