DOJ Tax’s Dissolution Forces a High-Stakes Reset for IRS and DOJ

With the Department of Justice’s Tax Division now formally dissolved, US tax enforcement is entering a new era. Given the Division’s central role in maintaining the delicate balance between voluntary compliance and effective enforcement—a balance that underpins the entire tax system—a post-mortem is essential to keep voluntary compliance effective in this new culture.

The partnership between the IRS and DOJ Tax was the cornerstone of the US voluntary compliance system. The synergistic relationship between IRS and DOJ Tax was like a delicate ecosystem—highly susceptible to change. With the considerable changes to both the IRS and DOJ in 2025, it is crucial to understand the importance of this synergistic relationship; what made it so successful; and what effect reduced staffing, limited resources, and institutional realignment could have on the US tax system as a whole.

At the very least, understanding what the Tax Division accomplished, and why it worked, is critical to ensuring that the newly created “Tax Litigation Branch” within the Civil Division and “tax section” in the Criminal Division carry forward its most effective strengths.

Voluntary Compliance: The Cornerstone of the US Tax System

One of the fundamental features of the US tax system is the concept of voluntary compliance, which relies on taxpayers voluntarily reporting their income, deductions, and other taxable events accurately. This system has worked largely because of the trust that taxpayers have in the government’s ability to fairly enforce the tax code and address violations.

At the core of the US voluntary compliance system are the IRS and the DOJ, two pivotal entities whose collaboration is crucial to maintain integrity, ensure fairness, and uphold the law. The IRS is responsible for tax administration, collecting revenue, and reinforcing the mandate that taxpayers comply with the law. The DOJ plays a critical role in prosecuting tax fraud and other criminal tax violations, as well as carrying out civil enforcement for the IRS in US district courts.

As the litigator, DOJ embodies the public-facing representation of tax enforcement. Thus, the synergy between these two institutions is essential to ensuring that the US tax system functions, and that there are real consequences for those who attempt to circumvent the law. Voluntary compliance only works if there is a robust system of enforcement in place to deter, detect, and punish those who attempt to evade taxes. This is where the IRS and DOJ collaboration becomes crucial.

The IRS, through its vast network of auditors and investigators, is responsible for identifying potential instances of tax fraud or underreporting. When serious criminal violations are identified—such as willful tax evasion, money laundering, or other forms of financial fraud—it is the DOJ that steps in to pursue criminal prosecution, making offenders face the full weight of the law.

IRS and DOJ Tax: A Symbiotic Relationship

The relationship between the IRS and the DOJ is rooted in the shared goal of maintaining the tax system’s integrity. The IRS administers the tax laws and finds itself in Tax Court on a number of matters. DOJ handles civil and criminal cases that are referred to it by the IRS. This division of responsibilities is essential for the efficient functioning of the tax system.

The IRS has a range of tools at its disposal for enforcing compliance, from audits to levies and liens. When it becomes clear that an individual or organization is intentionally evading taxes through fraud or other illegal means, the case may be referred to the DOJ for criminal prosecution. This is especially important in cases of willful tax evasion, where the individual intentionally avoids paying taxes by underreporting income, hiding assets, or creating false documents.

When the IRS first started working with DOJ, it was clear that having a coordinated approach—especially in complex cases like offshore tax evasion—was vital. Our IRS team would often come across complex cases with intricate webs of offshore trusts and shell entities developed over decades to hide millions in assets. The amount of legal and financial maneuvering required to trace that money was immense. Here, the symbiotic nature of the relationship becomes clear: The IRS brings the financial aptitude and technical knowhow, and the DOJ brings the prosecutorial muscle and the legal expertise gained from its decades-long history of handling tax cases.

The DOJ’s involvement is critical in prosecuting those who deliberately break the law so that the guilty parties face appropriate consequences. Prosecution for tax crimes serves as a deterrent to others who may be considering engaging in similar illegal activities. It reinforces the public’s confidence in the tax system, showing that those who attempt to cheat the system will face serious legal repercussions.

The Nuts and Bolts of an Effective Relationship

While united in their shared goal of maintaining the integrity of the tax system, the relationship worked well because at a practical level, the rules of both organizations necessitate close coordination and communication. The Justice Department Manual and the Internal Revenue Manual (IRM) are written in such a way to encourage, enforce, and maintain that close coordination. Channels of communication, efficiencies, and innovation are engendered through the necessity of this required coordination. The repeated interactions between the IRS and DOJ lead to familiarity and strong relationships, which are equally important. Thus, the constant interaction between the two agencies ensures that each case is not evaluated in a vacuum but built on the experience and innovation of previous interactions. By the time a case is made public by DOJ, it has been brought through a system that has honed enforcement for decades, so that prosecutors can bring the best cases forward and bolster the perception of tax enforcement.

As a statutory creation, the IRS is very systematic and analytical in its approach to everything. Their operating manual is the IRM, which requires multiple steps of internal coordination before an affirmative case is sent to the DOJ. See IRM 34.6.1.1.1..Cases sent to the DOJ can require multiple levels of review at the IRS before transmission. Even when a suit is with DOJ, further coordination may be required with IRS Counsel when considering a settlement offer. IRM 34.6.1.2.10(3).

On the DOJ side, the Justice Manual—particularly its tax section—establishes the framework for how the Department conducts tax litigation. Much like those outlining the IRS’s internal procedures, these rules mandate multiple layers of review, coordination, and consultation, both within DOJ and in partnership with the IRS at key decision points. This deliberate, process-built structure strengthens the quality of enforcement actions: Cases are refined through successive rounds of scrutiny, factual development, and legal analysis. Over the long history of the IRS-DOJ partnership, this approach has consistently produced stronger, more defensible cases—a pattern reflected in both landmark historical matters and more recent enforcement successes.

The criminal tax prosecution process at DOJ further underscores the value of specialized, structured review. Criminal referrals begin with the IRS’s Criminal Investigation division, but prosecution authority rests exclusively with DOJ’s tax specialists. After receiving a referral, the Tax Division conducted its own independent assessment—evaluating sufficiency of evidence, legal theory, potential defenses, and the broader enforcement impact. Only after this rigorous review was a case authorized and assigned to a US Attorney’s Office or to Tax Division prosecutors themselves. Throughout prosecution, DOJ Tax retained supervisory authority, maintaining consistency in charging decisions, plea positions, and sentencing recommendations nationwide. This centralized, expertise-driven model protected uniform enforcement of the tax laws, prevented overreach, and furthered the practice that the most complex and sensitive white-collar cases in the federal system were handled by attorneys who understood the intricacies of tax crimes and the precision required to prove them.

However, the procedures alone are insufficient. To be effective, the technical complexity of federal tax law works best with litigators who are specialists, not generalists. The Internal Revenue Code is a dense, highly interdependent statutory scheme layered with Treasury regulations, revenue rulings, evolving case law, and intricate procedural rules that differ markedly from ordinary civil litigation. The Tax Division succeeded in large part because its attorneys lived in this world every day—they understood the subtleties of tax shelters, the evidentiary challenges of proving willfulness, the nuances of partnership and corporate tax structures, and the unique remedies and jurisdictional rules that govern tax disputes. By contrast, a general civil-litigation model that merely “dabbles” in tax cannot cultivate the deep expertise required to navigate these complexities. Effective tax enforcement depends on practitioners who are steeped in the field, capable of spotting issues that nonspecialists might miss, and equipped to apply the law with precision in cases where small technical details often determine the outcome.

Examples of the IRS-DOJ Relationship in Practice

Criminal tax prosecutions play an essential role in deterring tax fraud and evasion. While the specter of civil penalties and audits are effective for many taxpayers, criminal prosecution sends a powerful message that violations of the tax code are not taken lightly. The DOJ’s role in this regard is not just reactive; it also serves a preventive function by showing that the government is actively prosecuting tax fraud at the highest levels.

These cases require collaboration at every level. The IRS’s financial forensic experts and DOJ’s prosecutors worked closely to follow the money trail, which can often stretch across multiple continents. It’s always a win for the government when it gets a conviction in cases like that, and it sends a strong message that these crimes won’t be tolerated. In recent history, a number of examples have shown how this relationship has excelled in practice.

International Tax Enforcement

A particularly significant development in tax enforcement over the past two decades has been the unprecedented level of US involvement with offshore banks, cracking down on US taxpayers with hidden accounts in offshore jurisdictions. The IRS lead the effort by initiating the UBS John Doe Summons in 2008. Then, beginning in 2009, the IRS launched the initial offshore voluntary disclosure initiative, which allowed US taxpayers with secret offshore accounts to come forward and disclose their accounts to the IRS without facing criminal prosecution, provided they paid significant penalties. For DOJ, efforts culminated in the Swiss Bank Program, launched in 2013, which provided a path for Swiss banks to cooperate and pay fines in lieu of criminal liability.

The government uncovered billions of dollars in hidden assets and forced numerous foreign financial institutions to provide information on US taxpayers with secret accounts. Not only did this offshore enforcement effort lead to numerous prosecutions of individuals and entities that used offshore bank accounts to evade taxes, but also the press releases for banks and other US taxpayers coming into various programs—or facing convictions—drove individuals into the IRS disclosure programs.

Recent Crypto Tax Prosecutions

Another recent area of concern for the IRS and DOJ has been the rise of cryptocurrencies and the potential for tax evasion in the crypto space. As cryptocurrencies such as Bitcoin, Ethereum, and others gain popularity—including with organized criminal organizations—they provide a new avenue for individuals to hide income and evade taxes. The decentralized and often anonymous nature of cryptocurrencies presents unique challenges for the IRS, but the agency has made clear that it is committed to enforcing tax laws in the digital realm.

The IRS has also stepped up its efforts to enforce cryptocurrency tax compliance through its use of multiple John Doe summons actions, which are legal tools used to compel cryptocurrency exchanges to provide information on users suspected of underreporting or failing to report taxable transactions.

The rise of cryptocurrency has also presented a whole new set of challenges from a prosecutorial perspective, as it could require a public-private partnership with outside expert support from market leaders.

What’s been regarded as the first legal source tax crypto prosecution case, United States v. Frank Richard Ahlgren III, No. 1:22-cr-00253 (D. Colo. 2022), involved the prosecution of an early Bitcoin investor, who was sentenced to three years of probation and ordered to pay $10,000 in restitution in 2022 for willfully filing false tax returns and failing to report cryptocurrency income for the years 2013 through 2015. Ahlgren made substantial profits from his Bitcoin investments during a period of significant price increases but intentionally underreported his earnings on his tax returns. As a result, he was convicted on tax charges. His case is part of DOJ’s broader effort to crack down on tax evasion involving digital currencies and underscores the IRS’s increasing focus on ensuring cryptocurrency investors comply with tax laws.

Takeaways

The relationship between the IRS and the Department of Justice is one of the most crucial components of the US tax system. As the government continues to confront increasingly complex forms of tax evasion—ranging from offshore bank accounts to cryptocurrency transactions—the importance of collaboration between these two agencies has never been greater. When well-executed, that relationship can truly deliver extraordinary results.

However, like any other symbiotic relationships, the effectiveness of their operation is a delicate balance. External factors such as staff reductions, realignment of chains of command, and modification of operating directives must be considered to maintain that delicate balance. A shift in the relationship, even minor, can have drastic effects on the overall tax system. So much of the success in this relationship is due to the experience and relationships of the individuals on both sides. Knowing who to call, when to call, and what the response will most likely end up being, is a big reason why this relationship has worked so well. This level of communication requires experienced individuals on both sides of this new relationship.

The partnership between the IRS and DOJ Tax was the linchpin in keeping current voluntary compliance practices a reality and ensuring individuals and organizations who attempt to evade taxes are held accountable for their actions. As we move forward into the new, post-Tax Division landscape, the hope is that the structures requiring the close coordination between the new DOJ and IRS teams are allowed to continue so new relationships are forged.

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

Carolyn Schenck, former IRS Counsel and now Member at Caplin & Drysdale. Sean Deneault, former IRS Counsel and now Senior Manager at EisnerAmper.

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