Tax-related investigations and prosecutions appear to be on the rise. The Inflation Reduction Act provided $80 billion in additional funding to the Internal Revenue Service (IRS). Much of this funding has been dedicated to enforcing tax compliance through the hiring and training of agents.
The IRS-Criminal Investigation Agency (IRS-CI) investigates criminal tax fraud and other financial crimes. In the past year, they have emphasized areas of focus to include (i) cryptocurrency and cybercrimes and (ii) sanctions-related investigations.
The crime of tax evasion is found at 26 U.S.C. 7201. It states:
Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.
Examples of tax evasion include placing assets in the names of others, using straw entities to conduct business, and providing false information to the IRS.
When a criminal tax defendant proceeds to sentencing, courts consider the tax guidelines published by the U.S. Sentencing Commission. Those Guidelines—which include the tax loss table contained at Section 2T4.1—account for the following factors:
- Tax Loss: The base offense level in a tax case is determined primarily by the amount of tax loss involved in the offense. The guidelines provide a table that correlates the offense level with the amount of tax loss, with higher offense levels assigned to cases involving greater tax losses.
- Specific Offense Characteristics: In addition to the base offense level determined by the amount of tax loss, the guidelines may provide for enhancements or adjustments based on specific offense characteristics. These may include factors such as the defendant’s role in the offense (e.g., organizer, leader, or manager), obstruction of justice, or abuse of a position of trust.
- Acceptance of Responsibility: Defendants who accept responsibility for their actions may be eligible for a reduction in their offense level under certain circumstances. This reduction is intended to incentivize defendants to cooperate with law enforcement and demonstrate genuine remorse for their actions.
- Restitution: In addition to any criminal penalties imposed, defendants convicted of tax offenses may also be required to pay restitution to the government for the full amount of tax loss suffered as a result of their actions. Restitution is intended to compensate the government for the financial harm caused by the offense.
- Other Considerations: Judges may also take into account other factors when determining an appropriate sentence, such as the defendant’s criminal history, personal circumstances, and any mitigating factors presented by the defense.
Given the increased IRS funding and IRS-CI efforts, it is possible that tax enforcement will continue to be on the rise.
Matthew P. Massey is a Partner in the White Collar, Government Investigations, and Special Matters Group. He is a former Assistant U.S. Attorney with the U.S. Attorney’s Office for the District of Columbia. He represents businesses and individuals in high stakes matters including federal criminal defense and white collar crimes.