Tax Fraud | IRS Fraud | Fraud Audit

Criminal Investigation

Additional Information:

Tax Fraud | IRS Fraud | Fraud Audit
Grand Jury Investigations
Tax Crimes General
Refund Fraud
Money Laundering
Currency Crimes
Organized Crime & Task Force
Narcotic Investigations
Investigative Reports
Methods of Proof
Methods of Proof cont.
C.I. at a glance

Criminal Investigation, Tax Fraud, IRS Fraud, Fraud Audit

Mission :

Criminal Investigation (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.

Headquarters:

1111 Constitution Ave NW
Room 2501
Washington , DC 20224

Management:

Nancy J. Jardini, Chief, Criminal Investigation
Richard Speier, Jr., Deputy Chief, Criminal Investigation

Overview:

IRS Criminal Investigation (CI) is comprised of approximately 4,400 employees worldwide, approximately 2,800 of which are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.

Compliance with the tax laws in the United States relies heavily on self-assessments of what tax is owed. This is called voluntary compliance. When individuals and corporations make deliberate decisions to not comply with the law, they face the possibility of a civil audit or criminal investigation which could result in prosecution and possible jail time. Publicity of these convictions provides a deterrent effect that enhances voluntary compliance.

As financial investigators, CI special agents fill a unique niche in the federal law enforcement community. Today’s sophisticated schemes to defraud the government demand the analytical ability of financial investigators to wade through complex paper and computerized financial records. Due to the increased use of automation for financial records, CI special agents are trained to recover computer evidence. Along with their financial investigative skills, special agents use specialized forensic technology to recover financial data that may have been encrypted, password protected, or hidden by other electronic means.

Criminal Investigation’s conviction rate is one of the highest in federal law enforcement. Not only do the courts hand down substantial prison sentences, but those convicted must also pay fines, civil taxes and penalties.

• CI is The Law Enforcement Arm of the IRS
• History of Criminal Investigation (CI)

Strategic Priorities:

The Criminal Investigation strategic plan is comprised of three interdependent programs: Legal Source Tax Crimes; Illegal Source Financial Crimes; and Narcotics Related Financial Crimes. These three programs are mutually supportive, and encourage utilization of all statutes within CI’s jurisdiction, the grand jury process, and enforcement techniques to combat tax, money laundering and currency crime violations. Criminal Investigation must investigate and assist in the prosecution of those significant financial investigations that will generate the maximum deterrent effect, enhance voluntary compliance, and promote public confidence in the tax system.

 Enforcement Strategy - Criminal Investigation

The American system of taxation is based on the premise that all income is taxable (which includes illegally earned income). To prove fraud, money laundering or Bank Secrecy Act violations, IRS Criminal Investigation must prove that a taxpayer willfully attempted to hide income from the Federal Government. Their methods of proof and investigative activities lead IRS special agents into nearly every legal as well as illegal business in America .

IRS is Involved in Electronic Crimes

Criminal Investigation: Electronic Crimes Program

As financial investigators, IRS -Criminal Investigation ( IRS -CI) fills a unique niche in the federal law enforcement community. Today’s sophisticated schemes to defraud the government and the American economy demand the analytical ability of financial investigators to wade through complex arrays of financial records.  Records of transactions are moving from paper ledgers to computers to off-site, online storage. As a result, IRS -CI is developing tools and techniques to follow and find those records, wherever they may be.

IRS -CI designed the Electronic Crimes Program (ECP) to organize our growing expertise in computer and network forensics. Computer Investigative Specialists (CIS) use specialized equipment and techniques to preserve digital evidence and to recover financial data, including data that may have been encrypted, password protected or hidden by other electronic means.    
 
Program Strategy Overview

The Electronic Crimes Program’s mission is to support IRS special agents in the collection and analysis of digital evidence.  As the incidence of computers found during enforcement actions has risen from 5% to 95%, the reliance on ECP personnel to secure and analyze digital data has grown as well.   In the past, agents might find a single personal computer; now they encounter multiple computers, often linked together in a network, each having the capacity to hold several truckloads of documents.

Computer Investigative Specialists participate in search warrants with investigating agents and are responsible for the seizure and processing of evidence contained in various types of digital media.  Their primary mission is to secure the data, reduce it by eliminating programs and other files of non-evidentiary value, and then return the critical information to the investigating agent.  The agent can then electronically review evidence, which is much faster than the old manual paper procedures used in the past.  This technique, together with the scanning of paper documents, puts the entire investigation in a digital format that allows the investigation team and prosecutors to locate items of interest, move files among themselves and digitally present evidence in today’s electronic courtrooms.

Data Input and Research Facilities

In the rapidly evolving world of electronic crimes, CI’s agents must be proficient with both new computers and software and dated technology that may still be used by those committing financial crimes.  The Electronic Crimes Program maintains two facilities to assist with this task.  The Data Input Center in Kentucky is a state-of-the-art scanning and transcription center capable of converting volumes of paper evidence into digital format.  A research and training facility was recently opened in Virginia to focus on developing and enhancing techniques for processing digital evidence, using new technology, warehousing existing technology, and providing training to CISs.  These facilities enable agents across the country and around the world to follow a target through the wire on the back of the box into cyberspace where the evidence of an electronic crime may be found.

ILOOK©

ILOOK© is a forensic software tool developed and owned by IRS -CI. This two-part product automates the hard drive analysis process and makes it possible for a CIS to timely review the multi-gigabyte drives found in today’s computers.  The ILOOK Imager is a Linux-based product that allows the Computer Investigative Specialist to image almost every PC-based machine encountered, including mass data storage systems and non-Microsoft operating systems. 

ILOOK Investigator, the analysis portion of the product, recovers all data (including deleted files) from the target drive image and assists the investigator search for specific details. It also allows the investigator to insert foreign language character sets to search for information.  ILOOK© is supported by the FBI and NASA and is distributed free to state and local law enforcement agencies.

Financial Investigations - Criminal Investigation (CI)

The IRS is Involved in Financial Investigations

Criminal Investigation (CI) Special Agents

IRS Criminal Investigation (CI) is comprised of approximately 2,800 Special Agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.

Compliance with the tax laws in the United States relies heavily on self-assessments of what tax is owed. This is called voluntary compliance. When individuals and corporations make deliberate decisions to not comply with the law, they face the possibility of a civil audit or criminal investigation which could result in prosecution and possible jail time.

What is a Financial Investigation?

Financial investigations are by their nature very document intensive. Specifically, they involve records, such as bank account information and real estate files, which point to the movement of money. Any record that pertains to, or shows the paper trail of events involving money is important. The major goal in a financial investigation is to identify and document the movement of money during the course of a crime. The link between where the money comes from, who gets it, when it is received and where it is stored or deposited, can provide proof of criminal activity.

Tax evasion, public corruption, health care fraud, and telemarketing fraud are just a few of the types of crimes that revolve around money. In these cases, a financial investigation often becomes the key to a conviction.  Traditional law enforcement relies on investigative tools such as crime scene analysis, physical evidence, fingerprint identification or eyewitness accounts. The limitations of these techniques become obvious to those who are trying to prove wrongdoing in a sophisticated financial crime. With no proof, there is no conviction.

What are the Major Areas of Financial Investigations?

For Criminal Investigation financial investigations fall into three interdependent categories:  Legal Source Tax Crimes, Illegal Source Financial Crimes, and Narcotics-Related Financial Crimes.  These three areas are mutually supportive and create a well-rounded law enforcement program which addresses the growing fraud in legal industries as well as penetrate the nucleus of money laundering operations and drug trafficking organizations.  The overall CI Business Plan sets forth general priorities to increase emphasis on legal source tax cases.  Top investigative priorities remain in the following order.

1. Legal Source Tax Crimes
2. Illegal Source Financial Crimes
3. Narcotics related Financial Crimes
• Anti-Terrorism Activities

Focusing on Legal Source Tax Crimes:

Criminal Investigation's primary resource commitment is to develop and investigate legal source tax crimes.  These investigations involved legal industries and occupations, and more specifically, legally earned income.  Fraud in legal industries has been termed "white collar" crime because it involves income tax violations by individuals who are not involved in other criminal activity.  Some of the tax violations include income tax evasion, failure to file, or filing a false tax return.  The crimes can include frivolous filers/nonfilers who challenge the constitutionality of the American tax system, employment tax cases, claims for fraudulent refunds, abusive trust schemes, and unscrupulous tax return preparers. 

Focusing on Illegal Source Financial Crimes:

Illegal source financial crimes involve money obtained through illegal sources such as health care fraud or telemarketing fraud.  This money is a part of the untaxed underground economy which threatens the strength of the American economy.  Failure to investigate these crimes erodes public confidence in the tax system.  This program encompasses all tax and tax-related violations, as well as money laundering and currency violations.  The crimes can include overbilling of Medicare, kickbacks to public officials, activities to obtain money through telemarketing scams, securities fraud, ponzi schemes, or even gaming (book-making) activities.

Focusing on Narcotics-Related Financial Crimes:

The primary objective of Criminal Investigation's involvement in narcotics related financial crimes is to reduce the profit and financial gains of the drug trafficking and money laundering organizations.  The money obtained through narcotics crimes is also a part of the untaxed underground economy which threatens the strength of the American economy.  To learn more about CI's participation in narcotics-related financial crimes, see our Narcotics webpage.  

U.S. Code Statutes For Which CI Has Jurisdiction

Criminal Investigation's top priority is the investigation of violations of the tax law which falls under Title 26 of the U.S. Code. However, CI special agents lend their financial investigative expertise to money laundering and narcotics investigations conducted in conjunction with other law enforcement agencies at the local, state and federal levels.

Violations that are within the investigative jurisdiction of Criminal Investigation are cited in the Internal Revenue Manual ( IRM ) Part IX.  Specifically, Criminal Investigation Management Information System (CIMIS), Chapter 8.

In Summary

As financial investigators, CI Special Agents fill a unique niche in the federal law enforcement community. Today's sophisticated schemes to defraud the government and the American economy demand the analytical ability of financial investigators to wade through complex paper and computerized financial records. Due to the increase in the automation of financial records, CI Special Agents are trained in recovering computer evidence. Along with their investigative skills, Special Agents use specialized equipment to recover financial data that may have been encrypted, password protected, or hidden by other electronic means.

Criminal Investigation's conviction rate is one of the highest in federal law enforcement. Not only do the courts hand down substantial prison sentences, but those convicted may also be ordered to pay fines, civil taxes and penalties.

Narcotics-Related Investigations - Criminal Investigation (CI)

The IRS Is Involved in Narcotics Investigations

One look at the daily newspaper is proof enough that crimes dealing with or motivated by money make up the majority of current criminal activity in the nation. Tax evasion, public corruption, health care fraud, and even drug trafficking are all examples of the types of crimes that revolve around money. In these cases, a financial investigation often becomes the key to a conviction.

Traditional law enforcement relies on investigative tools such as crime scene analysis, physical evidence, fingerprint identification or eyewitness accounts. The limitations of these techniques become obvious to those who are trying to prove wrongdoing in a sophisticated financial crime. With no proof, there is no conviction.

When the Internal Revenue Service astounded Public Enemy Number 1, Alphonse Capone by obtaining a conviction for tax evasion and demanding millions of dollars in back taxes, Capone said, "They can't collect legal taxes from illegal money." But it's really pretty simple: No matter what the source of income -- all income is taxable.

And this creates a real problem for drug dealers. What are they going to do with their money -- so that IRS won't find it?

For the IRS , money laundering and narcotics investigations are the compliance effort to address criminal violations of the Bank Secrecy Act, the Money Laundering Control Act of 1986 and section 6050(I) of the Internal Revenue Code.

Why a Financial Investigation?

Financial investigations are by their nature very document intensive. Specifically, they involve records, like bank account information and real estate files, which point to the movement of money. Any record that pertains to, or shows the paper trail of events involving money is important. The major goal in a financial investigation is to identify and document the movement of money during the course of a crime. The link between where the money comes from, who gets it, when it is received and where it is stored or deposited, can provide proof of criminal activity.

Criminal Investigation's contribution to the war on narcotics is vital but sometimes difficult to recognize, because the work of IRS special agents usually doesn't make the headlines. The long hours of tracking down and documenting financial leads isn't glamorous, but it does allow an investigation to go right to the door of the leader of the narcotics organization. A complete financial analysis and reconstruction of a drug organization's financial activity as it relates to unreported income on tax returns and money laundering can often be critical to making the conviction.

History

Criminal Investigation (CI) was established in 1919 and commenced its first narcotics investigation of an opium trafficker in Hawaii in the early 1920's, obtaining tax evasion charges against the leader of that organization.

The CI Narcotics Program's goal is to utilize the financial investigative expertise of its special agents to disrupt and dismantle, through investigation, prosecution and asset forfeiture, the country's major drug and money laundering organizations.

Federal Statutes, Task Forces and Strategies Regarding IRS Narcotics Investigations

Definition of Terms

Currency Transaction Report ( CTR ) - Form 4789: Filed by financial institutions that engage in a currency transaction in excess of $10,000.

Suspicious Activity Report (SAR) - Form TD F 90-22.47: Filed by financial institutions on transactions or attempted transactions involving at least $5,000 that the financial institution knows, suspects, or has reason to suspect the money was derived from illegal activities.

Report of Foreign Bank and Financial Accounts (FBAR) - Form TD F 90-22.1: Filed by individuals to report a financial interest in or signatory authority over one or more accounts in foreign countries, if the aggregate value of these accounts exceed $10,000 at any time during the calendar year.

Report of Cash Payments Over $10,000 Received in a Trade or Business -Form 8300: Filed by persons engaged in a trade or business who, in the course of that trade or business, receive more than $10,000 in cash in one transaction or two or more related transactions within a twelve month period.

Report of International Transportation of Currency or Monetary Instruments (CMIR) - Form 4790: filed by persons who physically transport, mail or ship currency or other monetary instruments in an aggregate amount exceeding $10,000 at any one time into or out of the United States.

Federal Statutes

Internal Revenue Code – CI has sole jurisdiction for criminal violations of the Internal Revenue Code (IRC), Title 26 of the United States Code. The IRC, Section 61(a) defines gross income as ". . . all income from whatever source derived." This has been held by the courts to include income earned from illegal activities such as drug trafficking. The primary criminal statutes violated include evasion of income tax, false income tax returns, and failure to file tax returns, among others.

Additionally, IRC, Section 6050(i), requires anyone involved in a trade or business, except financial institutions, to report currency received for goods or services in excess of $10,000. This requirement has provided a significant impediment to the use of illicit profits by narcotics traffickers for the purchase of luxury items such as vehicles, jewelry and boats. Financial institutions report similar information on a Currency Transaction Report.

A new law, Title 31, Section 5331 of the United States Code, was passed in 2001 as a result of the USA Patriot Act and duplicates the reporting provisions of IRC, Section 6050(i). Dual reporting of this information will now be made to both the IRS and the Treasury Department's Financial Crimes Enforcement Network (FinCEN).

Money Laundering Control Act of 1986 – CI investigates and recommends criminal prosecution for violations of Title 18, United States Code, Sections 1956 and 1957. These statutes make illegal certain financial transactions constituting laundering, hiding, or use of proceeds generated through specified unlawful activities, such as narcotics trafficking and embezzlement, among others.

Bank Secrecy Act – The Currency and Foreign Transactions Reporting Act, Public Law No. 91-508, Title II, along with financial institution record-keeping requirements, became known as the Bank Secrecy Act (BSA). The BSA mandates the reporting of certain currency transactions conducted with a financial institution, (Form 4789), the disclosure of foreign bank accounts (TD F 90-22.1), and the reporting of the transportation of currency exceeding $10,000 across United States borders (Form 4790).

Asset Forfeiture – The asset forfeiture program is one of the federal government's most effective tools against drug trafficking, money laundering, and organized crime. In conjunction with other federal, state, and local law enforcement agencies, CI uses asset forfeiture statutes to dismantle criminal enterprises by seizing and forfeiting their assets. Most of CI's seizures and forfeitures are the result of Title 18 and Title 31 money laundering and currency investigations.

Criminal Investigation (CI) Supports National Strategies and Initiatives:

Criminal Investigation supports national law enforcement strategies and initiatives by investigating and recommending prosecution of domestic and international narcotics traffickers and related money-laundering organizations. CI follows the money trail, tracing the profits from the illegal activity back to the criminal.

National Money Laundering Strategy

In October 2001, the U.S. Departments of Treasury and Justice released the Money Laundering Strategy for 2001  . This strategy reflects a national commitment to a coordinated, effective fight against money laundering and other financial crimes. Specifically, the primary goal of the strategy is:

To focus our resources against major money laundering organizations, this Strategy mandates that law enforcement (1) establish inter-agency task forces in High Risk Money Laundering and Related Financial Crimes Areas (HIFCAs), (2) intensify use of federal criminal and civil asset forfeiture laws, (3) enhance intra-agency, inter-agency, and international coordination of money laundering investigations, (4) expand efforts to dismantle the Black Market Peso Exchange (BMPE), and (5) recommend legislation necessary to correct deficiencies in current money laundering laws, thereby strengthening law enforcement's ability to fight money laundering organizations.

Criminal Investigation supports this strategy through the investigation and prosecution of domestic and international narcotics traffickers and related money laundering organizations.

High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces

Mandated in the National Money Laundering Strategy, HIFCAs occupy the flagship role in the nation's efforts to disrupt and dismantle large-scale money laundering systems and organizations. The designation of a  HIFCA  is intended to concentrate law enforcement efforts at the federal, state, and local level on combating money laundering in high-intensity money laundering zones, whether based on drug trafficking or other crimes. The 2001 Money Laundering Strategy announced the designation of two new HIFCA locations: Northern District of Illinois (Chicago) and Northern District of California (San Francisco). The four HIFCAs named in the 2000 strategy were: New York/New Jersey; San Juan/Puerto Rico; Los Angeles; and a "systems HIFCA," designed to address cross-border currency smuggling in Texas/Arizona to and from Mexico. HIFCAs are composed of all relevant federal, state, and local enforcement authorities; prosecutors; and federal financial supervisory agencies as needed. They work closely with the High Intensity Drug Trafficking Areas (HIDTA) and Organized Crime Drug Enforcement Task Forces (OCDETF) and focus on collaborative investigative techniques.

Office of National Drug Control Policy (ONDCP)

As part of the Anti-Drug Abuse Act of 1988, the President established the  Office of National Drug Control Policy to oversee the nation's effort to combat illegal drugs. As part of that oversight authority, the Director of the ONDCP established a National Drug Control Strategy. This strategy directed agencies involved in counter-narcotics activities to focus their efforts on reducing the demand for drugs through treatment and prevention and by attacking and disrupting the drug supply through aggressive law enforcement and increased international cooperation.

Organized Crime Drug Enforcement Task Force (OCDETF)

The Organized Crime Drug Enforcement Task Force (OCDETF) Program was created and is managed by the Department of Justice "to identify, investigate, and prosecute members of high-level drug trafficking enterprises, and to destroy the operations of those organizations." IRS CI is substantially reimbursed for the resources it commits to the war on narcotics trafficking and has been a participating member of OCDETF since its inception in 1982. During FY 2001, CI participated in 38% of the OCDETF investigations.

High Intensity Drug Trafficking Area (HIDTA)

The High Intensity Drug Trafficking Areas (HIDTA) Program was established by the Anti-Drug Abuse Act of 1988, to provide assistance to federal, state and local law enforcement agencies operating in areas most adversely affected by drug trafficking. The Director of the Office of National Drug Control Policy (ONDCP) has oversight authority over the  HIDTA Program . There are 28 locations designated as HIDTA.   HIDTA initiatives focus on the investigation of money laundering violators and the identification and confiscation of the profits derived from the illegal sale of narcotics. Criminal Investigation supports HIDTA by dedicating special agents and other resources to the initiatives. CI provides the financial investigative perspective necessary to meet the goals of the National Drug Control Strategy.

Where Do You Report Suspected Tax Fraud Activity?

If you suspect or know of an individual or company that is not complying with the tax laws, report this activity. Reports of suspected tax fraud can be made by phone, mail or your local IRS walk-in office.

By phone:  

You can contact the IRS toll f Violations that are within the investigative jurisdiction of Criminal Investigation are cited and summarized below: 

Table of Contents

• Title 18
• Title 26
• Title 31

United States Code Statutes for which Criminal Investigation has Jurisdiction