IRS priorities: Detecting fraud and protecting taxpayers

Get a closer look at how IRS Criminal Investigation and the newly established Office of Fraud Enforcement work to combat tax fraud.

Get to know the IRS, its people and the issues that affect taxpayers

By James Lee, Chief, IRS Criminal Investigation and
Damon Rowe, Executive Director, IRS Office of Fraud Enforcement
CL-21-29, November 19, 2021

Tax fraud continues to be one of the most urgent issues we face. Fraudulent activity takes many forms, from money laundering and illegally obtaining small business relief loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to misuse of virtual currency and syndicated conservation easements. The common thread is that when we find instances of tax fraud, we’re determined to put an end to it — including criminal prosecution, when appropriate.

During International Fraud Awareness Week, we want to give you a glimpse of how the IRS investigates and helps prosecute fraud and provide you with some reminders so you don’t end up a victim.

On the criminal side, IRS-Criminal Investigation (IRS-CI) investigates and assists with prosecutions of various types of fraudulent activity ranging from misuse of COVID-relief funds to phony cryptocurrency investment schemes.

IRS-CI has investigated approximately 550 tax and money laundering cases nationwide tied to COVID relief efforts, totaling more than $820 million. These investigations covered a broad range of criminal activity, including fraudulently obtained loans and credits and payments meant for American workers, families and small businesses.

One specific IRS-CI investigation resulted in the first person in the U.S. being charged with fraudulently obtaining small business relief loans under the CARES Act. The Rhode Island resident and a co-conspirator falsely claimed they owned businesses with large monthly payrolls and filed for more than $500,000 in relief under the CARES Act’s Paycheck Protection Program. They didn’t have any ownership stake and attempted to bilk the government out of funds intended for struggling businesses. The Rhode Island resident was sentenced to 56 months in federal prison. His co-conspirator awaits sentencing.

While IRS-CI investigates potential criminal violations of the Internal Revenue Code, the newly established Office of Fraud Enforcement (OFE), which started in September 2020, has also been busy:

• Improving fraud detection and development to address areas of high fraud/risk noncompliance, such as high income nonfilers and ghost employers.
• Cultivating internal and external partnerships to identify new treatment streams to enhance enforcement.
• Pursuing civil fraud penalties and recommending criminal cases to IRS-CI that will lead to prosecutions, where appropriate.
• Providing training to IRS employees to help them recognize badges of fraud.

As the champion for fraud on the civil side, OFE works in partnership with IRS-CI to refer cases with firm indicators of fraudulent activity for possible prosecution.

Since its inception, OFE hired a team of top-notch fraud enforcement advisors who help identify fraud during audits and collection activities. They’ve also been engaged in reviewing potential fraudulent claims and have now protected over $1.1 billion in fraudulent claims related to the CARES Act.

Moreover, OFE has been leading the efforts to obtain world-class blockchain tracing and virtual currency analytics tools for civil compliance employees to increase their awareness and fluency in virtual currency investigative techniques within the IRS. In addition, the National Fraud Counsel strengthened its cadre of more than 120 litigators and designed and implemented a national training strategy and series of workshops, delivering approximately 100 events since its creation in May 2020. It also reviews Internal Revenue manuals/publications and assists with strategic planning considerations.

Even with strong partnerships and IRS-CI’s conviction rate at nearly 90%, we can’t fight tax fraud without your help.

It’s important for people to know how the IRS communicates with taxpayers. We don’t send unsolicited texts or emails, nor do we threaten individuals with jail or lawsuits or demand tax payments on gift cards or via cryptocurrency. Here are some other tips:

• Be on the lookout for grammatical, capitalization and spelling errors in emails and texts, which serve as fraud indicators.
• If you receive unsolicited emails or social media attempts to gather information that appear to be from either the IRS or an organization closely linked to the IRS, forward the message to phishing@irs.gov.
• Don’t engage potential scammers online or on the phone.
• Use caution when investing in cryptocurrencies, which is legal, but also ripe for fraud.
• If you do fall victim to investment fraud, contact an IRS-CI investigative field office with information; your tip may help put a criminal behind bars.
• Share this information with your friends and family.

As financial crimes become more complex, we will do our best to make sure our investigators stay ahead of the game. We’re investing in tools to better trace financial transactions and using data analytics to find the criminals and where they’re operating. Information-sharing through partnerships with both U.S. and international law enforcement agencies have also proven successful.

Combined with your vigilance, we can help stamp out fraud and keep the American people safe.

James Lee, Chief, IRS Criminal Investigation
Damon Rowe, Executive Director, IRS Office of Fraud Enforcement