Given the tight budgetary constraints at the U.S. Internal Revenue Service, management decided to refocus on “quality” over quantity in their criminal investigations in 2015. Amid concern over possible misconduct, Congress has slashed the budget at the IRS for several years in a row now, leaving agency management little choice but to cut to the bone and re-prioritize to get the most bang for its limited bucks.
As IRS execs have testified to lawmakers on several occasions, these drastic cuts to the agency budget are having a significant impact on their enforcement activities. Data from the recently published IRS Criminal Investigation 2015 Annual Report makes the impact of the budget cuts clear: new criminal investigations initiated by the agency dropped from more than 5300 in fiscal year 2013 to barely 3800 in fiscal year 2015.
Breakdown of IRS criminal investigation statistics 2013 – 2015
As can be seen in the chart above, the total number of criminal investigations in fiscal year 2015 (3853) was notably less than in 2014 (4297), continuing the trend from 2013 (5314) when the budget cuts were first instituted. The relative number of indictments, convictions and prison sentences remained close to the same across the three years.
IRS criminal investigation priorities in 2015
The report noted that the investigative priorities for Fiscal Year 2015 included:
- Identity Theft Fraud
- Abusive Return Preparer Fraud & Questionable Refund Fraud
- International Tax Fraud
- Fraud Referral Program
- Political/Public Corruption
- Organized Crime Drug Enforcement Task Force (OCDETF)
- Bank Secrecy Act and Suspicious Activity Report (SAR) Review Teams
- Asset Forfeiture
- Voluntary Disclosure Program
- Counterterrorism and Sovereign Citizens
Continued decrease in staffing
According to the annual report of September 30, 2015, IRS Criminal Investigations had 2,316 Special Agents on staff. This represents around a 6% decrease compared to the number of special agents at the end of fiscal year 2014.
Also of note, IRS CI had 938 professional staff personnel, which represented a decline of 8.8% relative to the number in 2014.
Notable IRS investigations in 2015
In August, William J. Frio, of Springfield Township, Pennsylvania was sentenced to 60 months in prison, four years of supervised release and must pay $1.7 million in restitution. Frio agreed to plead guilty to conspiracy to commit tax evasion, filing false tax returns, loan fraud and aggravated structuring of financial transactions. Frio was an accountant and income tax preparer who provided services to the Nifty Fifty restaurant organization dating back to 1986. Frio and five of the restaurant chain’s owners and managers, undertook a scheme to avoid paying millions of dollars in personal and employment taxes. The multi-year fraud failed to adequately account for more than $15 million in gross receipts.
Leon Benzer, an ex-construction contractor from Las Vegas, was sentenced in August to 188 months in prison and must cough up a restitution of $13,294,100. Benzer pleaded guilty to conspiracy to commit mail and wire fraud, mail fraud and tax evasion in an effort to to fraudulently gain control of condominium homeowners’ associations in Las Vegas area in bring in construction and other contracts for himself and other participants in the fraud. Benzer admitted that, from August 2003 through February 2009, he and an attorney used fraud to control the boards of directors of HOAs in Las Vegas. Benzer and his co-conspirators used “straw buyers” to buy condos and get positions on HOAs’ boards of directors. Moreover, Benzer paid the new board members to vote for items that favored his interests, such s employing his co-conspirator’s law firm to handle various litigation and awarding remedial construction contracts to Benzer’s company Silver Lining Construction. Of note, 42 people have been convicted in connection with this long-running scheme.
Dr. Jeffrey S. Stein and Marla Stein of Manhattan were sentenced in July to 18 months and 12 months and one day in prison, respectively, and must pay restitution of $344,989 to the IRS for obstructing the IRS. Jeffrey S. Stein, a vascular surgeon, and Marla Stein, a personal injury attorney, reported the profits from their medical and law practices, respectively, on separate Schedules C forms that they filed in 2009-2012. The couple gave false information to their accountant in order to fraudulently reduce the amount of taxes they owed the IRS. In February 2013, the IRS notified the Steins that their 2010 and 2011 tax returns were being audited. The Steins then created various fabricated and fictitious documents and information as part of an effort to convince the IRS auditor that the expenses claimed on their Schedules C were legitimate. Also of note, from 2007 to 2013, the Steins did not tell their accountant that they employed a household employee who they paid around $15,000 a year in “under the table” cash wages.
In September, Keisha Lanier, of Newnan, Georgia, was sentenced to 180 months in prison, three years of supervised release and ordered to forfeit $5,811,406 for her role as the ringleader of a stolen identity tax refund fraud conspiracy. Between January 2011 and December 2013, Lanier and co-conspirator, Tracy Mitchell, and seven others participated in an identity theft ring that filed more than 9,000 false federal income tax returns claiming over $24 million in fraudulent tax refunds.
