IRS Criminal Cases Fall 12 Percent as Agents Head for Exits

(Bloomberg) -- Sending tax cheats to prison has become increasingly difficult for the Internal Revenue Service amid an exodus of staffers from its Criminal Investigation Division and a 12 percent drop in new cases.

Budget cuts and a battering by House Republicans have led experienced criminal agents to retire in recent years, with the number falling 4.3 percent to 2,217 in fiscal year 2016. Over the past five years, agent staffing levels have decreased 19.1 percent, according to an annual report released Monday.

“We’re at the same staffing level as 1956, which is just unbelievable when you think about it,” division Chief Richard Weber told reporters during a press call on Monday. “There’s still no realistic expectation of increasing that number anytime soon. It’s very difficult to be able to do everything we are mandated to do.”

Criminal Investigation agents enforce U.S. tax laws, but also work on money laundering, identity theft, cyber theft, narcotics and other non-tax cases. The number of cases designated as non-tax issues dropped 11 percent last year, while new tax cases initiated fell 13 percent to 1,963. Combined, the decrease for all types of cases handled by the division was about 12 percent. 

In recent years, retiring agents and former prosecutors have questioned whether the IRS spends too much time on non-tax cases as hiring has slowed dramatically.

Core Mission

“IRS CI has a unique position in the government in its ability to investigate core tax cases,” Kathryn Keneally, the Justice Department’s former top tax prosecutor, said in an interview. “To the extent that IRS CI has limited resources, they should be directed at its core mission.”

Weber lauded the work of his agents, who also examine employment tax fraud, offshore tax evasion and public corruption. Weber, who has run the unit since 2012, visits Capitol Hill and field offices around the U.S. to tout his agents and their relevance. Some areas of the U.S. have only one or two field agents, Weber told reporters Monday.

“There’s no decrease in crime,” he said. “There are certainly enough areas for us to work, if we had the resources.”

Just as tax investigations fell, the number of tax cases resulting in criminal charges fell 13.6 percent. CI agents dramatically scaled back their identity theft cases, from a high of 1,492 new investigations in 2013 to 537 cases opened last year. Weber said that better filters within the IRS are cutting down on street-level identity theft, but international cyber thieves are still using the dark net to target the agency.

‘Dark Net’

“We’re doing undercover operations on the dark net,” Weber said. “We see chatter and discussions between and among criminals about what filters are in place at the IRS and ways that they can attack the system.”

The division has cyber units on both the nation’s West and East coasts, Weber said, with all 25 field offices working on computer crimes.

IRS agents also focus on offshore tax evasion. Last year, the IRS and Justice Department ended a disclosure program that led 80 Swiss banks to pay $1.37 billion in penalties and reveal the secret ways they helped Americans evade taxes. In all, the banks held about $50 billion in U.S. assets in 35,096 accounts from 2008 to 2013.

Weber said that agents are analyzing that data and the flow of money out of Switzerland and around the world. While he expects to bring criminal cases in the next year over money that left Switzerland, he wouldn’t say what countries are involved.

IRS Move

Some investigative areas saw upticks. Health care fraud cases grew to 127 last year, from 122 in 2015. Employment tax fraud cases went to 134 from 102 from 2015, while public corruption probes rose to 84 from 68. The division also saw an increase in terrorism cases to 42 last year from 18 in 2015, according to the report.

Lawmakers are considering a proposal to move the IRS to another area of the Treasury Department. Weber said he hopes that the Criminal Investigation division secures an exemption from President Trump’s hiring freeze, as well as the funding to hire agents. Three groups of 24 agents are undergoing training, he said.

“Whether we are in IRS or a different part of Treasury, we need the proper funding and resources to be able to do our job,” he said.

To contact the reporter on this story: David Voreacos in federal court in Newark, New Jersey, at dvoreacos@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Sophia Pearson, Paul Cox