The IRS’s Criminal Investigation Division needs to improve the way it manages the criminal tax investigations it refers to the Justice Department for prosecution, according to a new government report.

J. Russell George

The Treasury Inspector General for Tax Administration evaluated the steady increase beginning in 2003 in the number of criminal tax cases pending in the prosecution pipeline at the Justice Department and the impact this had on the CI Division’s resources.

TIGTA confirmed steady growth in the number of criminal cases in the prosecution pipeline, rising from 2,733 in 2002 to 3,915 in 2009. The CI Division believes that the prosecution pipeline’s increase began when the Justice Department shifted its operational priorities to focus on national security issues.

CI Division and Justice Department officials interviewed by TIGTA described long-standing challenges that exist in the working relationship between the two organizations. These include, in part, a preference by some prosecutors to seek indictments on drug, currency or money-laundering cases, rather than criminal tax cases; prioritization of cases based on the time remaining on the statutory limitations period for an indictment; and competing demands for prosecuting attorneys’ time and attention in large metropolitan locations.

“While criminal tax cases must sometimes compete for attention against cases involving other high-profile felony charges and national security issues, their value in deterring criminal tax fraud is significant,” said TIGTA Inspector General J. Russell George in a statement. “Our review found that the Criminal Investigation Division can do its part to bring such matters to trial by adopting practices that will permit more strategic management of its caseload inventory. A sharper focus is important because the administration and Congress see cracking down on tax evasion as a way to reduce the tax gap.”

TIGTA recommended that the IRS create a structured oversight system to monitor and more effectively manage the prosecution pipeline process, create a strategic management team to develop innovative policies and procedures to ensure tax cases receive appropriate attention and resolution by the Justice Department, develop additional techniques that refine the prosecution pipeline performance measures, and ensure that the IRS commissioner receives necessary information to have a clear depiction of the investigative resources devoted to prosecution pipeline inventory actions.

The IRS said it would examine the creation of a structured oversight and coordination system to monitor and more effectively manage the prosecution pipeline process, and create a strategic team to examine ways to improve its pipeline inventory management system, but it disagreed with the remaining recommendations in the TIGTA report.