The Internal Revenue Service does not have effective internal controls in place to make sure that defendants who have been convicted of tax-related crimes comply with the conditions of their probation and restitution, according to a new report.

J. Russell George

The report, by the Treasury Inspector General for Tax Administration, found that the IRS’s inability to properly account for restitution payments resulted in the issuance of erroneous refunds to three defendants and 16 taxpayers totaling approximately $543,000. In addition, the IRS’s systems for monitoring defendants’ compliance with the conditions of their probation and restitution are neither effective nor reliable.

When a defendant pleads guilty or is found guilty of a tax-related crime, the sentence can include various combinations of imprisonment, probation, and monetary penalties such as fines and restitution. Probation and restitution are meant to discourage similar criminal violations by others.

However, the perception has grown that many defendants, despite being convicted of violating tax laws, are escaping all responsibility for the payment of the taxes associated with the offenses they committed, TIGTA noted. TIGTA conducted the review in order to determine whether defendants convicted of tax-related crimes are held responsible for paying the taxes associated with the offenses they committed.
TIGTA’s analysis of data used to monitor defendants identified inaccurate tax account data totaling approximately $330,000 for 25 defendants. TIGTA also determined that the IRS’s Criminal Investigation, or CI, division inconsistently used the refund offset procedure to collect restitution payments. Finally, the IRS was not always granted restitution by the courts in cases where it appeared to be warranted.

“If the IRS does not collect the restitution that it is owed by criminals who have been convicted of tax-related crimes, justice has not been served,” said TIGTA Inspector General J. Russell George in a statement. “All efforts must be made to collect on the funds due to the American people.”

TIGTA made several recommendations to the chief of the IRS’s Criminal Investigation division to address the internal control weaknesses it found regarding accurate accounting for restitution payments, including preventing the issuance of erroneous refunds.  In addition, TIGTA recommended the establishment of a single database for monitoring defendants, revising guidelines for earlier notification to CI of the status of convicted individuals’ adherence to conditions of probation and restitution, and obtaining the IRS Office of Chief Counsel’s opinion on the use of refund offsets. Finally, TIGTA recommended that CI document in its investigative files why restitution was not included in sentences to identify factors that hinder the IRS being granted restitution.

In response to the report, IRS officials agreed with the recommendations and stated that they plan to take corrective actions or have already taken action to address them.

Victor S.O. Song, chief of the IRS’s Criminal Investigation division, noted that in the Firearms Excise Tax Improvement Act of 2010, which became Section 6201(a)(4) of the Tax Code, Congress enabled the IRS to assess as a tax a restitution order that arises fro a criminal conviction involving a defendant’s failure to pay federal taxes. “In the 14 months since the implementation of IRS 6201(a)(4), there have been approximately 800 cases closed by IRS-CI in which restitution was ordered payable by the court,” he wrote.