The Internal Revenue Service's Criminal Investigation division is getting back to its traditional priorities after it was sidetracked last year into helping with immigration enforcement efforts, according to officials, while also leveraging artificial intelligence.
"We got pulled into a lot of different activities last year," said Jared Koopman, who fills a dual role of chief of the IRS Criminal Investigation division and chief tax compliance officer at the IRS, during a session Friday at New York University's Tax Controversy Forum. "We were working on Title Eight immigration. We were doing literally feet in the street in Memphis and D.C., getting into a lot of large critical incidents, shootings. We have staff that were put in situations that we're not typically used to. Yes, we're law enforcement, we go through training, we do our activities, but when you're pulled into other things that take you away from your core mission of financial fraud and tax fraud in general, you're going to lose a bit of that work."
He admitted he had seen a decline in some of that work, but that's changing. "Luckily for us, I think that is starting to smooth over in the sense of the work getting back to our core mission," Koopman told former IRS CI chiefs Guy Ficco and Don Fort, who now work as senior investigators at the law firm Kostalanetz. "We are kind of finalizing Title Eight work. We are supporting the role of safe streets, but it's more around employment tax and some of the items that we're doing there."
About 60% of its work is now on tax fraud, while also combatting other forms of fraud. He noted that IRS-CI identified
"When folks think that we're slowing down, or that things are not being addressed, especially in the tax arena specifically, that's definitely not the case," said Koopman. "We're actually seeing a lot more. We're doing a lot more. We're also seeing a huge amount of digital aspects, 2.35 petabytes of data."
IRS-CI is dealing with advancing technological challenges in many of the cases it's investigating. It brought in about $800 million in seized assets, with $100 million going back to victims of some of those crimes.
Artificial intelligence
Koopman said he has worked at IRS-CI for nearly 25 years, starting as an agent in the New York field office and later helping set up a cyber and forensic service section. Now IRS CI is moving more into the use of artificial intelligence while also remaining wary of some of the problems such as AI hallucinations.
"We don't use AI to go out to the internet, to be bringing stuff back and potentially having hallucinations, etc.," he said. "We're also not using it in terms of PII [personally identifiable information] and tax information going outside of our firewalls, so it is inside large language models within our own environments being built internally for us for our use. And when we do that, we become more efficient in data analytics. We become more efficient in just the large data conceptually, and having context to how that's affecting fraud trends, analysis patterns. It's all helpful in that regard. Of course, we've been using it under more of a ChatGPT function, where you can help write reports and craft things that are more efficient. But we're starting to move into the agentic capability — how do we build in workflows of tasks that are really more general and mundane that we can hopefully now automate and have that staff do more high-level work. This is where we become more efficient with less people."
He gave the example of the Automated Underreporter function for detecting signs of potential tax noncompliance. Instead of an employee sending out a notice and receiving a response and payment from the taxpayer, it's less of a manual process. "That entire process is now automated 100% through AI," said Koopman. "We have a 98% accuracy rate versus the 92% so we've gotten more accurate. We've eliminated the need for those employees to do that automated work. Now they can all be put on something else that's more complex to interact with the taxpayer on something that's a little bit more challenging. That workflow can be applied to 1040-X. It can be applied to other areas like excise tax, where it might have something that's a lot more complicated than it runs through the calculation. When we can start implementing this at scale, you can imagine the possibilities of where we can go as we start to build this out. It will take time, but it's really advancing very quickly, and I think it should, because the criminals and abusive tax [schemes] are advancing just as fast."
Civil tax enforcement
On the civil tax side, Joshua Wu, deputy assistant attorney general of the Department of Justice Civil Division's Tax Litigation Branch, spoke earlier in the day about the trends he is seeing.
"The No. 1 priority is protecting the fisc from wage fund abuse," he said. "We're focused on shutting down tax preparers who are fraudulently increasing deductions and doing all the things that are a bug in the system and causing a tax gap."
He cited promoters of syndicated conservation easement schemes as well as micro-captive insurance and employee retention credits.
Taxpayer Advocate
National Taxpayer Advocate Erin Collins also spoke about how she has been trying to help taxpayers with outstanding ERC claims. Earlier in the week,
"If you get a notice of claim disallowance, you have two years of time to file suit, but I don't think people then took the next step, and you can't get the money after two years," she said. "I learned that the hard way with one of my attorneys when I was in private practice, where we had a big oops, and it was, wow, this is a real problem. So, when I came here, that was one of the first things I started focusing on, because with COVID, we had so many delays, and between the returns that were sitting there, or claim disallowances, that two-year period went by very quickly, because the IRS didn't have the resources to work it. And I was very concerned that those periods were going to go, and if practitioners don't focus on it, you lose the refund ability. The IRS now has a procedure."
But she said she wants the IRS to do more. "My guys tell me that all the time, 'Slow down, woman.' Not only are we trying to fix it for the ERC, because we had a lot of those claim disallowances two summers ago, but also I want a process for all taxpayers," said Collins. "When I got here, Appeals and Exams didn't rush in to sign those documents, so now I'm trying to get it so we have a procedure that the taxpayer should be advised, and then there's an ability to get it extended."
She is now also advising tax practitioners on her
"The challenge with Kwong is, how do you define it?" she told the audience of tax practitioners. "Because the courts didn't really say what we're interpreting. The courts talk about dates, but they don't say what happens on the date, and I think that's one of the things it needs to say. The dollars are potentially very large, because it could impact 10, 20, 30, 50, 60 million people. I think the large percentage of people who have the penalties or interest at issue are low-income voters. The people in this room, you're giving advice to your clients as to whether or not they should file either a protective claim or a claim for refund. I'm more worried about the average person who's never even heard of these cases, and the disaster relief, and everything that's going on. One of the things I've been trying to push is fairness. I would rather see everybody get it or nobody get it, and I don't know what the courts are going to do."
