The Internal Revenue Service’s Criminal Investigation unit does not always coordinate with the IRS’s civil compliance functions when it becomes aware of an abusive tax preparer or promoter, according to a new report that suggested improved communication would allow the IRS to further explore all potential civil and criminal remedies in such cases.
The report, from the Treasury Inspector General for Tax Administration, noted that in 2005, the IRS established a policy that encourages civil enforcement actions in collaboration with criminal investigations when abusive tax promotions are ongoing and the possibility of harm to the federal government is significant. TIGTA noted that if communication and coordination are not thorough and consistent, the full range of criminal and civil remedies available may not always be explored, resulting in missed opportunities to seek injunctions to prevent further harm to the government and assess civil penalties for abusive tax preparer and promoter behavior.
In the report, TIGTA found that the processes for communication and coordination of parallel investigations between the applicable IRS civil compliance functions and the IRS’s Criminal Investigation unit could be improved. The civil compliance functions are generally following the procedures that require them to communicate with the Criminal Investigation unit their intent to conduct a civil investigation of an abusive tax preparer/promoter. However, the CI unit doesn’t always coordinate with the civil compliance functions when it learns about a shady tax preparer or promoter. Better communication between the civil and criminal functions would allow the IRS to further explore all potential civil and criminal remedies in these types of cases.
IRS procedures require that quarterly coordination meetings be held for ongoing parallel investigations. However, there is no consistent requirement to document these meetings, TIGTA noted. There is thus no assurance that the meetings took place and that all required attendees were present. When the required meetings are not held, the civil compliance functions may be unaware that IRS criminal investigators have concluded an investigation, possibly preventing the appropriate civil actions from being taken.
In addition, reconciliation of investigation case inventories among the various civil compliance functions and CI could be improved to provide IRS management with the ability to better monitor the progress of parallel investigations and ensure that the program is effective, TIGTA pointed out.
TIGTA recommended that the IRS revise the memorandum used for the civil compliance function notification process to clearly identify that the criminal investigation being initiated has abusive tax preparer/promoter characteristics. The report also suggested that the IRS revise its procedures to ensure that all quarterly coordination meetings are conducted and documented and ensure that all procedures are consistent. The IRS should also improve its employees’ awareness of the purpose of parallel investigations through the periodic dissemination of information and training; and it should conduct periodic reconciliations of the various investigation inventory systems used to track parallel investigations, according to the report.
In response to the report, IRS officials agreed with all four recommendations and plan to take corrective actions. The IRS said it plans to revise the memorandum used to notify the civil compliance functions, develop a standardized check sheet to document quarterly coordination meetings, and update procedures relevant to parallel investigations to ensure consistency across functions. IRS officials also plan to improve awareness by creating a training course on parallel investigations for use by civil examiners and special agents. Finally, the IRS plans to conduct a monthly reconciliation of the various inventory systems to help ensure that parallel investigations are properly tracked and monitored.
However, the IRS also pointed out some shortcomings in TIGTA’s findings. “Parallel investigations achieve maximum compliance by effectively balancing criminal and civil enforcement actions to stop the promotion of abusive tax avoidance schemes,” wrote Faris Fink, the commissioner in charge of the IRS’s Small Business/Self-Employed Division, in response to the report. “As your report states, due to the inherent risks involved and the rules and regulations governing both criminal and civil processes, additional procedures and increased oversight are necessary when considering the use of parallel proceedings. Our planned corrective actions based on your recommendations will help to strengthen our current procedures. We would note, however, that the findings in your report regarding parallel investigations and abusive tax return preparers and promoter cases cannot be projected to the respective case populations because the results were derived from judgment samples and are therefore not representative of the entire population.”
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