The Internal Revenue Service’s Criminal Investigation unit needs to improve its search and seizure warrant process to ensure that the evidence it seizes is properly secured and controlled, according to a new government report.
The report, from the Treasury Inspector General for Tax Administration, found that the IRS does not always follow all procedures to ensure that evidence it seizes is properly stored and controlled.
The report comes in the wake of a recent high-profile exposé in The New York Times of abuses in IRS Criminal Investigation’s civil asset forfeiture practices. The Times investigation identified cases in which the IRS had seized large sums of money from business people who had been depositing cash in their bank accounts in amounts under $10,000, prompting the banks to send suspicious activity reports to the IRS. In some cases, innocent business people had thought that keeping the deposits under $10,000 would make it easier for the banks to process the deposits without needing to do the extra paperwork that is required for reporting any deposits over $10,000. But the practice also fits a pattern known as “structuring” that could be a sign of illegal activity, prompting the IRS to seize the assets without needing to file criminal charges. The IRS now plans to change its policy in such cases.
The new TIGTA report pointed out that each IRS Criminal Investigation, or CI, special agent has the authority to perform all duties under all laws and regulations administered by the IRS, including the authority to conduct searches and issue search and seizure warrants.
For its report, TIGTA requested 152 closed search and/or seizure warrant cases from the IRS to review. However, CI management did not provide 91 of these cases. According to CI management, the cases contained grand jury information, were part of an ongoing investigation or had been sealed by the court.
For 70 of the cases, CI management could not provide any documentation to support the contention that the cases contained grand jury information, were part of an ongoing investigation or were sealed. Instead, TIGTA had to rely on CI management’s verbal statements. TIGTA noted this constitutes a significant “scope impairment” on its audit because it prevented TIGTA from fully evaluating CI’s processing of search and seizure warrants and from determining whether the IRS is following established legal requirements to prevent the abuse of taxpayer rights.
However, TIGTA was able to review the remaining 61 closed search and/or seizure warrant cases provided by the IRS and found that 14 cases were missing documentation of the Criminal Tax Counsel’s post-search warrant inventory review, were missing signed affidavits, and/or contained errors on their search warrants.
“Our report found that procedures were not always followed to ensure that seized evidence was properly stored and/or controlled,” said TIGTA Inspector General J. Russell George in a statement. “Without maintaining proper documentation and following evidence procedures, evidence may be inappropriately disclosed, lost, tampered with, or stolen.”
TIGTA recommended that the IRS ensure that the required documentation is maintained in the case files, including the Criminal Tax Counsel’s post-search warrant inventory reviews, as well as signed copies of the affidavits. TIGTA also recommended that the IRS reinforce the need for physical controls over seized evidence, study the physical space needs for evidence storage, and improve access controls over evidence.
In response to the report, the IRS agreed with all five recommendations and plans to take corrective actions on four of them. While the IRS said it agreed with the fifth recommendation, IRS officials stated that they do not have the capability to have a designated evidence custodian in each post of duty due to resource constraints. Instead, the IRS will issue a reminder to managers and special agents of the proper procedures for preserving the chain of custody.
“We take the findings in this report very seriously, and appreciate and agree with your recommendations for ensuring proper documentation and proper storage of all evidence,” wrote J. Donald Fort of IRS Criminal Investigation. “Reductions in our administrative resources have necessitated that special agents maintain the administrative files and evidence for their individual cases; however, we are in the process of working on an improved system of maintaining and storing documents such as search and seizure warrant files. In addition to implementing your recommendations, we intend to add additional procedures and measures of our own to further improve and strengthen our current procedures. First, the policies for proper case file documentation for search and seizure warrants and proper storage of the evidence will be reinforced to all Special Agents. Second, through management and national reviews, we will ensure that the policies and procedures for properly maintaining administrative documentation related to search and seizure warrants are being properly followed. In addition, we are actively working on securing sufficient space for all seized evidence. As you are aware, evidence can only be stored in Criminal Investigation (CI) space, which is restricted secured-access space that is accessible only by CI employees. CI is cognizant of, respects and is sensitive to the rights of taxpayers, when utilizing the authority to conduct searches and obtain search and seizure warrants in accordance with the Fourth Amendment to the United States Constitution. We stress to our special agents to consider all other investigative tools before deciding that a search warrant is the least intrusive means to acquire evidence for an investigation.”
The IRS further elaborated on the steps it is taking in a statement emailed to Accounting Today. “The IRS takes the findings of this report very seriously and notes that TIGTA had no findings of any improper search or seizure warrants served,” the IRS said. “While the IRS’s Criminal Investigation division currently emphasizes proper documentation and storage of evidence, it will pro-actively address the areas where improvements can be made. IRS agrees with all five TIGTA recommendations and is taking corrective action on four of them. The fifth recommendation, to have a designated evidence custodian at each post-of-duty, requires staffing and other resource costs that the current budget environment cannot support. However, CI case agents are the official evidence custodians for the evidence obtained in their investigations and as such maintain the chain of custody.”
“It is important to note that IRS Criminal Investigation facilities are themselves in secure space, which is not accessible by the general public or unauthorized persons,” the IRS pointed out. “We are working with Facility Management and Security Services to secure space to address CI space needs to increase storage capacity.”
The IRS also pointed to the impact of budget cuts on its enforcement efforts. “Since 2010, the IRS budget has been reduced nearly $850 million,” said the IRS. “At the same time, we have 13,000 fewer employees today than we did in 2010. Specifically for our enforcement efforts, we have experienced a decrease of nearly 10 percent in the number of Special Agents during the same time period, falling from 2,780 in 2010 to 2,549 in 2013.”
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