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IRS Criminal Investigation. Special Agent Susan Prine. IRS-CI’s Mission Statement.
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IRS Criminal Investigation Special Agent Susan Prine
IRS-CI’s Mission Statement Criminal Investigation serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.
Investigative Jurisdiction • Title 26 Statutes regarding violations of the Internal Revenue Code • Title 18 Statutes regarding the various forms of money laundering • Title 31 Statutes regarding the various Bank Secrecy Act reporting requirements
“This is preposterous! You can’t tax illegal money” -- Al Capone, Public Enemy #1 • Capone was possibly the most famous mob boss of all time. • Made his fame from the production of beer/liquor during prohibition. • His mob was credited with the Valentine’s Day Massacre (1929), in which seven members of the “BUGS” mob were machine-gunned against a garage wall by men posing as police officers. • Was convicted October 18, 1931, sentenced to 11 years in prison, and ordered to pay $215,000 (plus interest) in back taxes – equivalent to over $2.8 million today.
IRS Criminal Investigation Authority to investigate, execute, and serve search warrants and arrest warrants, serve subpoenas and summonses, make arrests without warrant, carry firearms, make seizures of property subject to forfeiture and to require and receive information, as to all matters relating to such laws and regulations.
IRS Criminal Investigation • 4200 employees worldwide which includes 2751 Special Agents • IRS CI is the only agency with jurisdiction over Title 26 violations • CI has special agents assigned to 26 field offices across the United States and in 11 foreign countries including Columbia, Mexico, Great Britain, Germany, Canada, China, Barbados, Iraq, China, Australia, and Panama.
War on Terrorism • CI participates in every major terrorism financing investigation, many of which involve violations of the Internal Revenue Code and related offenses. We also assisted the Treasury Department in efforts to locate and freeze terrorist funds and repatriate stolen Iraqi assets.
Joint Task Forces • National Joint Terrorism Task Force • Organized Crime Drug Enforcement Task Force (OCDETF) • Federal Bureau of Investigation • Drug Enforcement Administration • U.S. Postal Inspection Service • Bureau of Immigration & Customs Enforcement • U.S. Marshalls Service • Alcohol Tobacco & Firearms • IRS Criminal Investigation • U.S. Coast Guard • State & local law enforcement
Gross Tax Gap • Despite the voluntary compliance rate and vigorous enforcement by the IRS, a significant amount of revenue remains unreported and unpaid. In 2005, the IRS estimated this gross tax gap to be approximately $345 billion (based upon 2001 figures). • Gross Tax Gap = The difference between the amount of tax that taxpayers should pay under the tax law and the amount they actually pay on time.
FY 2011 Areas of Focus • International/Off-Shore Enforcement • Return Preparer Fraud • Corporate Fraud • Employment Tax • Abusive Tax Schemes • Non-Filers • Money Laundering / Bank Secrecy Act • Counterterrorism
Job Tasks – Investigative Process • Review bank records and other third party records • Conduct witness interviews • Interface and work with other federal, state, local law enforcement agencies • Consensual monitoring with audio and/or video surveillance • Undercover operations • “Trash runs” • Search warrants
Other Job Tasks • Testify before the federal grand jury • Assist the United States Attorney’s Office in the prosecution of defendant • Prepare the evidence and witnesses for trial • Testify in United States District Court • Other: • Defensive Tactics and Firearms Training • Armed Escorts for Civil Divisions
Tax Evasion • Underreporting of income or overstatement of expenses/deductions • Criminal intent • Affirmative acts of evasion such as • Double set of books • Use of nominees • Extensive use of currency • False statements
Tax Evasion Three Missouri Business Owners Sentenced For Tax Evasion On September 7, 2011, in Springfield, Mo., Denver A. Wood, Thomas A. Wood, and David D. Large, all of Branson, were sentenced in to prison for tax evasion. Denver Wood was sentenced to two years in prison and ordered to pay $181,103 in restitution. Thomas Wood was sentenced to 18 months in prison and ordered to pay $111,581 in restitution. Large was sentenced to one year in prison and ordered to pay $198,517 in restitution. On November 29, 2010, Thomas Wood pleaded guilty to two counts of income tax evasion and Denver Wood pleaded guilty to three counts of income tax evasion. Large pleaded guilty on January 13, 2010, to participating in a conspiracy to commit tax evasion. According to information in court documents, Wood, Wood, and Large owned and operated a travel club business originally named Vacation Travel Outlet (VTO) from 2000 through 2004. VTO marketed travel club memberships that claimed to offer discounted travel prices, including savings on airfare, cruises, hotels, golfing, rental cars and condominiums. They also owned and operated Vacation Services of America (VSA) from 2003 to 2005. Thomas and Denver Wood admitted that they received income from their employment at those businesses. Thomas Wood admitted that he failed to file an income tax return for 2002 and 2003. Denver Wood admitted that he failed to file an income tax return for 2002, 2003 and 2004. Large admitted that he and his co-defendants attempted to conceal $1,803,728 in income from the IRS. To evade paying the taxes, Large admitted that he and his co-defendants received their distribution of profits from their ownership interests in VTO in the form of withdrawals and checks drawn off of the VTO bank account and made payable to “cash.” They or their spouses deposited the checks into their individual bank accounts or cashed them at the banks. They also received officer compensation from VSA. According to his plea agreement, Large failed to file income tax returns with the IRS for tax years 2000 through 2004. Large also admitted that he and his co-defendants structured financial transactions to evade federal reporting requirements.
Tax Scams to Avoid Phishing Tactic used by scam artist to trick unsuspecting victims into revealing personal or financial information in an electronic communication. Emails, tweets, or phony websites. Enticements through an overdue tax refund or economic stimulus payment or claim that your Electronic Federal Tax Payment has been rejected.
Tax Scams to Avoid Phishing **The IRS does not initiate taxpayer communications through email.** • However genuine in appearance, do not provide any personal or financial information including name, SSN, bank account and credit card information, or PIN numbers. • Do not reply to the sender or access any links. • Instead, forward the email to phishing@irs.gov.
Tax Scams to Avoid Return Preparer Fraud Dishonest and unscrupulous tax return preparers can cause trouble for taxpayers who fall victim to their ploys. IRS requires all paid return preparers to register with the IRS, pass competency tests, and attend continuing education.
Return Preparer Fraud • Unscrupulous Return Preparers: • Build up their clientele by adding false deductions to decrease tax liability, resulting in refunds or a smaller balance due • Charge significant fees to assist clients in avoiding taxes • The preparers' clients may or may not know about the false expenses, deductions, exemptions and/or credits shown on their tax returns.
Return Preparer Fraud Tax Preparer Sentenced for False Tax Returns; $2 Million Tax Loss, More Than 1,000 Returns Carrie Shafer, of Oronogo, Missouri, was sentenced to three years in prison which was the statutory maximum penalty allowed by law. Shafer operated TC’s Taxes & More, a tax preparation business, from her home. She represented clients before the IRS in the preparation of tax returns and as the taxpayers’ representative during the audit process. During three years, she prepared more than 1475 tax returns, primarily for clients in southwest Missouri. Nearly all of the them were false and fraudulent, resulting in a total tax loss of approximately $2 million. Clients who received tax refunds to which they were not entitled are required to repay the government with interest. Shafer admitted that she greatly inflated itemized deductions and dependent exemptions, and included amounts of false income so the clients would receive the earned income credit, resulting in larger tax refunds. Fraudulent deductions included false medical expenses, charitable contributions, employee business expenses, and self-employment income, which Shafer either greatly overstated or wholly fabricated.
Tax Scams to Avoid Hiding Income Offshore Taxpayers have tried to avoid or evade United States income taxes by hiding income in offshore banks and brokerage accounts. Taxpayers also evade taxes through the use of offshore debit and credit cards, wire transfers, foreign trusts, and the establishment of phony offshore businesses.
Tax Scams to Avoid Hiding Income Offshore • In February 2009, Swiss bank UBS entered into a deferred prosecution agreement to which the bank admitted to helping U.S. taxpayers hide accounts from the IRS. As a part of their agreement, UBS provided the U.S. government with the identities of, and account information for, certain U.S. customers of UBS’ cross-border business. • Over 15,000 voluntary disclosures were received during 2009.
Tax Scams to Avoid Frivolous Arguments/Misuse of Trusts/Non-Filers Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. • Filing and paying of taxes is voluntary. • Taxpayer is not a citizen of the United States. • The 16th Amendment to the U.S. Constitution was never properly ratified, therefore income tax laws are unconstitutional. • Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an OMB control number as required by the Paperwork Reduction Act.
Tax Scams to Avoid Frivolous Arguments Is this tax promotion asking me to… • Underreport my income? • Intentionally omit income? • Overstate the amount of my deductions? • Keep two sets of books? • Make false entries in my books and records? • Claim personal expenses as business expenses? • Claim false deductions? • Hide of transfer assets or income? If you answered “Yes” to any of these questions, then….
Tax Scams to Avoid Frivolous Arguments ….you are probably involved with an illegal tax avoidance scheme. The IRS prosecutes the promoters of fraudulent schemes, and participating taxpayers could be subject to civil and/or criminal tax penalties. 94% Conviction Rate on Non-Filers
Illegal Tax Scheme Promoters Four Florida Promoters of Tax Defier Schemes Convicted of Tax and Mail Fraud – May 26, 2010 Eddie Ray Kahn, Stephen C. Hunter, Danny True and Allan J. Tanguay were found guilty after an 18 day trial of conspiracy to defraud the United States and to commit mail fraud in the operation of American Rights Litigators/Guiding Light of God Ministries. Additionally, each defendant was convicted of one or more counts of mail fraud. Jerry Williamson plead guilty in April 2009. Kahn founded and ran ARL from 1996 through 2004 during which time ARL enrolled more than 4000 customers from all 50 states and the District of Columbia. Hunter, True, and Tanguay worked at ARL with Kahn to develop and sell tax defiance schemes based on deliberate misrepresentations of the legal foundation of the tax system. The purpose of the scheme was to thwart the IRS in its attempts to assess and collect taxes by various means. ARL helped clients evade more than $1 billion in taxes. Eddie Kahn – 20 years in prison** Stephen C. Hunter – 10 years in prison Danny True – 10 years in prison Allan J. Tanguay – 10 years in prison **Kahn was already serving a 10 year sentence in connection with the 2008 conviction of…
Illegal Tax Scheme Promoters Wesley Snipes Snipes was indicted in October 2006 on eight counts of tax fraud for allegedly trying to get $12 million in fraudulent refunds from the federal government by claiming his income was immune from taxation. He was acquitted on tax fraud but sentenced to three years in prison in April 2008 for failing to file tax returns for three years. The government claimed he owed $2.7 million in taxes.
Additional tax scams – See the 2011 Dirty Dozen Tax Scams at www.irs.gov
Corporate Fraud • 97.4% Conviction Rate • Indictments are up • Average sentence is 36 months
Corporate Fraud Former Quest CFO Sentenced to 16 Years for Defrauding Company On November 29, 2010, in Oklahoma City, Okla., David Grose was sentenced to 192 months in prison, three years of supervised release, and ordered to pay $1 million in restitution and forfeit $1 million in assets. According to court documents, Grose served as the Chief Financial Officer for Quest Energy Partners, L.P. (Quest), a publicly-traded oil and gas exploration and production business based in Oklahoma City from 2004 to 2008. Grose’s responsibilities included supervising Quest’s financial accounting and books, coordinating quarterly reviews and annual audits by outside auditors, certifying the accuracy of reports filed with the U.S. Securities & Exchange Commission (SEC), and ensuring that all employees complied with Quest’s internal ethics policies. According to the evidence at trial, in the summer of 2008, Grose planned to make a $1 million personal investment in a hydrogen fuel technology company. He told the hydrogen fuel technology company that the investment would be funded with his own money. Instead, under the pretext of paying for the purchase of pipe, Grose wired approximately $1 million from Quest to a pipe supplier. Within minutes of the transfer, Grose contacted the pipe company to cancel the order and instructed the pipe company to wire the money to the hydrogen fuel technology company instead of returning the money to Quest. Evidence showed that Grose then caused the transaction to be documented on Quest’s financial records as payment for pipe. As a result, Quest lost $1 million. This investigation led to three other cases: On November 12, 2010, Jerry Dale Cash was sentenced to 108 months in prison for making a false Sarbanes-Oxley certification to the Securities & Exchange Commission (SEC) by failing to disclose his diversion of $10 million in corporate funds. In addition, Cash was ordered to pay $5 million in restitution towards the $12 million stipulated restitution amount. On May 14, 2010, Brent Mueller, of Edmond, Oklahoma, Quest’s former purchasing director, was sentenced to 24 months in prison and ordered to pay over $1 million in restitution. According to court documents, Mueller learned that Grose had illegally wired $1 million out of Quest to use for a personal investment and he took several steps to cover up the crime, including trying to recover the $1 million to prevent Quest from discovering the illegal diversion.
Common Schemes Pyramiding Employment Leasing Paying Employees in Cash Filing False Payroll Tax Returns or Failing to File Payroll Tax Returns Employment Tax
Employment Tax Fraud New Jersey Couple Sentenced for Failing to Pay Employment Taxes On March 22, 2011, in Trenton, N.J., James and Theresa Demuro of Bridgewater, N.J., were each sentenced to 51 months in prison, followed by three years of supervised release and ordered to pay $1,337,952 in restitution to the Internal Revenue Service (IRS). The Demuros were convicted in November 2010 of one count of conspiracy to defraud the United States and 21 counts of willfully failing to pay over employment taxes. According to the indictment and evidence introduced during trial, the Demuros co-owned and operated an engineering and surveying firm called TAD Associates LLC dba Demuro Associates. From 2002 through 2008, they withheld employment taxes from their employees’ paychecks but failed to pay approximately $546,247 in taxes to the IRS. In addition, they operated under a prior entity name DA Resources Inc., which they ceased operating in an effort to thwart the ability of the IRS to collect unpaid employment taxes related to that entity. In addition, the Demuros withheld funds from their employees’ pay checks for health insurance, child support and retirement savings accounts, and failed to pay these funds over to the appropriate entities. In addition, evidence at trial indicated that the Demuros converted withheld funds for their business and personal use, including more than $280,000 in purchases from QVC, Home Shopping Network and Jewelry Television.
Money Laundering What is money laundering? “The process by which one conceals the existence, illegal source, or illegal application of income and then disguises that income to make it appear legitimate.” --U.S. Department of Justice
Money Laundering Tax Evasion in Progress • Hide untaxed income (usually illegal sourced income) • Gives the money the appearance of coming from a legitimate source
Money Laundering • Narcotics Trafficking • Wire Fraud • Mail Fraud • Theft, embezzlement, or misapplication by bank officer or employee • Arson • Theft or bribery concerning programs receiving federal funds • Illegal gambling businesses
Money Laundering Pulaski County Residents Plead Guilty to Distributing Prescription Drugs Over the Internet On January 18, 2011, Anthony D. Holman, 36, and his wife, Arcelia Holman, 43, both formerly of St. Robert, Mo., pleaded guilty to participating in a conspiracy to distribute such prescription drugs as hydrocodone, alprazolam and zolpidem by using fraudulent prescriptions obtained through the Web sites they operated, beginning sometime in 2005 and continuing to April 27, 2007. On four occasions from January through April 2007, they sold hydrocodone to undercover law enforcement agents through the Web site. They also pleaded guilty to their roles in a money-laundering conspiracy related to financial transactions that involved the proceeds of the drug-trafficking conspiracy. They agreed to forfeit three vehicles and over $400,000 in funds seized during the investigation. Since that date, five additional co-defendants have pled guilty to this illegal drug conspiracy. The August 2008 indictment charged these seven defendants with the distribution of over 1,090,000 dosage units of Schedule III and IV controlled substances and the receipt of over $2 million illegal revenue.
FY11 YTD Publicity Rate • Overall publicity rate continues to be high – 87.5% • Legal income publicity – 93.2% • Illegal income publicity – 89.4%
IRS Criminal Investigation Special Agent Susan Prine 2937 S. Claremont, Suite 210 Springfield, Missouri 65804 417-891-1479 susan.prine@ci.irs.gov
