The U.S. Government Accountability Office (GAO) recently offered advice to the Internal Revenue Service (IRS) to help taxpayers avoid bad actors and others engaged in criminal tax fraud.
The annual “Dirty Dozen” list published by the IRS is a key educational tool used by the agency to highlight common tax fraud schemes and scams that ensnare taxpayers and their pocketbooks. Along with the Dirty Dozen list, the GAO recently evaluated the IRS Office of Promoter Investigations, a unit established in 2021 to evaluate and coordinate IRS response to abusive tax schemes. The GAO conducted its study at the behest of the Senate Committee on the Judiciary and presented its report in December 2022.
While many people have not heard of the IRS Office of Promoter Investigations, the mission of the office is to identify people who promote abusive tax schemes and coordinate IRS enforcement efforts against these individuals and their networks. Through the identification and prosecution of criminal tax enterprises, the IRS compiles its annual Dirty Dozen list.
In its report, the GAO notes the four IRS units primarily involved with identifying, investigating, and prosecuting tax crimes. Those units are:
- Criminal Investigation (CI): CI conducts IRS criminal tax investigations and recommends cases for prosecution to U.S. attorneys and the Department of Justice (DOJ).
- Small Business/Self-Employed (SB/SE): Tasked with auditing the self-employed and small businesses, this unit also runs the Office of Promoter Investigations.
- Large Business and International (LB&I): Well-known in corporate settings, this unit investigates and audits high-wealth individuals, large businesses, and international enterprises.
- Tax Exempt and Government Entities (TE/GE): This group investigates and audits tax-exempt organizations, benefit plans, agencies, and tax shelters.
The GAO notes the IRS is investigating more than 40 types of promoter tax schemes. These criminal tax activities are identified by tips from the public and industry agents, internal referrals from IRS staff who become aware through investigative actions like audits, and through referrals from the DOJ.
In addition to identifying the groups and processes that work to uncover, investigation, and prosecute abusive tax actions, the GAO also made two recommendations to the IRS, including:
- Add information to the annual Dirty Dozen list which will encourage and direct the public on how to refer matters or provide tips to the IRS on tax crimes of which they are aware.
- Formalize goals and performance measures for the Office of Promoter Investigations to better focus its actions and accountability.
The report reveals that at least some of the tax crime investigated by the IRS comes to the attention of that agency through public tips. Positioning the Dirty Dozen list to publicize the importance of tipping off the IRS to tax cheats is likely to increase the number of tips to the IRS—and increase the heat on those involved in questionable tax behaviors, whether it is offshore tax evasion or shorting payroll taxes.
If you are involved in an activity that could be considered a tax crime, speak with an experienced criminal tax defense attorney about your options.
Concerned about a civil or criminal tax audit?
Serving clients from offices in Chicago and Cleveland, the tax group at Robert J. Fedor, Esq., LLC helps you respond strategically to involvement in potentially abusive tax schemes, tax controversy, or tax litigation. Call 800-579-0997 or contact us today.