GOVERNMENT REPRESENTATIVES IN CRIMINAL TAX ENFORCEMENT

Transcription

1 DID YOU GET YOUR BADGE SCANNED? GOVERNMENT REPRESENTATIVES IN CRIMINAL TAX ENFORCEMENT #TaxLaw #FBA Username: taxlaw Password: taxlaw18

2 Panelists Edward Ted F. Cronin, Division Counsel/Associate Chief Counsel (Criminal Tax), IRS Office of Chief Counsel (Moderator) Eric Hylton, Deputy Chief, Criminal Investigation, Internal Revenue Service Richard T. Lunger, Deputy Division Counsel/ Deputy Associate Chief Counsel (CT), IRS Office of Chief Counsel Caryn D. Finley, Assistant Chief, Southern Criminal Enforcement Section, Tax Division, Department of Justice

3 Outline IRS Criminal Investigation (CI) Overview Legal Updates 26 U.S.C Sertich Forfeiture Honeycutt Questions

4 FY2017 Overview IRS Criminal Investigation

5 IRS Criminal Investigation Approximately 3,100 employees worldwide Approximately 2,200 Special Agents IRS Criminal Investigation is the only agency with jurisdiction over Title 26 violations The tax laws and tax convictions are our focus! Violations of Title 18 and Title 31, U.S.C.

6 FY2017 Statistics FY 2016 FY 2017 Investigations Initiated 3,395 3,019 Prosecution Recommendations 2,744 2,251 Informations/Indictments 2,761 2,294 Conviction Rate 92.1% 91.5% Total Sentenced 2,699 2,549 Percent to Prison 79.9% 80.1% Average Months to Serve 41 42

7 FY2016 Statistics

8 Areas of Focus International Tax Fraud Abusive Tax Schemes Employment Tax Refund Crimes QRP, RPP and Identity Theft Cybercrimes (including Virtual Currency) Frivolous Arguments Program Non-filers Political/Public Corruption Fraud Referral Program Money Laundering / Bank Secrecy Act (BSA) Organized Crime Drug Enforcement Task Force (OCDETF)

9 International Tax Enforcement Formed new elite International Enforcement Group by consolidating foremost experts in International Tax Crimes under one focused operational group. Comprised of agents in DC as well as strategically located in other locations around the country. We will continue to have heavy support from DOJ-Tax Division and continue to partner with our civil and international partners.

10 Nationally Coordinated Investigations Unit (NCIU) Cutting edge, future of IRS-CI: Nationwide impact by using DATA to identify and develop areas of non-compliance. Moving to better manage and manipulate all available data to better select criminal cases. Primary goal ensure nationwide coverage of all program areas. First projects SEC Microcap Fraud, international tax enforcement, employment tax. Must-work referrals will come out of this group.

11 Employment Tax Employers are required by law to withhold employment taxes from their employees. Some of the more prevalent methods of evasion include: pyramiding, employee leasing, paying employees in cash, and/or filing false payroll tax returns or failing to file payroll tax returns.

12 Employment Tax Statistics FY 2016 FY 2017 Investigations Initiated Prosecution Recommendations Informations/Indictments Sentenced Incarceration Rate 70.1% 77.9% Average Months to Serve 14 21

13 Identity Theft Statistics FY 2014 FY 2015 FY 2016 FY 2017 Investigations Initiated 1, Prosecution Recommendations Informations/Indictments Sentenced Incarceration Rate 87.7% 84.6% 87.8% 87.5% Average Months to Serve Direct Investigative Time 17.3% 18.1% 16.2% 13.6%

14 Cybercrimes (including Virtual Currency) CI s Cyber Crimes Unit (CCU) will continue to develop and expand in response to the ongoing threat of internet theft, refund fraud, and other virtual financial crimes. CCU will identify and pursue tax, money laundering, identity theft, and refund crimes in the cyber world. In addition, CI will collaborate with FinCEN and other federal law enforcement agencies to identify the movement of illegal monies utilizing virtual currency.

15 Fraud Referral Program Key source of high income tax fraud investigations. Partnership with other IRS Business Operating Divisions to promote fraud awareness and facilitate fraud training.

16 United States v. Sertich, F.3d, No , 2018 WL (5 th Cir. Jan. 8, 2018) Medical doctor Sertich was convicted of, inter alia, ten counts of willful failure to collect and pay over employment taxes (26 U.S.C. 7202) for For the periods in issue, Sertich owned two medical entities that withheld employees payroll taxes, which were accounted for in the entities tax filings. YET, such withholdings never were paid over to IRS. Further, Sertich claimed withholdings on his personal returns.

17 United States v. Sertich (cont d) Ultimately, Sertich was sentenced to 41 months imprisonment. On appeal, Sertich challenged, inter alia, jury instructions as to elements of 7202, which provides for two offenses: Willful failure to collect employees taxes; or Willful failure to truthfully account for and pay over the taxes. Sertich challenged jury instruction re second offense.

18 United States v. Sertich (cont d) As to second offense, instruction stated gov t must prove [def] failed to comply with one of the two duties for which he was responsible either truthfully accounting for or paying over a tax. Sertich argued 7202 violation required both failure to account for and pay over a tax. If so, Sertich would not be guilty if he accounted for, but failed to pay over taxes. (5 th Cir. said absurd) Issue of first impression in Fifth Circuit.

19 United States v. Sertich (cont d) Fifth Circuit relied on, inter alia: plain language of 7202; absurdity of Sertich s reasoning; Supreme Court Slodov analysis to civil corollary (26 U.S.C. 6672) also requires the dual obligation to withhold and pay over; and Statute title (Willful Failure to Collect or Pay Over Tax) suggests violation when either duty not met.

20 United States v. Sertich (cont d) Ultimately, Fifth Circuit agreed with all other circuits to consider issue and held 26 U.S.C is violated if a defendant willfully fails to either truthfully account for taxes or pay them over.

21 Honeycutt v. United States, 137 S. Ct (2017) Criminal prosecution of Honeycutt, manager of hardware store owned by his brother. Store sold Polar Pure, an iodine-based waterpurification product that could be used to manufacture methamphetamines. Honeycutt went to police after suspicious individuals purchased Polar Pure. Police suggested store cease selling Polar Pure.

22 Honeycutt v. United States (cont d) Despite law enforcement advice to Honeycutt to cease selling Polar Pure, store continued to sell the product. Honeycutt and brother were prosecuted for federal drug crimes, including conspiracy to distribute a product used in meth production. Forfeiture money judgment against brothers for proceeds of illegal sales, $400K jointly & severally liable under 21 U.S.C. 853(a).

23 Honeycutt v. United States (cont d) Forfeiture money judgment ($400K) based on amount store grossed from Polar Pure sales. 21 U.S.C. 853(a)(1) mandates forfeiture of proceeds obtained from drug distribution. Gov t conceded Honeycutt did not have a controlling interest in hardware store and did not stand to benefit personally from illegal sales. Nonetheless, gov t sought to hold Honeycutt jointlyand-severally liable for profits.

24 Honeycutt v. United States, 137 S. Ct (2017) Supreme Court held joint-and-several liability does not apply under 853 because statute limits forfeiture to tainted property. Statute s definition of forfeitable property (in terms of personal possession or use only) also negates joint and severable liability. Substitute property provision in 853(p) allows govt to confiscate untainted property, forecloses joint-and-severable liability because Congress authorized confiscation of substitution assets only from defendant who acquired property and bears responsibility for its dissipation.

25 Questions Any Questions?