Tax Administration

The Internal Revenue Service's (IRS) Criminal Investigation Division investigates tax fraud and helps other law enforcement agencies to investigate financial crimes, such as money laundering, linked to narcotics trafficking. In the early 1990s, IRS raised questions about the Division's investigative priorities because they increasingly involved nontax investigations that supported national drug and crime policies--even as the tax gap grew to $128 billion for 1992. This concern prompted the Division to devote more resources to tax investigations. This report discusses the steps that the Division has taken since the early 1990s to increase the time spent on tax investigations versus nontax investigations. It also highlights the investigations initiated by the Division, as well as referrals to U.S. Attorneys for prosecution and court sentences on the basis of these investigations, for fiscal years 1990 through 1996.

GAO noted that: (1) between FY 1990 and FY 1992, IRS data show that the percent of time spent on tax gap investigations decreased by 10 percentage points, continuing a downward trend since the early 1980s; (2) on the basis of the recommendations of two IRS studies done in the early 1990s, CID began in October 1993 taking actions designed to increase the amount of time its agents spent conducting tax investigations: (3) specifically, CID reorganized its administrative functions and operations with the intent of better targeting resource allocations; (4) it also consolidated and recategorized its program areas with an objective of better targeting its investigations; (5) in addition, as of FY 1996, CID established goals for the percent of time to be spent on its investigations, particularly for tax gap investigations; (6) since these actions were initiated, the percent of time spent on tax gap investigations has increased by 13 percentage points from a low of 46 percent in 1992 to 59 percent in 1996; (7) overall, the 59 percent in FY 1996 represented a net increase of 3 percentage points over the FY 1990 level; (8) between FY 1992 and FY 1996, there was an increase in the percent of tax gap investigations that CID initiated and in the percent of referrals to U.S. Attorneys for prosecution based on tax gap cases; (9) since FY 1994, the percent of court sentences based on tax gap cases has also increased; (10) however, as of FY 1996 the increases in these indicators have not been enough to match FY 1990 levels.