Tax Administration:
Investigating Illegal Income--Success Uncertain, Improvements Needed
GGD-88-61: Published: Apr 25, 1988. Publicly Released: Apr 25, 1988.
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In response to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) Special Enforcement Program (SEP), which IRS uses to investigate tax law violations and potential taxable income related to illegal activities, to identify: (1) the law enforcement results and tax revenues generated from program operations; and (2) management improvements that could enhance program operations.
GAO found that: (1) since 1980, SEP efforts have resulted in fewer discontinued investigations, more indictments, and more convictions; (2) of the SEP cases closed in fiscal year 1985, 47 percent resulted in tax-related convictions, 68 percent of those convictions resulted in jail sentences, 42 percent resulted in criminal fines, and 38 percent of those investigated were major criminals; (3) IRS referred 55 percent of the cases closed in 1985 and 64 percent of the cases closed in 1982 for tax assessment examinations; (4) IRS collected $11.2 million of the $37.6 million in assessed taxes, interest, and penalties, $2.2 million of which was on illegal-source income; (5) 76 percent of the 509 cases included inaccurate or incomplete management information that resulted in misleading reports; (6) IRS officials inconsistently interpreted what constituted grand jury information; and (7) 7 of 8 district officers had no management system to ensure interdivisional coordination and prompt civil action on closed criminal cases.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: IRS formed a task force to review its reporting system. The Criminal Investigations Case Management Information System was revised to track civil assessments and collections on closed cases.
Recommendation: To improve the management of SEP operations, the Commissioner of Internal Revenue should collect management information relating to key program objectives, and identify the tax revenues generated by SEP cases.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Closed - Implemented
Comments: IRS conducted reviews in each region to assess procedures for ensuring timely and accurate input of information into CM&TRS. The division chiefs stressed the accuracy of CM&TRS will be a priority in all operations reviews conducted by the chiefs.
Recommendation: To improve the management of SEP operations, the Commissioner of Internal Revenue should review existing Case Management and Time Reporting System (CM&TRS) input controls to determine how the accuracy of management information can be improved.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Closed - Implemented
Comments: IRS, in coordination with Justice, has revised the Chief Counsel Directive Manual. Revised manual material and a legislative guidance memo has been issued.
Recommendation: To improve the management of SEP operations, the Commissioner of Internal Revenue should: (1) work with IRS Chief Counsel and Department of Justice representatives to provide better guidance for special agents on what constitutes grand jury information; and (2) require special agents to consult with IRS Chief Counsel attorneys, or with U.S. attorney representatives if IRS Chief Counsel is not involved, at the close of a grand jury case to help determine what information could be forwarded to Examination for civil action.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Closed - Implemented
Comments: Criminal Investigations implemented a manual transmittal dated May 2, 1990 which established a procedure for more prompt notification to Counsel and Exam when Grand Jury and administrative investigations are closed. Criminal Investigations revised its management information system to track civil assessments and collections on closed criminal cases.
Recommendation: To improve the management of SEP operations, the Commissioner of Internal Revenue should establish a district office program to monitor the civil actions taken by various IRS components on closed criminal cases.
Agency Affected: Department of the Treasury: Internal Revenue Service
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