FACT SHEET
JUSTICE DEPARTMENT CRACKS DOWN ON TAX FRAUD

WASHINGTON, D.C. - The Department of Justice and the Internal Revenue Service have stepped up federal law enforcement efforts against tax fraud.

"The Department of Justice is working with the Internal Revenue Service to crack down on tax fraud," said Eileen J. O'Connor, Assistant Attorney General for the Justice Department's Tax Division. "As a result of these efforts, it is increasingly likely that tax cheaters will be caught and punished."

The Justice Department's top tax enforcement priority is to work with the IRS to identify and stop promoters who pitch abusive and fraudulent tax schemes and people who participate in such schemes. Those schemes include failing to report taxable income, claiming false tax deductions and transferring assets overseas in an attempt to evade their tax obligations.

The Justice Department's tax-enforcement activities include criminal and civil initiatives.

Criminal Prosecutions

The Tax Division authorized the prosecution of 968 defendants for tax fraud in 2002, an increase of 16 percent over the previous year. Prosecution authorizations have increased another 11 percent to date for 2003.

In addition to prosecuting promoters of tax fraud schemes, the Division's criminal tax enforcement priorities include:

Employers who fail to withhold or pay payroll and income taxes;

tax return preparers who prepare fraudulent tax returns;

illegal tax protestors who claim frivolous and discredited justifications for not filing truthful tax returns; and

taxpayers who employ trusts and overseas bank accounts to evade taxes.

"Our message should be clear. People who commit tax violations face an increasing likelihood of criminal prosecution," said Assistant Attorney General O'Connor.

Details about prosecutions of tax criminals are available on the Tax Division's website, www.usdoj.gov/tax, and on the IRS Criminal Investigation Division's website, http://www.ustreas.gov/irs/ci/.

Affirmative Civil Injunctions

In 2002, the Department of Justice filed 13 complaints seeking injunctions against 18 defendants charged with promoting abusive tax schemes or preparing fraudulent tax returns. Another six complaints against 11 persons have been filed to date in 2003. Federal courts granted 11 injunctions against 15 persons in 2002.

So far in 2003, courts have granted eight injunctions against nine persons. The other complaints remain pending.

In 2001, six injunction cases were filed against six defendants. The government did not seek any such injunctions in 1999 or 2000.

Additional information about civil injunction cases is available on the Tax Division's website, at http://www.usdoj.gov/tax/taxpress2003.htm.

"The affirmative civil enforcement initiative will continue and expand," said Assistant Attorney General O'Connor. "We are working closely with the IRS and making greater use of our civil enforcement tools, as well as criminal statutes, to shut down purveyors of abusive and fraudulent tax schemes."

Among the fraudulent schemes that the courts have shut down are the following:

Claims that tax deductions could be taken for non-deductible personal expenses, including depreciation on homes, utility payments, gardening expenses and maintenance costs;

claims that only income from foreign sources is subject to United States income taxes, and that citizens are not required to report income – so-called "Section 861 schemes;"

claims that tax returns should not or need not be filed, and that taxes need not be paid;

advice that taxes need not be withheld from wages; and

claims for tax refunds based on a fictitious tax credit for slavery reparations.

The Department of Justice encourages anyone who has information about suspected tax fraud to report it to the IRS tip line at 1-800-829-0433.

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