JUSTICE DEPARTMENT NOTES INCREASE IN TAX ENFORCEMENT

WASHINGTON, D.C. - The Department of Justice and the Internal Revenue Service have continued their vigorous and effective criminal tax enforcement and civil injunction efforts against people who engage in tax fraud and other forms of non-compliance with the federal tax laws. Of particular note are the government’s successful criminal prosecution of tax cheats and promoters of tax scams, its effective use of civil injunctions to stop the promotion of tax scams and the preparation of false and fraudulent tax returns, and its continuing efforts to identify and pursue participants in abusive tax shelters.

“The Department of Justice is committed to using all available tools to enforce the tax laws, recover revenues, punish offenders, and prevent future misconduct,” said Eileen J. O’Connor, Assistant Attorney General for the Tax Division. “People who promote, facilitate, or engage in tax fraud are risking penalties and, where appropriate, criminal prosecution.”

“If you’re thinking about cheating on your taxes, think twice,” said IRS Commissioner Mark W. Everson. “The IRS is ramping up its enforcement efforts, particularly for high-income individuals and corporations. Where we need to, we turn to the Justice Department to take people to court.”

Criminal Prosecutions of Tax Violations

In 2004, the Justice Department’s Tax Division authorized prosecutions against 1,381 defendants for tax crimes, an increase of more than 57 percent over the 877 defendants authorized for prosecution in 2001. The Tax Division’s criminal enforcement priorities include investigating and prosecuting schemes that involve:

• Using trusts or other entities to conceal control over income and assets;
• Shifting assets and income to hidden offshore accounts;
• Claiming fictitious deductions;
• Using frivolous justifications for not filing truthful tax returns;
• Failing to withhold, report and pay payroll and income taxes;
• Failing to report income;
• Failing to file tax returns.

Civil Injunctions To Stop the Promotion of Tax Scams

The Tax Division brings civil injunction suits to stop illegal tax fraud scams. In response to the government’s suits, courts across the country have barred promoters of tax fraud scams from selling tax-evasion schemes on the Internet, at seminars or through other means.

Since 2000, the government has sued to enjoin the illegal activities of 131 tax scam promoters. To date, courts have barred 103 of them from promoting their tax fraud scams. In 2004 alone, the Department brought suits to enjoin 57 defendants and federal courts barred 49 defendants from promoting their tax fraud schemes. The United States has obtained injunctions that have barred the following schemes:

• Using an employee-leasing company to evade employment taxes;
• Using a Awarehouse bank@ to commingle and conceal assets;
• Transferring their income and assets to a so-called corporation sole, and claiming that it is a tax-exempt church;
• Using “trusts” conceal ownership or control of assets;
• Claiming personal housing and living expenses as business expenses;
• Claiming non-existent tax credits, such as reparations;
• Failing to withhold, report and pay payroll and income taxes;
• Filing tax returns reporting falsely “zero income;”
• Claiming that only income from foreign sources is taxable.

The Department of Justice also has obtained injunctions against employers who fail to withhold, account for and pay over employment and withholding taxes and against return preparers who prepare false returns.

“Our injunction suits enable us to put a stop to the harm caused by the promotion of tax fraud schemes and the preparation of false tax returns,” said Assistant Attorney General O’Connor. “By stopping tax fraud schemes at their source, we can also minimize the number of people who get caught up in these scams and find themselves on the wrong side of the law.”

Coordinated Civil and Criminal Proceedings

The government brings both its civil and its criminal tools to bear in the fight against tax fraud. An ongoing tax scam represents a continuing harm to the federal Treasury and puts the people who engage in it on the wrong side of the law. Rather than waiting until a criminal case has been developed to take action to stop the scam, the Justice Department brings civil injunction suits to stop the promotion of tax scams and the preparation of false or fraudulent tax returns. Then, in appropriate cases, the Justice Department brings criminal charges against the promoters, preparers, and scam participants to ensure that they reap the penalties the law provides for such conduct.

Further details about these and other tax enforcement cases are available on the Tax Division’s website, http://www.usdoj.gov/tax/ on the IRS’s website, http://www.irs.gov/, and on the IRS Criminal Investigation Division’s website, http://www.ustreas.gov/irs/ci/.

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.