Report No. 29
Administrative machinery.-The Internal Revenue Service (an Agency of the Treasury Department) collects the taxes imposed by the Internal Revenue Code. Its headquarters are in Washington, and it has 9 regional offices, 64 district offices and over 1,200 sub-offices1.
So far as the question of investigation of frauds is concerned, its hierarchy is as follows2:-
(1) National office at Washington Intelligence Division-
(a) Tax Fraud Branch;
(b) Special Investigations Branch.
(2) Office of the Chief Counsel-
Assistant Chief Counsel (Enforcement).
(3) Office of the Regional Commissioner-
(Chief Counsel's Office).
Assistant Regional Commissioner (Intelligence).
(4) District Director's Office-
(a) District Director;
(b) Assistant District Director, Intelligence
(a) Tax Fraud Branch;
(b) Special Investigation Branch.
Criminal cases relating to tax evasion are investigated by the officers of the Internal Revenue Service, scrutinised by the Enforcement Division of the Regional Counsel and prosecuted by the Tax Division of the Department of Justice. That Department has a full-fledged Criminal Tax Section, having several Attorneys.
In each district, there is a District Director of Internal Revenue, controlled by the Assistant Regional Commissioner, Intelligence. Ordinarily speaking, the District Director, acting through the Chief, Intelligence Division, is in charge of investigation of criminal violations of the Revenue laws. Special officers of the Intelligence Division (called "Special Agents"3) investigate cases of frauds, and the District Director, with the concurrence of the Chief, Intelligence Division, recommends prosecution and sends the recommendations to the Assistant Regional Commissioner (Intelligence). If the latter agrees with the recommendations, he transmits the papers to the Regional Counsel, and the case is assigned in the latter's office to an Attorney in the Enforcement Division, who determines whether the evidence shows guilt beyond reasonable doubt and a reasonable probability of conviction. He then sends the case to the Criminal Tax Section of the Department of Justice.
Important cases are scrutinised by the Chief Counsel, Enforcement Division at Washington.
The Tax Division of the Department of Justice, through its Criminal Tax section, is the final authority to decide whether to proceed with the prosecution or not4. Its attorneys are highly specialised in tax frauds work. If a tax-payer asks for discussion at a conference, the request is granted. The object of this conference is not settlement; it is intended to give the tax-payer an opportunity to explain suspicious circumstances. Tax-payers are allowed to appear through Counsel in such conferences.
Actual prosecution is conducted by a United States Attorney5.
Where there is no intent to defeat a tax, a compromise might be entered into; otherwise it is not entered into. The civil liability is discussed only after the criminal case is disposed of, unless the court directs otherwise. The judicial determination of the amount of the proposed civil liability is supplied to the tax payer, but settlement of the civil liability is not discussed until the penal case is decidedl. This course is adopted in order to render futile any attempt to offer to pay the civil tax liability and get the criminal case dropped. It is also believed, that since prosecution is a graver penalty, it must be disposed of first. Lastly, a prosecution in order to achieve its deterrent object, must occur at a time close to the date of the offence.
Other sections.-Apart from section 7201 of the Internal Revenue Code, there are certain other sections in the Internal Revenue Code which deal with wilful failure to collect etc. tax or to file a return or to pay tax or to keep records etc.
Further, section 287 (false claims for refund), section 371 (conspiracy to defraud), section 1001 (false statement) and section 1621 (perjury) of the Criminal Code (U.S. Code 18) can also be used for punishing various types of offences relating to tax. It is not, however, necessary to quote them here.
1. Crockett Federal Tax System of United States, (1955), p. 136.
2. Based on information given in Crockett Federal Tax System of U.S., (1955), pp. 243, 246.
3. Casey Federal Tax Practice, (1955), Vol. 4, Paras. 15.3 and 15.4.
4. Casey Federal Tax Practice, (1955), Vol. 4, para. 15.5.
5. Casey Federal Tax Practice, (1955), Vol. 4, para 15.6.