**FY 2009 Congressional Budget**

**Tax Division**

![](media/image1.png){width="2.0in" height="1.3833333333333333in"}

![](media/image3.jpeg){width="2.3993055555555554in"
height="2.7222222222222223in"}

**Table of Contents**

Page No.

**I. Overview** 1

**II. Summary of Program Changes** 5

**III**. **Appropriations Language and Analysis of Appropriations
Language** 6

**IV**. **Decision Unit Justification** 7

A. General Tax Matters 7

1\. Program Description 8

2\. Performance Tables 20

3\. Performance, Resources, and Strategies 22

a\. Strategies to Achieve Goal 25

b\. Results of Program Assessment Rating Tool (PART) Review 27

**V. E-Gov Initiatives** 28

**VI. Exhibits** 29

A.  Organizational Chart

B.  Summary of Requirements

C.  Increases Offsets N/A

D.  Resources by DOJ Strategic Goal/Objective

E.  Justification for Base Adjustments

F.  Crosswalk of 2007 Availability

G.  Crosswalk of 2008 Availability

H.  Summary of Reimbursable Resources

I.  Detail of Permanent Positions by Category

J.  Financial Analysis N/A

K.  Summary of Requirements by Grade

L.  Summary of Requirements by Object Class

M.  Studies N/A

# I. Overview  {#i.-overview .unnumbered}

## A. Introduction {#a.-introduction .unnumbered}

The Tax Division requests a total of 634 permanent positions (369
attorneys), 577 full-time equivalent (FTE) work years, and \$101,016,000
for FY 2009. The Tax Division represents the United States in virtually
all - civil and criminal, trial and appellate - litigation arising under
the internal revenue laws, in all state and federal courts except the
United States Tax Court. To be successful in administering the tax laws,
the Internal Revenue Service requires Tax Division support to, among
other things, enforce, and defend its summonses while its examinations
are ongoing, and to collect and defend its tax assessments when the
examinations are complete. At any given time, the Tax Division's civil
trial attorneys have nearly 7,000 civil cases in process. In any given
year, the Tax Division's civil appellate attorneys handle about 700
civil appeals, about half of which are from decisions of the Tax Court,
where IRS attorneys represent the Commissioner. To help achieve
uniformity in nationwide standards for criminal tax prosecutions, the
Tax Division's criminal prosecutors authorize all grand jury
investigations and all prosecutions involving violations of the internal
revenue laws. Alone, or in conjunction with Assistant United States
Attorneys, Tax Division prosecutors investigate and prosecute the
crimes. In the last few years, the Division has authorized between 1300
and 1800 criminal tax investigations and prosecutions per year.

The Tax Division's criminal and civil, trial, and appellate litigation
activities are an important and indispensable part of our Nation's tax
system. The Division contributes to tax enforcement in many ways: by the
immediate and long-term financial impact of its cases, by the salutary
effect our civil and criminal litigation has on voluntary compliance
with the tax laws; by ensuring fair and uniform enforcement of the tax
laws; by defending IRS employees against charges arising from the
conduct of their official duties; and by lending the financial crimes
expertise of our tax prosecutors to the enforcement of other laws
involving a financial aspect.

1.  ***Financial Impact: Immediate as well as Long-Term.*** The
    Division's work has an immediate financial impact on the Federal
    Treasury. For the past four fiscal years (FY 2004 -- FY 2007), the
    Tax Division's investment in attorneys has yielded a 14:1 payoff for
    the Federal Treasury. That is, taking into account solely the tax
    dollars collected and the tax refunds not paid as a result of our
    civil tax litigation, the Division's civil trial attorneys alone
    have returned \$14 for each dollar the Division has invested in
    attorneys throughout the entire Division.

Yet, significant as these dollars are, they pale in comparison to the
long-term financial impact of the Division's work. The Division is
currently defending refund suits that collectively involve nearly \$9
billion dollars.[^1] This amount measures only the amount involved in
the lawsuits themselves. It does not include the amounts at issue with
the same taxpayers for other years nor the amounts at issue with other
taxpayers who will be bound by the outcome of the litigation. Decisions
in the Division's cases may reduce the need for future administrative
and judicial tax proceedings, by creating binding precedents that settle
questions of law that govern millions of taxpayers. Moreover, millions
more dollars are saved each year because the Division successfully
defends the Government against many other tax-related suits brought by
taxpayers and third parties.

2.  ***Improving Voluntary Compliance.*** The Tax Division's success
    rate in its litigation - more than 90% - has an enormous effect on
    voluntary tax compliance.[^2] By law, the IRS can make public
    neither the fact of an IRS audit, nor its result. By contrast, the
    Tax Division's important tax litigation victories receive wide media
    coverage, leading to a significant multiplier effect on voluntary
    compliance.[^3] Efforts of the IRS and the Tax Division over the
    last six years are having a positive effect on voluntary compliance.
    According to an annual survey commissioned by the IRS Oversight
    Board, nearly nine out of ten Americans feel that it is "not at all"
    acceptable to cheat on income taxes.[^4] This renewed willingness to
    adhere to the tax laws results in part from the Administration's
    increased focus on tax enforcement and the Congress's provision of
    greater resources to the effort. Furthermore, because the Tax
    Division is an integral part of the IRS's enforcement efforts, the
    Division is partially responsible for the IRS' ability to collect
    \$3.5 trillion in taxes each year.

3.  ***Fair and Uniform Enforcement of Tax Law.*** The Tax Division
    plays a major role in assuring the public that the tax system is
    enforced uniformly and fairly. Because the Division independently
    reviews the merits of each case the Internal Revenue Service
    requests be brought or defended, it is able to ensure that the
    Government's litigating positions are consistent with applicable law
    and policy. An observation about the Division made nearly 70 years
    ago still rings true today: "\[T\]he Department of Justice, as the
    Government's chief law office, is in a position to exercise a more
    judicial and judicious judgment...With taxes forming a heavy and
    constant burden it is essential that there be this leavening
    influence in tax litigation. Next to the constant availability of
    the courts, the existence of the Division is the greatest mainstay
    for the voluntary character of our tax system."[^5]

4.  ***Defending IRS Officials and the United States against Damage
    Suits.*** The Tax Division vigorously defends IRS agents and
    officers, and the Government itself, against unmeritorious damage
    suits. Absent representation of the quality provided by the
    Division, these suits could cripple or seriously impair effective
    tax collection and enforcement.

5.  ***Expertise in Complex Financial Litigation.*** The Division's
    investigations, prosecutions, and civil trials often involve complex
    financial transactions and large numbers of documents. The Division
    is able to use the unique expertise its attorneys have developed in
    litigating complex tax cases to assist in other important areas of
    law enforcement, including:

-   fighting terrorism as part of the Joint Terrorism Task Force, by
    investigating and prosecuting people and organizations that funnel
    money to terrorists;

-   attacking corporate fraud as part of the President's Corporate Fraud
    Task Force;

-   stopping drug trafficking as part of the Organized Crime and Drug
    Enforcement Task Force (OCDETF); and

-   investigating public corruption by working on prosecution teams with
    attorneys from various United States Attorney's Offices and the
    Department's Criminal Division.

A solid infrastructure is essential to the Tax Division's achieving the
Department's performance goals. This infrastructure includes office
automation support operations, the Justice Consolidated Office Network
(JCONIIA) system within the Division, access to adequate litigation
support, including courtroom presentation technologies, and the
organizational and technical infrastructure to support the use of
emerging technologies and automated tools for trial preparation,
electronic filing, and courtroom presentation. The IT investment
requested for FY 2009 is 13 FTE and \$5,711,000. No IT enhancements are
requested for FY 2009.

The Division delivers an impact far greater than its budget with great
efficiency. In the OMB's 2005 Program Assessment Rating (PART) review,
the Division received a score of 85, which is deemed "effective" and is
the highest level awarded by OMB (see page 27 for details).

Beginning in FY 2007, electronic copies of the Department of Justice's
Congressional Budget justifications and Capital Asset Plan and Business
Case exhibits can be viewed or downloaded from the Internet using the
Internet address:
[http://www.usdoj.gov/jmd/2009justification]{.underline}/.

## Full Program Costs

The Tax Division consists of a single Decision Unit (General Tax
Matters) supporting the Department's Strategic Goal 2 -- Prevent Crime,
Enforce Federal Laws, and Represents the Rights and interests of the
American People.

This Strategic Goal defines the two broad programs areas:

-   Civil Tax Litigation and Appeals - \$74,706,000

-   Criminal Tax Prosecution and Appeals - \$26,310,000

Historically, 74% percent of the Division's budget and expenditures can
be attributed to its Civil Tax Litigation and Appeals and 26% percent to
Criminal Tax Prosecution and Appeals. The FY 2009 budget request assumes
this same allocation.

This budget request incorporates all costs to include mission costs
related to cases and matters, mission costs related to oversight and
policy, and overhead.

## Performance Challenges

The Tax Division faces two serious and immediate challenges to the
accomplishment of its mission. We cannot permit it to be true that, as
Leona Helmsley reportedly said, only "little people" pay taxes. The Tax
Division will continue supporting the IRS's increased and increasingly
sophisticated tax enforcement efforts to do more than go after the
so-called "low-hanging fruit" of taxes avoided or evaded by simple
schemes.

### External -- The Ease of Modern Tax Avoidance and Evasion {#external-the-ease-of-modern-tax-avoidance-and-evasion .unnumbered}

The Internet and financial globalization are making tax avoidance and
evasion easier to accomplish and harder to detect than ever before. 
These modern efforts to escape taxation require extensive resources
and expertise to combat because such schemes often result in highly
complex litigation involving international transactions.  A team of Tax
Division attorneys, rather than one, is often required to defeat these
sophisticated challenges to tax liability. 

### Internal -- Increasing Workload {#internal-increasing-workload .unnumbered}

The Tax Division's workload is directly related to IRS enforcement
efforts. In FY 2006, Congress increased the IRS's enforcement budget by
an additional \$442 million. The President's

FY 2008 budget request sought an additional \$440 million above that
already increased amount for IRS enforcement activities. Historically,
each increase in IRS enforcement activity leads to increased Division
workload, with a lag time of about two years. The Division's existing
attorney workforce, however, is already working beyond capacity.
Division attorneys worked an average of 2,005 hours in FY 2007
(exclusive of leave) and 1,988 hours in FY 2006. A full-time schedule is
1,800 work hours, so each attorney is already working the equivalent of
thirteen months per year and cannot reasonably be expected to handle
heavier workloads.

The Tax Division works continuously on maximizing its efficiency. The
Division tracks the number of significant litigation activities
performed by each civil attorney. As the Division's workload has
increased, Division civil attorneys have been working demonstrably
harder, by completing more significant litigation activities per year.
Similarly, on the criminal side, the Division tracks the number of
criminal referrals (targets) made to the Division and the number of
prosecutions authorized. Moreover, the Division's case mix--both civil
and criminal--is becoming increasingly complex.

![](media/image4.wmf){width="5.745833333333334in"
height="3.4006944444444445in"}

 

The above graph depicts the constantly increasing workload for Division
attorneys from FY 2001 through FY 2009. Further efficiency gains for
both civil and criminal attorneys will be increasingly difficult to
achieve.

**II. Summary of Program Changes**

**Not Applicable**

**III. Appropriations Language and Analysis of appropriations Language**

**Not applicable (Part of General Litigating Activities).**

**IV. Decision Unit Justification**

***A. General Tax Matters***

  ----------------------------------------- ---------- -------- ----------
  General Tax Matters TOTAL                 Perm. Pos. FTE      Amount

  2007 Enacted with Rescissions             563        515      85,729

  2007 Supplementals                        0          0        0

  2007 Enacted w/Rescissions and            563        515      85,729
  Supplementals                                                 

  2008 Requirements                         641        564      92,781

  Adjustments to Base and Technical         24         12       8,235
  Adjustments                                                   

  2009 Current Services                     665        573      101,016

  2009 Program Increases                    0          0        0

  2009 Request                              665        573      101,016

  Total Change 2008-2009                    24         0        8,235
  ----------------------------------------- ---------- -------- ----------

**1. PROGRAM DESCRIPTION**

#### CIVIL TAX LITIGATION

The Tax Division is responsible for all matters arising under the
internal revenue laws in all state and federal trial courts, except the
Tax Court, and in appeals from all trial courts, including the Tax
Court. Tax Division trial attorneys [defend]{.underline} the United
States in suits brought against it relating to the tax laws, including
tax shelter cases, refund suits, and other suits seeking monetary or
other relief. Tax Division trial attorneys also [bring]{.underline}
suits that the IRS has requested, including suits to stop tax scam
promoters and preparers; suits to collect unpaid taxes; and suits to
allow the IRS to obtain information needed for tax enforcement. Tax
Division Civil Appellate attorneys represent the United States in all
appeals from trial court decisions.

**Halting the Spread of Tax Shelters**

The proliferation of abusive tax shelters is a significant problem
confronting our tax system. Abusive tax shelters for large corporations
and high-income individuals cost the government billions of dollars
annually, according to Treasury Department estimates. A February 2005
GAO report concluded that 207 Fortune 500 companies engaged in tax
shelter transactions, costing the Federal Treasury as much as \$56
billion.[^6]

Tax shelters typically involve multiple, complex, and sometimes
well-disguised transactions that have been structured to provide
substantial tax benefits that were not intended by Congress, or that
otherwise lack economic substance independent of those tax benefits.
Sophisticated tax professionals promote these complicated transactions
to corporations and wealthy individuals. Because these cases involve
enormous sums of money and often attract significant media attention, a
coordinated and effective effort is essential to prevent substantial
losses to the Treasury and to deter future use of such tax shelters by
other taxpayers.

The Tax Division plays a critical role in the government=s efforts to
combat abusive tax shelters by defending in federal trial and appellate
courts the IRS's disallowance of sham tax benefits. The cases the
Division defends directly involve millions of dollars in tax revenue,
and affect billions of dollars of tax revenue owed by other taxpayers.
For example, the Division recently prevailed at the trial court in
***BB&T***, the first litigated LILO (Lease-In/Lease-Out) tax shelter
case -- an important victory that sets the tone for the many LILO and
related cases that follow. Although the case itself directly involved
less than \$5 million, when Congress addressed these particular shelters
prospectively in 2004 legislation, the 10-year revenue estimate provided
for the legislative amendments was \$26.56 billion.[^7] The IRS
reportedly has an inventory of LILO and related cases involving 50
different taxpayers and more than 1,500 separate transactions involving
billions of dollars.

The Tax Division has also prevailed in a number of "Son of BOSS"
shelters,[^8] in which billions are at stake collectively. In ***Colm
Producer*** and ***Kornman*** (N.D. Tex.), *appeal pending*, involving
short-sale transactions, the district court held that the participants
had improperly claimed large artificial losses. Although only about
\$800,000 is at issue in these cases, the government stood to lose \$100
million in tax revenues if the taxpayers prevailed, and another \$100
million in a related case. The Division also won a major victory in
***Cemco*** (N.D. Ill.), *appeal pending*, a Son of BOSS shelter
involving foreign currency options. The court upheld the IRS's
disallowance of artificial tax losses and the assertion of
accuracy-related penalties, as well as retroactive application of
certain Treasury Regulations. This case represented a potential revenue
loss of \$3.7 million. And the Division won yet another Son of BOSS
case, involving BLIPS,[^9] when the district court in ***Klamath
Strategic Investment Fund*** (E.D. Tex.), found that the loan
transaction at issue lacked economic substance. BLIPS was the subject of
two Senate investigations and is presently the subject of a pending
criminal case in the Southern District of New York against the
promoters. This BLIPS variation was used in 91 similar partnerships that
also have suits pending which the Tax Division is defending.

Despite victories in significant cases, however, the number of tax
shelter lawsuits being litigated by the Tax Division continues to
increase. As of September 30, 2007, the Division had 92 groups of cases.
The Tax Division treats as one "group" two or more tax shelter cases
that involve the same scheme and/or the same promoter, are handled by
the same opposing lawyer(s), and are filed in the same judicial
district, whether or not the cases have been consolidated by the court.
For example, the 91 so-called Presidio cases pending in the Northern
District of California, each involving a "Son of BOSS" tax shelter,
facilitated by the same promoter, are treated as one group. The Tax
Division anticipates that over the next several years, tax shelters will
continue to be contested in the federal district courts and in the Court
of Federal Claims.

Stopping the Promoters of Schemes and Scams

There are a host of less-sophisticated tax schemes and scams that
unscrupulous promoters aggressively market to customers of all income
ranges. The schemes run the gamut from legally frivolous scams based on
discredited tax theories to complex schemes involving multiple
transactions and entities set up to conceal income and assets. Since
January, 2001, the Tax Division has sought and obtained injunctions
against more than 300 tax-fraud promoters and return preparers. These
scams, which are often sold by promoters holding themselves out as tax
experts, in reality are false and fraudulent tax-relief packages sold to
customers who should and in many cases do know that they are fraudulent.

For example, in FY 2007, the Division:

• brought the biggest injunction case ever brought against a tax
preparation firm. The case involved injunction suits in four cities
against the largest franchise owner in the Jackson Hewitt system---the
nation's second largest tax-preparation firm. The franchise prepared
more than 100,000 federal income-tax returns annually. The suits alleged
massive and widespread fraud in preparing customers\' returns that
resulted in more than \$70 million in revenue losses. One customer's
Jackson Hewitt-prepared tax return falsely claimed he was a barber who
was entitled to a fuel tax credit for buying 25,000 gallons of gasoline
for off-highway business use. The complaint pointed out that the
customer would have had to drive 1,370 miles each day, seven days a
week, to consume that much fuel in one year, leaving little if any time
to cut hair. The litigation ended with injunctions entered against the
franchise owner and a number of its employees, including senior and
mid-level managers. The case received nationwide publicity, including
coverage on *NBC Nightly News* and in the *New York Times*, *Wall Street
Journal*, and many other major papers. A former IRS Commissioner
commented that the case is likely to improve significantly the way the
tax-preparation industry operates.

> • obtained an injunction against Robert Arant, shutting down an
> illegal "private bank" that Arant operated to help customers hide
> income and assets from the IRS without leaving a paper trail. Evidence
> provided to the court showed almost \$28 million in customer funds was
> passed through Arant's private bank.
>
> • obtained a permanent injunction barring Robert L. Schulz and his
> organizations, We the People Congress and We the People Foundation,
> from promoting a nationwide tax scheme that helped employers
> improperly stop tax withholding taxes from wages. The court said that
> the defendants' Tax Termination Package caused an estimated harm to
> the U.S. Treasury of more than \$4 million.

During the past five years, the Division has enjoined schemes that
threatened to cost the Federal Treasury more than two and one-half
billion dollars in lost revenues, and placed an enormous administrative
burden on the IRS. If permitted to go unchecked, these schemes would
undermine public confidence in the integrity of our tax system, and
require the IRS to devote substantial resources to detecting,
correcting, and collecting the resulting unpaid taxes.

The Tax Division has encouraged the Internal Revenue Service to attack
these schemes at their source, by targeting and investigating the
promoters before they attract more customers and require more IRS
examination and collection activity. The Tax Division has helped the IRS
develop an expedited referral process so that cases can be quickly and
properly investigated. Division employees have helped train hundreds of
Internal Revenue Service agents and lawyers about developing injunction
and penalty cases against tax scam promoters.

During FY 2007, the Division filed suit against 96 promoters and
preparers, a 28% increase over FY 2006. The following chart shows the
increasing number of successful injunction suits brought by the
Division.

![](media/image5.wmf)

**Assisting with IRS Information Collection and Examinations**

Individuals or businesses sometimes seek to thwart an IRS investigation
by refusing to cooperate with IRS administrative summonses requesting
information. When that happens, the IRS frequently asks the Tax Division
to bring suit in federal court seeking a court order to compel
compliance with the summons. These judicial proceedings afford the
government the ability to obtain information in appropriate cases. They
also provide important procedural and substantive rights to those
affected by the summons. As the IRS increases its audit activity and
criminal investigations and seeks more information from individuals who
might be part of the Tax Gap, we anticipate being asked to enforce more
of the sensitive and complicated summons cases that the Tax Division
handles.

The Tax Division's summons enforcement work in the past few years has
been very effective. The Division spearheaded enforcing summonses aimed
at identifying high-income taxpayers who were playing the audit lottery.
For example, when prominent law firms and public accounting firms began
marketing tax shelters to corporations and wealthy individuals, the
firms rebuffed the IRS's requests for information that the firms were
required by law to maintain and provide, essentially stalling as the
clock ran out on the IRS. By bringing suits against some of the nation's
largest accounting and law firms, the Division enforced IRS summonses
issued to Jenkens & Gilchrist, Sidley Austin Brown & Wood, KPMG, BDO
Seidman, and Arthur Andersen.

In a similar effort the Division worked closely with the IRS to obtain
the records necessary to identify United States taxpayers who were
hiding money offshore, obtaining court permission for the IRS to serve
"John Doe" summonses on credit card processing companies and payment
intermediaries like PayPal. To date, the IRS has opened investigations
on more than 2,200 taxpayers as a result of these information-gathering
efforts, and more than 1,650 have settled their resulting tax
liabilities with the IRS. The government's victories in these highly
publicized cases not only helped gather necessary documents to identify
customers seeking to hide behind a veil of secrecy, but the surrounding
publicity reassures law-abiding taxpayers that the tax laws are being
enforced.

**Collecting Unpaid Taxes**

Another area in which the Division contributes significantly to closing
the Tax Gap is its active civil litigation to collect tax debts. The
focus and goal of this litigation is to enforce the tax laws and collect
taxes that would otherwise go unpaid. Collection suits have a direct,
and positive, effect on the Treasury. The Division typically collects
more each year than its entire budget, as illustrated by the following
chart. Given that the IRS only refers to the Tax Division tax debts that
the IRS has been unable to collect through administrative means, the
Division's efforts are a tremendous return on investment in collecting
the most difficult debts.

![](media/image6.wmf){width="5.5625in" height="4.083333333333333in"}

While the direct return alone is impressive, the Division's collection
litigation also brings substantial indirect benefits. It assures honest
taxpayers that those who engage in illegal activity will suffer the
consequences. And it boosts voluntary compliance by warning scofflaws.

**Defending the United States**

Tax cases filed [against]{.underline} the United States comprise nearly
75% of the Division's caseload, both in the number of cases to be
litigated and in the number of attorney work hours devoted to them each
year. The Division has no choice but to defend these lawsuits, which
include requests for refund of taxes, challenges to federal tax liens,
claims of unauthorized disclosure and allegations of wrongdoing by IRS
agents. The Division's representation of the government saves the
Treasury hundreds of millions of dollars annually by retaining money
that taxpayers seek to have refunded and by ensuring that spurious
damages claims are denied. As of September 30, 2006, the Division was
defending tax refund cases worth almost \$9 billion to the Federal
Treasury. [^10]

Not all significant Tax Division cases involve sophisticated tax
shelters. Some involve other significant issues. For example, the Tax
Division is currently defending a number of lawsuits brought by
hospitals seeking refunds of social security taxes attributable to wages
paid to medical residents.  The IRS estimates that, if the Tax Division
were not able to develop case law supporting the Government's position
on this issue, the Federal Treasury would have to pay billions of
dollars in refunds, and would cease to collect billions more in future
years. Since December 1, 2006, the United States has prevailed at the
trial court level in three separate medical-residents cases,
involving the ***Detroit Medical Center***, the ***Albany Medical
Center***, and ***Memorial Sloane-Kettering Cancer Center***.  More are
pending at trial and at the administrative level (with the IRS), and two
of our trial court victories are pending appeal to the United States
Courts of Appeals.

The Division has also been successful in fending off other types of
claims, as exemplified by its February 2, 2007, victory in the United
States District Court for the District of Arizona in an action brought
by ***Aloe Vera of America*** and others. In that case, plaintiffs
alleged that IRS employees had wrongfully disclosed their tax
information, and sought more than \$1 billion in damages, plus punitive
damages, based on a decline in stock value allegedly attributable to the
claimed improper disclosures.

**Civil Appellate Cases**

The Tax Division's appellate attorneys represent the United States in
all appeals involving federal tax statutes in the United States courts
of appeals and their state government equivalents (except for appeals
from the Southern District of New York). The Division's appellate
attorneys also assist the Solicitor General of the United States by
preparing initial drafts of pleadings and briefs in tax cases filed in
the Supreme Court. The Division likewise closely reviews all adverse
decisions entered by the lower courts in tax cases to determine whether
the government should appeal, and prepares a recommendation to the
Solicitor General. The appellate section generally recommends appeal
only in those cases where there is a substantial likelihood the
government will ultimately prevail or where an important principle is at
stake. Careful review of these cases not only ensures that Department
resources are spent wisely on only meritorious appeals, but also
advances the Tax Division's mission of promoting the fair and correct
development, and uniform enforcement of the federal tax laws.

A number of recent appellate cases illustrate the Tax Division's
continuing success in having courts uphold the IRS's disallowance of tax
benefits from sham transactions. In ***Castle Harbour***, the Second
Circuit held that the IRS properly imposed \$62 million in additional
income taxes against a subsidiary of General Electric Capital
Corporation, which had entered into a sham partnership agreement with
two Dutch banks. In ***Coltec Industries, Inc. v. United States***, the
Federal Circuit reaffirmed the longstanding economic substance doctrine
and rejected the taxpayer's attempt to deduct a \$375 million tax loss
it claimed to have incurred using a contingent-liability tax shelter.
The IRS estimates that contingent liability tax shelters were used to
escape taxes on \$5 billion in taxable income. In January, 2006, the
Sixth Circuit in ***Dow Chemical*** denied tax deductions of more than
\$33 million, based on the court's holding that Dow's corporate-owned
life insurance (COLI) program was an economic sham. Overall, an
estimated \$5 billion is at stake in COLI tax shelters. Significantly,
the Supreme Court in early 2007 denied certiorari when ***Coltec*** and
***Dow*** sought to have these Tax Division victories reviewed and
overturned.

Other appellate decisions, although sometimes turning on narrow tax
issues, have a broad impact on tax administration. In the first
appellate decision concerning the "mark-to-market" rules of section 475
of the Internal Revenue Code, for example, the Seventh Circuit in ***JP
Morgan Chase*** held that the Tax Court had properly rejected the
taxpayer's valuation of its financial derivatives, and remanded the case
because the Tax Court had failed to give sufficient deference to the
Commissioner's valuation. In a recent Ninth Circuit decision, the court
of appeals rejected the taxpayer's argument that because he had
exercised stock options using borrowed funds, he should recognize income
when the stock was later sold (at a low price), rather than earlier,
when the option was exercised (at a much higher price). And such
esoteric issues as the Internal Revenue Code provisions on interest
rates on tax over- or underpayments can save the United States hundreds
of millions of dollars, as was the case with the Tax Division's recent
victory in ***Exxon-Mobil***.

#### CRIMINAL PROSECUTIONS AND APPEALS

The Tax Division authorizes, and either conducts or supervises, all
prosecutions involving the federal tax laws. The Division's two-pronged
mission is to prosecute criminal tax violations and promote a uniform
nationwide approach to criminal tax enforcement. In many cases, the Tax
Division receives requests from the IRS to prosecute tax violations
after the IRS has investigated them administratively. In other cases,
the IRS asks the Tax Division to authorize grand jury investigations to
determine whether prosecutable tax crimes have occurred. Tax Division
prosecutors review, analyze, and evaluate these referrals to assure that
uniform standards of prosecution are employed and that criminal tax
violations warranting prosecution are prosecuted. After the Division
authorizes tax charges, the cases are handled either by a United States
Attorney's Office (USAO) or, in complex cases or cases in which the USAO
is recused or requests assistance, by the Tax Division's experienced
prosecutors. Tax Division prosecutors conduct training seminars for IRS
criminal investigators and Assistant U.S. Attorneys, and often provide
advice to other federal law enforcement personnel, including the DEA and
FBI.

The following chart illustrates that the criminal workload has
increased, and that this trend is projected to continue. Moreover, as
the case evaluation workload has increased, so, too, has the trial
workload, but to an even greater degree. From 2004 to 2007, the average
number of trial assignments per attorney increased by almost 18%.

![](media/image7.wmf){width="4.866666666666666in" height="3.25in"}

The Tax Division's criminal trial attorneys investigate and prosecute
individuals and corporations that attempt to evade taxes, willfully fail
to file returns, submit false tax forms, or otherwise violate the
federal tax laws. They also investigate and prosecute tax violations
that have been committed along with other criminal conduct, such as
narcotics trafficking, securities fraud, bankruptcy fraud, healthcare
fraud, organized crime, and public corruption. In addition, Tax Division
attorneys investigate and prosecute domestic tax crimes involving
international conduct, such as the illegal use of offshore trusts and
foreign bank accounts to conceal taxable income and evade taxes. They
also conduct Organized Crime and Drug Enforcement Task Force (OCDETF)
and terrorism-related criminal investigations, and prosecute organizers
of Internet scams.

The Tax Division's Criminal Appeals and Tax Enforcement Policy Section
(CATEPS) conducts appeals in criminal tax cases prosecuted by Division
attorneys and supervises appeals in matters tried by the USAOs around
the country. Similar to the initial review of tax cases by criminal
trial attorneys, the appellate review plays a vital role in promoting
the fair, correct, and uniform enforcement of the internal revenue laws.
CATEPS also assists in the negotiation of international tax assistance
treaties and policy issues, such as the application of the sentencing
guidelines.

**"Pure Tax Crimes"**

The core of the Tax Division's criminal work involves so-called "legal
source income" cases. These cases encompass tax crimes involving unpaid
taxes on income earned legally (*e.g.*, a restaurateur who skims cash
receipts or a doctor who inflates deductible expenses.) These cases
often involve difficult issues of tax law or complex methods of proof,
and as a result the United States Attorneys' Offices frequently call
upon the special skills that Tax Division prosecutors bring to the
prosecution of white-collar crime.

Evasion of taxes on income from legal sources significantly erodes the
federal tax base. The Division's enforcement activities are a strong
counter to that erosion, providing a significant deterrent to those who
contemplate shirking their tax responsibilities. These prosecutions
often receive substantial local press and media coverage, and assure
law-abiding citizens who pay their taxes that tax cheats are not getting
away with it. The government's failure to vigorously prosecute such
cases would undermine the confidence of law-abiding taxpayers and
jeopardize the government's ability to operate a revenue collection
system whose cornerstone is voluntary compliance.

During the past year, Division attorneys investigated and prosecuted
cases involving tax crimes committed by individuals from all walks of
life, including corporate executives, business owners, attorneys,
accountants, doctors, dentists, movie actors, and others.

For example, on March 28, 2007, a federal judge in ***United States v.
Walter Anderson*** (D.D.C.), sentenced the defendant, a
telecommunications entrepreneur, to nine years in prison for tax fraud.
In September 2006, the defendant pleaded guilty to federal income tax
evasion and fraud for failing to report approximately \$365 million in
income he earned from various business ventures between 1995 and 1999 --
the largest personal tax evasion case ever. Anderson crafted an
elaborate scheme using offshore corporations and nominees in tax haven
jurisdictions to conceal his assets and income.

**Return-Preparer Fraud**

Corrupt accountants and unscrupulous tax return preparers present a
serious law enforcement concern. Some accountants and return preparers
dupe unwitting clients into filing fraudulent returns, while others
serve as willing "enablers," providing a veneer of legitimacy for
clients predisposed to cheat. In either case, the professionals often
commit a large number of frauds, and their status as "professionals" may
be perceived as legitimizing tax evasion, thereby promoting disrespect
for the law. Tax Division attorneys vigorously investigate and prosecute
such cases. For example, on July 20, 2007, in ***United States v. Louis
Wayne Ratfield*** (S.D. Fla.), a federal judge sentenced the defendant,
a return preparer, to more than 12 years in prison for tax fraud. In
April, a federal jury had convicted the defendant for promoting a tax
fraud scheme involving "common law trusts" and for preparing false
income tax returns that cost the federal Treasury more than \$9.3
million in lost taxes.

**"Tax Protest" Schemes**

"Tax protest" schemes include frivolous claims that a taxpayer is
somehow exempt from paying his fair share of taxes. Such schemes include
claims that an individual is a "sovereign citizen" not subject to U.S.
laws, that the U.S. income tax is unconstitutional, that the 16^th^
Amendment to the United States Constitution was never ratified, and that
Section 861 of the Internal Revenue Code provides that only income from
sources outside the United States is taxable. Other related conduct
includes taxpayers taking sham "vows of poverty" or harassing government
employees and judges. On October 17, 2006, in ***United States v. Wesley
Trent Snipes, et al.*** (M.D. Fla.), for example, the court unsealed an
indictment charging movie actor Wesley Snipes with six counts of failing
to file income tax returns for 1999 through 2004. Snipes and two other
defendants, Eddie Kahn and Douglas Rosile (a former CPA), are also
charged with conspiracy to defraud the United States and presenting
false claims for refund. They were associated with "American Rights
Litigators," which promoted the frivolous 861 scam. That trial is
scheduled to commence in January, 2008.

**Abusive Promotions**

The Division also prosecutes persons who promote or use fraudulent tax
shelters and other schemes to evade taxes and hide assets. The number of
taxpayers who use these schemes to improperly reduce, or totally evade,
their federal income tax liabilities has increased significantly in
recent years. One type of scheme involves the use of domestic or foreign
trusts to evade taxes. Promoters of these schemes, often using the
Internet, aggressively market trusts by employing strained, if not
demonstrably false, interpretations of the tax laws. Employing what they
often call "asset protection trusts" (ostensibly designed to guard an
individual's assets from creditors, including the IRS), these promoters
are in fact helping taxpayers fraudulently assign income and conceal
their ownership of income-producing assets in order to evade paying
taxes.

On March 23, 2007, in ***United States v. James Auffenberg, et al.***
(S.D. Ill.), a grand jury returned a 21-count indictment charging
Auffenberg, a prominent automobile dealer in Southern Illinois, three
promoters of a tax fraud scheme in the U.S. Virgin Islands, and their
related entities with a variety of tax and wire fraud-related charges.
The indictment alleges that Auffenberg and others joined a partnership
promoted to wealthy individuals. The indictment alleges that Auffenberg
and the other limited partners fraudulently claimed to be U.S. Virgin
Islands residents, and subsequently prepared and filed false tax returns
with the Virgin Islands Bureau of Internal Revenue instead of filing
returns with the Internal Revenue Service. Between 1999 and 2002, more
than \$300 million was cycled through partnership accounts, resulting in
more than \$74 million in fraudulent tax credits. The indictment also
seeks the forfeiture of \$16.2 million in cash. Trial is pending.

A Tax Division attorney continues to work full time with attorneys and
IRS agents in ***United States v. Jeffrey Stein*** (S.D.N.Y.), which
involves KPMG officers and associates who have been charged with
conspiracy to defraud the United States by promoting fraudulent tax
shelters designed to assist high-net-worth individuals evade income tax
on billions of dollars of income. Three individual defendants pled
guilty in 2007. The Tax Division also has a prosecutor assigned full
time to ***United States v. Robert Coplan*** (S.D.N.Y.), the second
investigation stemming from the KPMG prosecution. An indictment was
returned in May, 2007, charging Coplan, Martin Nissenbaum, Richard
Shapiro, and Brian Vaughn with, *inter alia,* tax evasion and conspiracy
to defraud the United States by attempting to disguise tax shelters
(initially named VIPER, Value Ideas Produce Extraordinary Results) as
legitimate investments. One co-defendant, Belle Six, has pled guilty and
forfeited more than \$13 million.

**Illegal Source Income**

Tax Division attorneys also play significant roles in investigating and
prosecuting tax violations committed in the course of other criminal
conduct. Where criminals evade taxes on income from illegal sources, tax
charges provide a valuable complement to charges for the underlying
criminal activity. One area where this frequently occurs is narcotics
trafficking cases generated by the Organized Crime and Drug Enforcement
Task Force program, which the Tax Division actively supports. Tax
Division attorneys also fight against international terrorism, and
litigate tax charges related to health care fraud, securities fraud,
public corruption, and money laundering.

Likewise, in ***United States v. Jack A. Abramoff*** (D. D.C.), the
defendant, a high-profile lobbyist in Washington, D.C., entered a guilty
plea to a charge of conspiracy to commit honest-services fraud and
income tax evasion in connection with his efforts to lobby members of
Congress and others. The Tax Division and components of the Justice
Department's Criminal Division conducted this high-profile public
corruption investigation and prosecution. The defendant awaits
sentencing.

**Obtaining Restitution in Criminal Tax Cases**

The Tax Division has taken the lead in developing and implementing a
policy to seek court-ordered restitution in criminal tax cases to
recover proven unpaid taxes. The Tax Division chaired a Restitution Task
Force, which included representatives from the United States Attorneys
Offices, the United States Probation Office, and the Internal Revenue
Service (IRS), as well as criminal and civil Tax Division attorneys, to
standardize restitution procedures in criminal tax cases. As a result of
the work of the task force, the IRS created a special office to monitor
and process all restitution payments nationwide. In addition, the
Division developed written guidance for Assistant US Attorneys, and
sample restitution language for use in criminal tax cases.

Restitution is an important tool in reducing the Tax Gap, because
criminals who have disposed of or dissipated assets instead of paying
restitution may face additional incarceration. This avenue of recovery
can also relieve the IRS of the necessity of determining and collecting
an assessment of the civil tax liability.

**Enforcing the United States' Tax Laws in Today's Global Economy**

Use of foreign tax havens is on the rise. Increased technical
sophistication of financial instruments and the widespread use of the
Internet have made it easy to instantly move money in and out of the
United States, around the world, irrespective of national borders. Using
tax havens facilitates evasion of U.S. taxes and the commission of
related financial crimes.

Offshore tax schemes are difficult to detect and prosecute. The IRS and
the Tax Division are allocating resources to target taxpayers who engage
in offshore activity for the purpose of underreporting income.[^11]
Income tax evaders and other criminals use banks located in tax haven
countries that have strict bank secrecy laws and that will not, or
cannot, provide assistance to investigators for the United States.
Sophisticated criminals may also use non-traditional tax haven
countries, such as Latvia or Germany. Despite these difficulties, the
Division has been successful in prosecuting these tax cheats.

For example, on April 11, 2007, in ***United States v. Joseph A.
Francis*** (D. Nev.), a federal grand jury in Reno, Nevada returned an
indictment charging the defendant with income tax evasion. The
indictment alleges that the defendant, whose companies produce and sell
the *Girls Gone Wild* videotapes and DVDs, used offshore bank accounts
and nominee entities to conceal income he earned during 2002 and 2003.
During those years, the defendant allegedly deducted more than \$20
million in false business expenses and transferred more than \$15
million from an offshore bank account to a brokerage account in
California using the name of a Cayman Islands corporation.

**International Cooperation to Investigate Evasion of U.S. Taxes**

The Tax Division provides advice and assistance to United States
Attorneys and IRS agents seeking information and cooperation from other
countries for both civil and criminal investigations and cases.
Recently, the Division has worked with attorneys and agents seeking
information from numerous countries, including Finland, Sweden, Germany,
Israel, Canada, the Cayman Islands, the Netherlands Antilles, Brazil,
Panama, Venezuela, the United Kingdom, Ireland, and Switzerland.

The Tax Division also works to increase cooperation with foreign
nations, recognizing that reciprocal engagements ultimately further the
Division's mission. For example, the Division recently met with
representatives of the Australian Federal Police to respond to their
request for advice and assistance in conducting multi-agency
investigations into numerous tax avoidance and money-laundering schemes,
some of which may become important to U.S. law enforcement. The Division
has also responded to inquiries from the Embassy of Japan concerning
various aspects of our income tax laws.

The Division is continuing to help the IRS and the Treasury Department
develop a new model Tax Information Exchange Agreement (TIEA) and is
continuing to help Treasury negotiate and implement TIEAs and tax
treaties with various foreign governments. Notably, after years of
negotiations in which the Tax Division assisted, important TIEAs with
tax haven countries are finally in effect with the Cayman Islands,
Jersey, Guernsey, the Isle of Man, and the British Virgin Islands.  The
Division also assisted in drafting and negotiating the TIEA with Brazil,
which was signed in the spring of 2007. 

 

**War on Terrorism**

The Tax Division contributes to the war on terrorism as a member of
several task forces in conjunction with the Criminal Division and other
Department components. For example, on March 7, 2007, in ***United
States v. Islamic American Relief Agency, et al.*** (W.D.Mo.) the court
unsealed an indictment charging the Islamic American Relief Agency,
along with five officers, employees and associates, with [illegally
transferring funds to Iraq]{.underline} in violation of federal
sanctions. The defendants were also charged with stealing government
funds and corruptly endeavoring to obstruct the due administration of
the Internal Revenue Code, by misusing tax-exempt charity status to
raise and transfer funds to Iraq in violation of federal sanctions, and
by attempting to avoid government detection of their illegal activities.
The case is pending trial.

**Corporate Fraud and other Financial Crimes**

In addition, through the President's Corporate Fraud Task Force, chaired
by the Deputy Attorney General, the Tax Division investigates and
prosecutes corporate fraud. The Division also participates in the
formulation of national policies, programs, strategies and procedures in
cooperation with other law enforcement components in a coordinated
attack on financial crime.

In addition to providing tax advice to other Divisions and agencies, the
Tax Division and IRS frequently consult on new and sensitive tax issues
and litigation. For example, Tax Division attorneys regularly make
training presentations to IRS revenue agents and other IRS personnel
across the country to educate them on how to develop evidence that will
support a suit to shut down a promotion at its source---the promoters
and salesmen.

**Civil/Criminal Coordination**

Finally, as part of its effort to stop abusive tax scheme promotions,
the Division uses parallel civil and criminal proceedings. Select Tax
Division personnel, through a joint IRS/DOJ task force, work closely
together to coordinate the appropriate use of both civil and criminal
tools to stop tax fraud. The task force prepared an extensive report and
recommendation on this topic for the Tax Division's Assistant Attorney
General and the Commissioner of Internal Revenue, and the Tax Division
has implemented many of its recommendations.

![](media/image8.png){width="9.033333333333333in"
height="6.690277777777778in"}

![](media/image9.png){width="9.792361111111111in"
height="3.9770833333333333in"}

###  {#section .unnumbered}

**3. Performance, Resources, and Strategies**

The General Tax Matters Decision Unit contributes to the Department's
Strategic Goal 2: Prevent Crime, Enforce Federal Laws, and Represent the
Rights and Interests of the American People. Within this Goal, the
Decision Unit's resources specifically address Strategic Objective 2.7:
Vigorously enforce and represent the interests of the United States in
all matters over which the Department has jurisdiction.

The goals of the Tax Division are to increase voluntary compliance,
maintain public confidence in the integrity of the tax system, and
promote the sound development of law.

***Performance Measure 1:*** Percentage of Cases Favorably Resolved

***FY 2007 Target:*** 90% for Civil Trial and 95% for Criminal.

***FY 2007 Actual:*** 96% for Civil Trial and 100% for Criminal.

***Discussion:*** The outcome measure for this decision unit is
favorable resolution of all cases. The Department of Justice Strategic
Plan sets Department-wide goals for the litigating components: 90% of
criminal cases favorably resolved Department-wide and 80% of civil cases
favorably resolved. As illustrated in the chart "Cases Favorably
Resolved (TAX)," the Tax Division has exceeded the Department's goal for
the last several years. In FY 2007, favorable outcomes were achieved in
96% of all civil and 100% of all criminal cases litigated by the Tax
Division, including non-tax cases. To meet the targets for this measure,
the Tax Division requires \$101,016 thousand. These resources are
essential if we are to continue attaining the Department's targets for
this measure. Without sufficient resources, the Division will be forced
to focus the majority of its resources on defensive cases which would
result in affirmative cases - cases the IRS requests the Division to
prosecute - being declined. If this occurs, the Division will not be
able to meet its targets for this measure.

![](media/image11.wmf)***Performance Measure 2:*** Criminal
Investigation and Prosecution Referrals Authorized

***FY 2007 Target:*** N/A

***FY 2007 Actual:*** 757 Investigations

1,284 Prosecutions Authorized

***Discussion:*** The Tax Division also measures the number of
authorized investigation and prosecution referrals in criminal cases. In
FY 2007, the Division authorized 757 grand jury investigations and 1,284
prosecutions of individual defendants. Changes in the number of
authorized investigations are largely proportional to the number of
investigations initiated by the Internal Revenue Service.

Consistent with Department guidance, there is no FY 2008 or FY 2009
performance goal for authorized investigations and prosecutions.

***Performance Measure 3:*** Success Rate for Criminal Tax Cases

***FY 2007 Target:*** 95%

***FY 2007 Actual:*** 100%

***Discussion:*** The Tax Division's Criminal Trial Sections assume
responsibility for some cases at the request of the USAOs, generally
multi- jurisdictional investigations and prosecutions, and cases with
significant regional or national importance. Although many of these
cases are difficult to prosecute, the Division has maintained a
conviction rate at or greater than 95%. In FY 2007, the Division's
conviction rate was 100% in tax cases.

For FY 2008, FY 2009, and FY 2010, the Tax Division has established a
conviction rate goal of 95%. While the Tax Division is very proud of its

conviction rate, the emphasis is on uniform and fair enforcement of the
tax laws.

***Performance Measure 4:*** Civil Cases Successfully Litigated

***FY 2007 Target:*** Trial Courts -- 90%

Taxpayer Appeals -- 85%

Government and Cross Appeals -- 60%

***FY 2007 Actual:*** Trial Courts -- 96%

Taxpayer Appeals -- 99%

Government and Cross Appeals -- 56%

***Discussion:*** For civil cases, the Tax Division measures cases
successfully litigated, in total or in part, by the resolution of a
claim through judgment or other court order. In FY 2007, the target for
Government and Cross Appeals was not met due to the loss of cases
involving the same issue. Since there are relatively few government
appeals, the loss of a single case has a large impact on the measure.

We anticipate that maintaining this level of success will result in
legal precedent that provides taxpayers, including individuals,
businesses and industries, with guidance regarding their tax
obligations; the collection of significant tax revenues; and the
protection of the government against unfounded taxpayer claims.

***Performance Measure 5:*** Tax Dollars Collected and Retained

***FY 2007 Target:*** N/A

***FY 2007 Actual:*** \$424 million

***Discussion:*** The Tax Division collects substantial amounts for the
federal government in affirmative litigation, and retains even more
substantial amounts in defensive tax refund and other litigation. For FY
2007, the Division collected \$136.5 million and retained \$287.2
million.

In addition to this measurable impact, the Division's litigation affects
the revenue at issue in many cases being handled administratively by the
IRS, and determines tax liabilities of litigants for many tax years not
in suit. Its litigation successes also foster overall compliance with
the tax laws. This substantial financial impact is a consequence of the
Division's consistent and impartial enforcement of the tax laws. The
Division does not measure these indirect effects of its litigation.

**a. Strategies to Achieve FY 2009 Goals:**

With the resources requested for FY 2009, the Division will concentrate
on curtailing the activity of promoters, enablers, and tax professionals
(including return preparers, accountants, and lawyers) who help others
avoid taxes illegally. The Division's long-standing coordinated approach
to tax enforcement is a particularly effective component to the
Administration's goal to reduce the Tax Gap. Because the Tax Division's
work already encompasses the elements of an effective tax enforcement
program, the organization is well suited to expand existing programs
with greater benefits in return. With the implementation of the
strategies discussed below, the Tax Division will be well positioned to
meet or exceed the Departmental outcome measure, "Percentage of Cases
Favorably Resolved".

**[Civil Litigation]{.underline}**

The Tax Division's primary civil strategy to achieve its goals is to
litigate, both defensively and affirmatively, federal civil tax cases
filed by and against taxpayers in the federal courts. Through this
litigation, the Division ensures the tax laws are properly enforced, by
targeting particularly acute tax enforcement problems that threaten tax
administration.

The Tax Division defends the Federal Treasury against tax refund claims
arising from complex and abusive corporate and individual tax shelters
that are estimated to cost the Treasury billions annually. Individual
cases frequently involve millions of dollars, and their outcomes affect
many similarly situated taxpayers and issues.

The IRS received significant additional funding for enforcement efforts
in FY 2006, a large portion of which is dedicated to challenging abusive
tax shelters. In addition to stepping up audits and investigations, the
IRS is increasing its use of "settlement initiatives," under which the
IRS publicly states the terms to which it would agree to resolve
disputes concerning the taxes (and penalties and interest) owing as a
result of specific abusive transactions. Tax Division litigation
directly supports the effectiveness of IRS settlement initiatives. Its
summons enforcement litigation has required shelter promoters to turn
over customer lists and transaction documents, permitting the IRS to
identify shelter participants who otherwise might evade detection. In
addition, the Division's litigation challenging the merits of abusive
tax shelters allows the IRS to assert the credible threat that shelter
participants will lose in court, thereby encouraging settlement.

The Division also has renewed efforts to target fraudulent tax schemes
and those who create and promote them. The Division has obtained
numerous injunctions against promoters of these schemes and has obtained
enforcement of IRS administrative summonses seeking information and
documents about the schemes, their promoters and participants. During
the last several years, the Division sued to enjoin dozens of tax-scheme
promoters---who cost the Treasury billions of dollars each year by
pushing bogus tax advice (*e.g.*, tax credits for slavery reparations;
claims that income earned within the United States was not subject to
federal taxation) over the Internet and in the media---and has obtained
court orders shutting down several multimillion-dollar schemes.

The Tax Division also deals with the fallout from abusive promotions,
defending the Government in the hundreds of new cases brought each year
that involve frivolous tax-protest claims---many of them the same claims
targeted through the Division's injunction suits. Vigorous and
successful defense of these cases is essential to preserve public
confidence in the tax system and to assure that honest taxpayers are not
discouraged from voluntarily paying their taxes by the perception that
those who engage in illegal tax-protest activity have "gotten away with
it." The Division works closely with the IRS to identify holders of bank
accounts in offshore, tax haven countries that are used to evade taxes,
thus facilitating the prosecution of account-holders who have committed
U.S. tax law violations. As part of an IRS initiative, the Tax Division
has obtained court orders allowing the IRS to identify U.S. taxpayers
who use credit cards issued by offshore banks in tax haven countries by
obtaining data from major credit card companies, companies that process
credit card transactions, and merchants and retailers where the credit
cards were used. The Division is also handling collection and other
enforcement actions against taxpayers identified through the initiative.

As part of its representation of the government in the courts, the Tax
Division conducts in each civil tax case an independent review of the
IRS's views and administrative determinations to help ensure that the
Government's position is consistent with applicable law and policy. This
independence, backed by a willingness to engage in aggressive litigation
where appropriate, promotes the effective collection of taxes owed,
while also serving as a check against potential abuses in tax
administration.

**[Criminal Enforcement]{.underline}**

The Division's criminal enforcement strategy is to vigorously and
consistently enforce the criminal tax laws in order to punish offenders,
deter future violations, and reassure honest taxpayers that they will
not bear an undue share of the federal tax burden.

The Division's criminal prosecution activity has matched the vigor of
its civil litigation efforts, with a similar increased focus on abusive
tax schemes and their promoters. The Division has obtained numerous
convictions of promoters of large and complex schemes that were widely
marketed. Several recent indictments of promoters illustrate the
continuing commitment to resolving this growing problem. The schemes
identified in these cases involve a variety of illegal practices,
including the use of offshore accounts to evade taxes, the refusal by
employers to pay withholding taxes on employee wages, bogus trust
arrangements, and abusive tax shelters. Additionally, the Tax Division
has redoubled its efforts to prosecute tax crime involving income from a
legal source---such as the consultant who reports only part of his
income, the restaurant owner who skims from the cash register, or the
doctor who keeps two sets of bookkeeping records. The IRS estimates that
hundreds of millions in tax revenue is lost yearly through the evasion
of taxes on income from legal sources.

The Division also concentrates on several other types of tax law
violations. Every year, the Division prosecutes a number of "tax
protestors" who evade taxes and harass IRS employees. It also
investigates and prosecutes tax violations occurring in the course of
other criminal conduct, such as narcotics trafficking (supporting the
Organized Crime and Drug Enforcement Task Force (OCDETF)), corporate
fraud, securities fraud, bankruptcy fraud, health care fraud, organized
crime, public corruption and terrorism. Representatives of the Tax
Division are also liaison attorneys with the various regions of OCDETF,
and are formal members of its policy-formation body.

#### b. Program Assessment Rating Tool (PART) {#b.-program-assessment-rating-tool-part .unnumbered}

The Division received a FY 2005 PART score of 85, which is deemed
"effective" and is the highest level awarded by OMB. The Tax Division
and other litigating components are taking three follow-up actions to
improve performance.

\(1\) *Seeking regular, independent evaluations of the program's
effectiveness at resolving cases in favor of the government.*

In FY 2006, the Department's Justice Management Division (JMD) offered a
proposal to the Management and Planning Staff (MPS) and Office of the
Inspector General (OIG) to perform an independent evaluation of the GLA
components (GLAs). The proposal recommended that MPS perform initial
background interviews in a manner consistent with OIG yellow book
regulations. MPS would later hand off their preliminary research to the
OIG to review and offer their findings and recommendations. The OIG was
unable to include the GLA evaluation in its FY 2007 docket. The OIG has
indicated it may be able to evaluate the components over several years
starting in FY 2008 to meet the PART follow-up action of "Performing an
independent evaluation of the GLAs."

\(2\) *Establishing leadership training and mentoring program to
continue improving the quality of the program's management.*

The Tax Division and other litigating components have established
leadership training and mentoring programs to continue improving the
quality of program management. The Tax Division provides mentoring
support to all new attorneys. Five attorney managers have completed the
Department's SES career development program. The Division assessed
leadership competencies of all Division managers (through the 2006
skills assessment survey) and is using that data to assess developmental
needs to close any skill gaps in leadership competencies. The Division
also currently has one employee participating in the Department's
Leadership Excellence Achievement Program (LEAP).

\(3\) *Working with the Department's Chief Information Officer to
evaluate and purchase litigation software that will improve productivity
and efficiency.*

The Tax Division and other litigating components are working jointly on
two projects. One is the Litigation Case Management System (LCMS) which
will provide an efficient and effective means to track litigation
handled by the Department. A contract was awarded in June 2006 and the
project is in the planning and design phase. Additionally, the Tax
Division participated in another project dealing with the requirements
definition, system design, and build phases for the Consolidated Debt
Collection System (CDCS), which tracks debts collected through
litigation. The Tax Division implemented CDCS in December, 2007.

**VI. E-Gov Initiatives**

The Justice Department is fully committed to the President's Management
Agenda (PMA) and the E-Government initiatives that are integral to
achieving the objectives of the PMA. The E-Government initiatives serve
citizens, business, and federal employees by delivering high quality
services more efficiently at a lower price. The Department is in varying
stages of implementing E-Government solutions and services including
initiatives focused on integrating government wide transactions,
processes, standards adoption, and consolidation of administrative
systems that are necessary tools for agency administration, but are not
core to DOJ's mission. To ensure that DOJ obtains value from the various
initiatives, the Department actively participates in the governance
bodies that direct the initiatives and we communicate regularly with the
other federal agencies that are serving as the "Managing Partners" to
ensure that the initiatives meet the needs of the Department and its
customers. The Department believes that working with other agencies to
implement common or consolidated solutions will help DOJ to reduce the
funding requirements for administrative and public-facing systems,
thereby allowing DOJ to focus more of its scarce resources on higher
priority, mission related needs. DOJ's modest contributions to the
Administration's E-Government projects will facilitate achievement of
this objective.

**A. Funding and Costs**

The Department of Justice participates in the following E-Government
initiatives and Lines of Business:

+----------------------+--------------+----------------+--------------+
| Business Gateway     | E-Travel     | Integrated     | Case         |
|                      |              | Acquisition    | Management   |
|                      |              | Envir          | LoB LoB      |
|                      |              | Environment    |              |
+----------------------+--------------+----------------+--------------+
| Disaster Assistance  | Federal      | IAE - Loans &  | Geospatial   |
|                      | Asset Sales  | Grants - Dunn  | LoB          |
| Improvement Plan     |              | Dun &          |              |
|                      |              | Bradstreet     |              |
+----------------------+--------------+----------------+--------------+
| Disaster Assist.     | Geospatial   | Financial      | Budget       |
| Improvement Plan -   | One-Stop     | Mgmt.          | Formulation  |
| Plan - Capacity      |              |                | and E        |
| Surge                |              | Consolidated   | Execution    |
|                      |              | LoB            | LoB          |
+----------------------+--------------+----------------+--------------+
| E-Authentication     | Gov          | Human          | IT           |
|                      | Benefits.gov | Resources LoB  | In           |
|                      |              |                | frastructure |
|                      |              |                | LoB          |
+----------------------+--------------+----------------+--------------+
| E-Rulemaking         | Grants.gov   | Grants         |              |
|                      |              | Management LoB |              |
|                      |              | LoB            |              |
+----------------------+--------------+----------------+--------------+

The Department of Justice E-Government expenses -- DOJ's share of E-Gov
initiatives managed by other federal agencies -- are paid for from the
Department's Working Capital Fund (WCF). These costs, along with other
internal E-Government related expenses (oversight and administrative
expenses such as salaries, rent, etc.) are reimbursed by the components
to the WCF. The Tax Division reimbursement amount is based on the
anticipated or realized benefits from an E-Government initiative. The
Tax Division E-Government reimbursement to the WCF is \$95,000 for
FY2008. The anticipated Tax Division E-Government reimbursement to WCF
is \$33,000 for FY2009.

[^1]: See IRS 2006 statistics,
    [www.irs.gov/taxstats/article/0,,id=168593,00.html](http://www.irs.gov/taxstats/article/0,,id=168593,00.html),
    Table 27.

[^2]: A widely regarded study concluded that the marginal indirect
    revenue-to-cost ratio of a criminal conviction is more than 16 to 1.
    While no comparable study of civil litigation exists, the same
    research suggests that IRS civil audits \-- the results of which are
    not publicly disclosed \-- have an indirect effect on revenue that
    is more than 10 times the adjustments proposed in those audits. Alan
    H. Plumley, *The Determinants of Individual Income Tax Compliance*,
    pp. 35, 40, Internal Revenue Service Publication 1916 (1996).

[^3]: "The IRS \... found that taxpayers who heard about IRS audit
    activity via the media \[rather than through word of mouth\] were
    less likely to cheat\..." Leandra Lederman, *The Interplay Between
    Norms and Compliance*, 64 Ohio. St. L. J. 1453, 1494-95 (2003),
    *quoting* Robert M. Melia, *Is the Pen Mightier than the Audit?*, 34
    Tax Notes 1309, 1310 (1987).

[^4]: *See* IRS Oversight Board, February, 2007,
    http://www.treas.gov/irsob/releases/index.shtml.

[^5]: Lucius A. Buck, Federal Tax Litigation and the Tax Division of the
    Department of Justice, 27 Va. L. Rev. 873, 888 (1940).

[^6]: GAO, Tax Shelters: Services Provided by External Auditors,
    GAO-05-171 (February, 2005), p. 12.

[^7]: Staff of the Joint Committee on Taxation, "Estimated Budget
    Effects of the Conference Agreement for H.R. 4520, The 'American
    Jobs Creation Act of 2004,'" October 7, 2004.

[^8]: Son of BOSS tax shelters are similar in design to the so-called
    "BOSS" tax shelter ("Bond and Option Sales Strategy").

[^9]: BLIPS stands for "Bond Linked Indexed Premium Strategy."

[^10]: See IRS 2006 statistics,
    [www.irs.gov/taxstats/article/0,,id=168593,00.html](http://www.irs.gov/taxstats/article/0,,id=168593,00.html),
    Table 27.

[^11]: Reducing the Federal Tax Gap: A Report on Improving Voluntary
    Compliance, Internal Revenue Service, August 2, 2007.