CID carries out IRS’ criminal law enforcement responsibilities under three principal statutes. Under title 26 U.S.C., IRS has authority to investigate alleged criminal tax violations, such as tax evasion and filing a false tax return. Under title 18 U.S.C., IRS has authority to investigate a broad range of fraudulent activities, such as false claims against the government and money laundering. Under title 31 U.S.C., IRS is responsible for enforcing certain recordkeeping and reporting requirements of large currency transactions, such as cash bank deposits of more than $10,000. In carrying out its responsibilities, CID coordinates as necessary with IRS’ District Counsel, the Tax Division within the Department of Justice (Justice), and local U.S. Attorneys to prosecute violators of these statutes. Combating money laundering and other financial crimes is considered a high priority by both Justice and the Department of the Treasury (Treasury). According to Justice officials, because of CID’s expertise in conducting detailed financial investigations, U. S. Attorneys and law enforcement agencies routinely rely on CID’s assistance in investigating financial crimes, particularly those involving money laundering related to narcotics trafficking. In addition, CID agents have access to tax information, which they can use to develop financial investigations more fully. CID is also involved in ongoing efforts to identify and investigate emerging financial crimes, such as health care and bankruptcy fraud. According to CID officials, although such assistance places competing demands on CID’s time, it also aids in establishing the cooperative environment conducive to getting CID’s tax cases prosecuted and in obtaining information that can lead to criminal tax investigations. Historically, CID’s total staffing and budget have represented about 5 percent of IRS’ overall resources. As of the end of fiscal year 1996, CID had the full-time equivalent of 4,504 staff, including 3,065 special agents, and a budget of $366 million. CID is also reimbursed for some of the assistance it provides to other law enforcement agencies, particularly Justice’s Organized Crime Drug Enforcement Task Force (OCDETF) program. To determine the actions CID has taken since the early 1990s to increase the time spent on tax investigations relative to nontax investigations, we interviewed senior CID officials in IRS’ National Office, officials from both the Tax and Criminal Divisions in Justice, and officials from the Office of the Under Secretary for Enforcement in Treasury. We interviewed the CID officials because of their responsibilities in managing CID operations and setting division policies. Justice and Treasury officials were interviewed to obtain their opinions regarding CID’s (1) assistance in narcotics and money laundering investigations and (2) increased emphasis on tax investigations. We also reviewed CID’s annual goals and objectives and annual performance reports for fiscal years 1990 through 1996, as well as relevant documentation on the reorganization of its administrative functions and operations. To determine the types of investigations initiated and the results of referrals to U.S. Attorneys for prosecution and sentences resulting from these prosecutions, we analyzed IRS’ Criminal Investigation Management Information System (CIMIS) data. CID uses CIMIS data to track the status and overall results of its criminal investigations, including the direct investigative time (DIT) expended on investigations. DIT is the amount of time that CID agents spend directly working on investigations. We selected fiscal years 1990 through 1996 to identify CID’s investigative trends in order to capture data from the time of the IRS studies that raised concerns about CID’s investigative priorities through fiscal year 1996, the most recent period for which data were available. We obtained and analyzed CIMIS data to identify nationwide by fiscal year (1) the number and results of various types of CID investigations, and (2) the principal sources of information that led to CID investigations. CID staff, at our request, reconfigured CIMIS data for fiscal years 1990 through 1996 to reflect the current IRS field alignment of 4 regions and 33 districts, as well as CID’s current program areas—fraud and narcotics—with fraud further broken out between tax gap fraud and other fraud. Other than reconciling the totals from CIMIS data extracts to CID annual performance reports, we did not verify the accuracy of the CIMIS data. We did our work from October 1996 to August 1997 in accordance with generally accepted government auditing standards. The work was done at IRS’ National Office and Southeast Regional Office; IRS’ Georgia, South Florida, and Delaware-Maryland District Offices; and at U. S. Attorney’s offices in the Northern District of Georgia, the Southern District of Florida, and the Maryland District. We selected the offices we visited because of the proximity of our staff working on this assignment. We requested comments on a draft of this report from the Acting Commissioner of Internal Revenue and the Attorney General. Their comments are discussed at the end of this letter. In the early 1990s, concerns raised in IRS studies regarding CID’s investigative priorities spurred CID to take actions to increase the amount of time its agents spent on tax investigations. Between fiscal years 1990 and 1992, the percent of DIT spent on tax gap investigations decreased from 56 percent to 46 percent; since then, the percent of DIT spent on tax gap investigations increased to 59 percent as of fiscal year 1996. CID has established a range of 57 to 61 percent of DIT to be spent on tax gap investigations as its goal for fiscal year 1997 and beyond. Subsequent to hearings on IRS employee misconduct in 1989 before the Subcommittee on Commerce, Consumer and Monetary Affairs, House Committee on Government Operations, the Commissioner of Internal Revenue appointed an independent panel to review various concerns raised during the hearings, including issues relating to criminal investigations. In its October 1990 report, the panel stated that there had been a significant decrease in CID resources applied to tax investigations and a corresponding increase in resources applied to nontax investigations. The panel believed that CID’s work priorities were not properly aligned with IRS’ strategic goal of increasing taxpayers’ compliance with the tax laws. The panel recommended that CID (1) establish a criminal enforcement policy in line with IRS’ overall efforts to increase compliance with the tax laws, (2) ensure that its allocation of resources and mix of cases are consistent with such a policy, and (3) closely monitor and control implementation of this policy through the National Office. Also, to address concerns about whether CID’s workload was properly balanced between tax and nontax investigative efforts, IRS convened a study group that included representatives from Justice and Treasury. The study group’s August 1991 report found that CID resources used for tax investigations had declined about 18 percentage points between fiscal years 1980 and 1990; on that basis, the study group recommended that resources devoted to tax investigations be increased and that future resources devoted to narcotics investigations be limited to the amount expended in fiscal year 1991. The IRS Executive Committee agreed with these recommendations, and in June 1992 CID initiated an action plan to implement them. The actions led to a reorganization of CID, which began in October 1993 and was fully implemented in October 1994. The reorganization was done in part with the intent of giving CID’s national office a better means to control and monitor field activities to keep them aligned with national policies and objectives as recommended by the review panel and the study group. In terms of its organizational structure, CID was reduced from 7 regions and 63 districts to 4 regions and 34 districts. In addition, the position of Director of Investigation (DI), reporting directly to the IRS National Office Assistant Commissioner for Criminal Investigation, was established in each region to oversee and coordinate investigative activities. The DIs replaced seven former Assistant Regional Commissioners for Criminal Investigation, who reported directly to the Regional Commissioners. The DIs are responsible for ensuring that CID field offices adhere to national office program objectives and policies. Another action CID took to better track the allocation of its resources to tax versus nontax investigations was to consolidate its major program areas and to establish a specific category for tax gap investigations. In fiscal year 1995, CID consolidated the five program areas under which investigations had been categorized and tracked—narcotics, organized crime, public corruption, financial compliance, and other illegal crime—into two principal program areas—fraud and narcotics. The fraud program was subdivided into tax gap fraud and other fraud. Tax gap fraud pertains to investigations of legal industries with alleged criminal tax violations. The other fraud category involves investigations of illegal industries or money laundering investigations with no tax-related charges.The narcotics program primarily relates to investigations of money laundering activity by individuals and organizations involved in narcotics trafficking. Beginning in fiscal year 1996, CID set specific national goals for the percent of DIT to be used on tax gap and narcotics investigations to help ensure that additional resources would be allocated to tax gap investigations. The fiscal year 1996 DIT goals were 58 percent for tax gap investigations—1 percent higher than the actual DIT for fiscal year 1995—and 24 percent for narcotics investigations—the same as the actual DIT for fiscal year 1995. Since CID began taking these actions, DIT applied to tax gap investigations has increased. (See fig. 1.) According to data provided by IRS, the percent of time applied to tax gap investigations for fiscal years 1993 through 1996 increased 13 percentage points. As of fiscal year 1996, CID applied 59 percent of DIT to tax gap investigations, exceeding its goal by 1 percentage point, while applying 22 percent of DIT to narcotics investigations, 2 percentage points short of its goal. According to CID national office officials, the goal for the amount of DIT to be allocated to tax gap investigations in fiscal year 1997 is a range of 57 to 61 percent, and the goal for narcotics investigations is a range of 23 to 25 percent. They stated that these goals, which are expected to be the goals for the next few years, were developed with input from the DIs.