IRS Puts Reins on Stingray Technology

IRS Puts Reins on Stingray Technology

It will be Christmas time soon and thoughts often turn to gift giving and getting. For some, the gift they would like most is the latest high tech toy. This year one of the hottest tech gifts is the Hoverboard. Next year it could be a personal rocket ship. Boys will be boys, and they tend to enjoy imagining themselves starring in a James Bond flick with the latest technology at their fingertips.

The boys at the IRS are no different, although some of them are surely lamenting the potential limitations placed on their toy commonly knows as the Stingray. The Stingray is a cell phone surveillance device that can mimic a wireless cell tower, intercepting signals and giving the user private cell data of anyone in the area. Special agents with IRS Criminal Investigations have used this device since 2011 to track down some big time tax criminals.

Under pressure from the Justice Department, the IRS has begun drafting rules that would require their employees to obtain a warrant before using this controversial device. Of course a warrant requires a finding of probably cause by a judge, and if you’ve ever seen any crime shows on TV you know it’s a pain to have to get a warrant.

The IRS apparently has only one Stingray now, but they ordered a second one back in July. It hasn’t arrived yet, which I’m sure has the CI boys as anxious as 8-year-olds on Christmas Eve.

An IRS January Tradition

On Thursday the IRS announced a massive nation-wide identity theft crackdown, and I believe I’m starting to see a pattern now. Around the end of December each year we tend to get together with our extended families to drink eggnog, decorate trees, exchange gifts, and engage in various other annual family traditions. Well, the IRS appears to have a tradition of its own, although far less jolly than ours. Each January the IRS gets together with the Department of Justice and the US Attorney to sweep the nation for tax cheats — not exactly the kind of party you want to be invited to.

Here are the results of this years’ festivities:

  • the “sweep” involved 32 states and 215 cities
  • 734 enforcement actions (2,400 total in fiscal year 2012)
  •  109 arrests
  • 189 indictments
  • 47 search warrants
  • visits to 197 money service businesses (i.e., check cashing joints)

Read about specific cases here.

There is no doubt the IRS is strengthening its identity theft prevention and prosecution efforts.  Last year there were only 69 indictments and 58 arrests.  Sentencings are also on the rise, and jail times are getting longer.

The IRS is spending an unprecedented amount of resources on identity theft.  Perhaps the best evidence is the dramatic increase in criminal identity theft investigations:

  • 276 criminal identity theft investigations started in 2011
  • 898 criminal identity theft investigations started in 2012
  • 560 criminal identity theft investigations started so far in 2013

I’m not sure how they would do it, but the IRS could probably do a better job publishing this information and these stats.  It’s great that they’re stepping up efforts to punish identity theives, and the timing is perfect (right as people begin getting their taxes done), but if it’s only the tax attorneys and other tax professionals who are in the know, I would consider it a big opportunity lost.

DOJ Shuts Down “Redemption Theory” Tax Fraud Ring

This week the US Department of Justice released the names of seven individuals who have been charged in a $120 million tax fraud scheme. According to the indictment, the false return scheme was national in scope, causing the filing of tax returns for at least 180 clients from 30 different states, and requesting more than $120 million worth of fraudulent tax refunds. The indictment alleges that the defendants and clients of the scheme collectively filed more than 380 tax returns, mostly from tax year 2008, reporting the amount of their personal debt obligations as both income and as federal tax withholding.

Other reports mention the scammers were promulgating a “redemption theory.” Here’s the scoop on this bizarre tax protestor theory according to Wikipedia:

Redemption theory involves claims that when the U.S. government abandoned the gold standard in 1933, the government pledged its citizens as collateral so that the government could borrow money. The movement also asserts that common citizens can gain access to funds in secret accounts using obscure procedures and regulations.

According to the theory, the government created a fictitious person (or “straw man”) corresponding to each newborn citizen with bank accounts initially holding $630,000. The theory further holds that through obscure procedures under the Uniform Commercial Code, a citizen can “reclaim” the straw man and write checks against its accounts.

The “straw man” argument is cited by the IRS as one of the 40 frivolous tax arguments which, if made, subjects the taxpayer to tougher penalties. The “straw man” argument is #18.