Tax Administration: IRS' Efforts to Place More Emphasis on Criminal Tax
Investigations (Letter Report, 11/06/97, GAO/GGD-98-16).

The Internal Revenue Service's (IRS) Criminal Investigation Division
investigates tax fraud and helps other law enforcement agencies to
investigate financial crimes, such as money laundering, linked to
narcotics trafficking. In the early 1990s, IRS raised questions about
the Division's investigative priorities because they increasingly
involved nontax investigations that supported national drug and crime
policies--even as the tax gap grew to $128 billion for 1992. This
concern prompted the Division to devote more resources to tax
investigations. This report discusses the steps that the Division has
taken since the early 1990s to increase the time spent on tax
investigations versus nontax investigations. It also highlights the
investigations initiated by the Division, as well as referrals to U.S.
Attorneys for prosecution and court sentences on the basis of these
investigations, for fiscal years 1990 through 1996.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-98-16
     TITLE:  Tax Administration: IRS' Efforts to Place More Emphasis on 
             Criminal Tax Investigations
      DATE:  11/06/97
   SUBJECT:  Tax administration
             Agency missions
             Tax evasion
             Investigations by federal agencies
             Tax nonpayment
             Tax violations
IDENTIFIER:  IRS Criminal Investigation Management Information System
             DOJ Organized Crime Drug Enforcement Task Force Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Commissioner, Internal Revenue Service

November 1997

TAX ADMINISTRATION - IRS' EFFORTS
TO PLACE MORE EMPHASIS ON CRIMINAL
TAX INVESTIGATIONS

GAO/GGD-98-16

IRS' Criminal Investigation Division

(268768)


Abbreviations
=============================================================== ABBREV

  CID - Criminal Investigation Division
  CIMIS - Criminal Investigation Management Information System
  DI - Director of Investigation
  DIT - Direct Investigative Time
  IRS - Internal Revenue Service
  OCDETF - Organized Crime Drug Enforcement Task Force

Letter
=============================================================== LETTER


B-275359

November 6, 1997

The Honorable Michael Dolan
Acting Commissioner of Internal Revenue

Dear Mr.  Dolan: 

The Internal Revenue Service's (IRS) Criminal Investigation Division
(CID) investigates tax fraud and assists other law enforcement
agencies in investigating financial crimes, such as money laundering
associated with narcotics trafficking.  In the early 1990s, IRS
studies raised questions about CID's investigative priorities because
they increasingly comprised nontax investigations that supported
national drug and crime policies to the detriment of tax
investigations, even as the estimated tax gap grew to about $128
billion for 1992.\1 This concern caused CID to revise its
investigative strategy, thereby focusing more resources on tax
investigations.  As part of this revised strategy, in fiscal year
1995 CID established fraud and narcotics as its main investigative
program areas.  The fraud program was further subdivided between tax
gap fraud and other fraud, thus enabling CID to track resources
applied specifically to tax gap investigations. 

This report, which we prepared under our basic legislative
responsibilities, discusses the actions CID has taken since the early
1990s to increase the time spent on tax investigations versus nontax
investigations.  It also highlights the investigations initiated by
CID, as well as referrals to U.S.  Attorneys for prosecution and
court sentences based on these investigations, for fiscal years 1990
through 1996. 


--------------------
\1 The tax gap is defined as total tax liability less taxes paid
voluntarily.  IRS' tax gap reports do not indicate how much of the
tax gap is attributable to fraud. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Between fiscal years 1990 and 1992, IRS data show that the percent of
time spent on tax gap investigations decreased by 10 percentage
points, continuing a downward trend since the early 1980s.  On the
basis of the recommendations of two IRS studies done in the early
1990s, CID began in October 1993 taking actions designed to increase
the amount of time its agents spent conducting tax investigations. 
Specifically, CID reorganized its administrative functions and
operations with the intent of better targeting resource allocations. 
It also consolidated and recategorized its program areas with an
objective of better tracking its investigations.  In addition, as of
fiscal year 1996 CID established goals for the percent of time to be
spent on its investigations, particularly for tax gap investigations. 

Since these actions were initiated, the percent of time spent on tax
gap investigations has increased by 13 percentage points from a low
of 46 percent in 1992 to 59 percent in 1996.\2

Overall, the 59 percent in fiscal year 1996 represented a net
increase of 3 percentage points over the fiscal year 1990 level. 

Between fiscal years 1992 and 1996, there was an increase in the
percent of tax gap investigations that CID initiated and in the
percent of referrals to U.S.  Attorneys for prosecution based on tax
gap cases; since fiscal year 1994, the percent of court sentences
based on tax gap cases has also increased.  However, as of fiscal
year 1996 the increases in these indicators have not been enough to
match fiscal year 1990 levels. 


--------------------
\2 At our request, CID staff used the characteristics defined in
fiscal year 1995 for investigations conducted under its main program
areas--fraud and narcotics--to identify the amount and percent of
time applied to these types of investigations between fiscal years
1990 and 1994.  The fraud program was further broken out by tax gap
and other fraud.  They did the same for the number and percent of (1)
CID investigations initiated, (2) referrals to U.S.  Attorneys for
prosecution based on CID cases, and (3) court sentences based on CID
cases. 


   BACKGROUND
------------------------------------------------------------ Letter :2

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.\3


--------------------
\3 OCDETF is a federal interagency coordinated effort to investigate
and prosecute major drug organizations, particularly those with
connections to organized crime.  Under a reimbursement agreement with
Justice, CID is reimbursed up to the level allowed by Congress for
the cost of its agents' salaries when assisting in OCDETF
investigations.  According to data provided by CID officials, between
fiscal years 1990 and 1996, CID provided $130 million in assistance
to the OCDETF program over and above the $205 million received in
reimbursement from Justice. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

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. 


   ACTIONS TO INCREASE DIRECT
   INVESTIGATIVE TIME SPENT ON TAX
   INVESTIGATIONS
------------------------------------------------------------ Letter :4

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.\4 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.\5 The other fraud category involves investigations of
illegal industries or money laundering investigations with no
tax-related charges.\6 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. 

   Figure 1:  Percent of
   Nationwide DIT by Type of
   Criminal Investigation-- Fiscal
   Years 1990 Through 1996

   (See figure in printed
   edition.)

Source:  GAO analysis of IRS data. 

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.  It is CID officials'
judgment that these goals will enable CID to (1) conduct
investigations in support of IRS' strategic goal of increasing
compliance with the tax laws; (2) contribute to the government's
efforts in combating narcotics and money laundering; and (3) continue
allocating some of its investigative time to cases involving emerging
financial crimes, such as health care fraud. 


--------------------
\4 CID was subsequently reduced to 33 districts when IRS' district
office reorganization took place in fiscal year 1996. 

\5 According to CID officials, although tax gap investigations
usually result in prosecution and sentencing for Title 26 violations,
they may also involve certain Title 18 violations, such as defrauding
the government or filing a false claim.  They further stated that
they prefer prosecution and sentencing under Title 26, but they will
opt to use Title 18 when they feel certain that Title 26 charges will
not hold up in court. 

\6 Investigations of illegal industries with alleged criminal tax
violations are included in the other fraud program. 


   TRENDS IN THE NUMBER AND
   RESULTS OF CID INVESTIGATIONS
   FOR FISCAL YEARS 1990 THROUGH
   1996
------------------------------------------------------------ Letter :5

CID considers completed investigations that merit referral to the
U.S.  Attorneys for prosecution as an important step toward the
eventual prosecution, conviction, and sentencing for criminal tax
violations and related financial crimes.  By publicizing convictions,
CID hopes to deter others from engaging in such criminal activity and
to promote voluntary compliance with the tax laws.  Consequently, CID
uses statistical data from CIMIS to track the number and percent of
investigations initiated, as well as the number and percent of
referrals made to U.S.  Attorneys for prosecution and sentences
handed down by the U.S.  courts based on CID cases.  CIMIS data show
that the percent of tax gap investigations initiated, the percent of
tax gap cases referred to U.S.  Attorneys for prosecution, and the
percent of court sentences based on tax gap cases have all begun to
increase since CID increased the time spent on tax gap
investigations.  However, as of fiscal year 1996, the increases have
not been enough to match fiscal year 1990 levels for these
indicators. 


      TRENDS IN THE TYPES OF
      INVESTIGATIONS INITIATED
---------------------------------------------------------- Letter :5.1

As shown in figure 2, tax gap investigations represented 54 percent
of all CID investigations initiated in fiscal year 1996.  This is an
increase over the fiscal year 1992 level of 47 percent and just under
the fiscal year 1990 level of 55 percent.  The figure also shows that
between fiscal years 1990 and 1996, narcotics investigations
decreased from 30 percent to 25 percent of all CID investigations
initiated.  Other fraud investigations were 6 percentage points
higher in fiscal 1996 than in fiscal year 1990. 

   Figure 2:  Percent of Criminal
   Investigations Initiated
   Nationwide by Type--Fiscal
   Years 1990 Through 1996

   (See figure in printed
   edition.)

Source:  GAO analysis of IRS data. 


      TRENDS IN INVESTIGATIONS
      REFERRED TO THE U.S. 
      ATTORNEYS FOR PROSECUTION
---------------------------------------------------------- Letter :5.2

Figure 3 shows that, in general, the percent of CID cases being
referred to the U.S.  Attorneys for prosecution for tax gap fraud
since fiscal year 1992 has increased, while the percent of other
types of referrals--narcotics and other fraud cases--either declined
or remained somewhat stable.  Specifically, tax gap referrals
represented 47 percent of all CID referrals in fiscal year 1996
compared to 39 percent in fiscal year 1992 and 49 percent in fiscal
year 1990. 

   Figure 3:  Percent of Referrals
   for Prosecution Nationwide by
   Type of CID Investigation--
   Fiscal Years 1990 Through 1996

   (See figure in printed
   edition.)

Note:  Referrals for prosecution in a particular fiscal year do not
necessarily relate to the year the case was initiated. 

Source:  GAO analysis of IRS data. 


      TRENDS IN SENTENCES FROM
      CASES REFERRED TO THE U.S. 
      ATTORNEYS FOR PROSECUTION
---------------------------------------------------------- Letter :5.3

Court sentences--including incarceration, probation, and fines--based
on tax gap investigations decreased from 54 percent of all court
sentences based on CID investigations in fiscal year 1990 to a low of
37 percent in fiscal year 1994.  Since that time tax gap sentences
have increased to 44 percent of all court sentences for CID cases as
of fiscal year 1996.  Overall, sentences based on narcotics
investigations increased from 32 percent to 39 percent of all court
sentences based on CID investigations between fiscal years 1990 and
1993, then decreased to 31 percent as of fiscal year 1996.  (See fig. 
4.)

   Figure 4:  Percent of Sentences
   Nationwide by Type of CID
   Investigation-- Fiscal years
   1990 Through 1996

   (See figure in printed
   edition.)

Note:  Sentences in a particular fiscal year do not necessarily
relate to the year the case was initiated or referred to a U.S. 
Attorney for prosecution. 

Source:  GAO analysis of IRS data. 

Additional information relating to CID's investigations between
fiscal years 1990 and 1996 is shown in appendixes I, II, III, and IV. 
Appendix I shows the number of staff days applied nationwide by type
of criminal investigation.  Appendix II contains information on the
percent of DIT applied to each type of criminal investigation by IRS
location.  Appendix III shows the numbers of investigations,
referrals to the U.S.  Attorneys for prosecution, and court sentences
by type of criminal investigation.  Appendix IV discusses the
principal sources of information on which CID's investigations were
based. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

IRS and the Department of Justice each provided comments on a draft
of this report.  Each agency generally agreed with the information
presented in the report and offered technical comments, which we have
incorporated where appropriate. 


---------------------------------------------------------- Letter :6.1

Copies of this report are being sent to the Chairmen and Ranking
Minority Members of the Senate Committee on Finance, the Senate
Committee on Governmental Affairs, the House Committee on Ways and
Means, and the House Committee on Government Reform and Oversight;
the Chairman and Ranking Minority Member of the Subcommittee on
Treasury, General Government, and Civil Service, Senate Committee on
Appropriations; and the Chairman and Ranking Minority Member of the
Subcommittee on Treasury, Postal Service, and General Government,
House Committee on Appropriations; various other congressional
committees; the Secretary of the Treasury; the Attorney General; and
other interested parties.  We will also make copies available to
others upon request. 

Major contributors to this report are listed in appendix VI.  Please
contact me on (202) 512-9110 if you or your staff have any questions
about this report. 

Sincerely yours,

Lynda D.  Willis
Director, Tax Policy and
 Administration Issues


INVESTIGATIVE TIME APPLIED
NATIONWIDE BY TYPE OF CRIMINAL
INVESTIGATION IN FISCAL YEARS 1990
THROUGH 1996
=========================================================== Appendix I

This appendix presents the nationwide number of staff days applied
directly to the major types of Criminal Investigation Division (CID)
investigations.  This does not include staff days applied to
noninvestigative activities, such as training. 



                                    Table I.1
                     
                       Number of Direct Staff Days Applied
                          Nationwide by Type of Criminal
                        Investigation in Fiscal Years 1990
                                   Through 1996

                           Number of staff days by fiscal year
          ----------------------------------------------------------------------
Type of
investig
ation       1990      1991      1992      1993      1994      1995       1996
--------  --------  --------  --------  --------  --------  --------  ----------
Fraud
Tax gap   273,192   262,544   253,245   278,261   301,640   328,595    361,494
Other      43,906    66,923   110,107   115,942    96,753    98,002     98,032
Narcotic  160,988   169,882   170,665   168,116   159,357   138,356    134,794
 s
Informat   9,757     15,444    16,516    17,391    11,383    11,530     18,381
 ion
 items
================================================================================
Total     487,842   514,793   550,533   579,711   569,133   576,483    612,702
 direct
 staff
 days
--------------------------------------------------------------------------------
Note 1:  Investigative time spent following up on information
provided to CID that indicates potential criminal violations prior to
initiation of an investigation is categorized as information items. 

Note 2:  Totals do not add due to rounding. 

Source:  GAO analysis of IRS data. 


PERCENT OF DIRECT INVESTIGATIVE
TIME APPLIED TO CID INVESTIGATIONS
IN FISCAL YEARS 1990 THROUGH 1996
========================================================== Appendix II

This appendix shows the percent of direct investigative time (DIT)
applied to the major types of CID investigations nationwide, by
regions, and by district offices from fiscal years 1990 through 1996. 
For fiscal year 1996, CID set national DIT goals of 58 percent for
tax gap investigations and 24 percent for narcotics investigations. 
To achieve these goals, CID requested that the Directors of
Investigation for each region help to ensure that the regional DIT
was within a range of 58 to 60 percent for tax gap investigations and
24 to 26 percent for narcotics investigations. 



                                    Table II.1
                     
                     Percent of Total DIT Applied to Tax Gap
                       Investigations by Location in Fiscal
                             Years 1990 Through 1996

                                      Percent of DIT by fiscal years
                          ------------------------------------------------------
Location                    1990    1991    1992    1993    1994    1995    1996
------------------------  ------  ------  ------  ------  ------  ------  ------
Nationwide                    56      51      46      48      53      57      59
 Midstates Region        51      45      40      43      47      54      56
Midwest                       52      46      44      50      55      57      62
Arkansas-Oklahoma             55      40      34      43      49      57      57
Houston                       55      50      45      52      54      56      49
Illinois                      61      56      47      50      50      55      59
Kansas-Missouri               54      53      44      42      48      53      61
North Central                 58      48      53      56      60      64      73
North Texas                   47      38      37      33      33      49      56
South Texas                   26      26      18      20      32      46      34
Northeast Region              61      57      53      53      56      58      61
Brooklyn                      71      70      65      62      66      62      60
Connecticut-Rhode Island      61      60      58      58      64      69      74
Manhattan                     55      44      50      47      51      52      56
Michigan                      60      58      55      55      58      58      60
New England                   49      51      44      48      49      50      58
New Jersey                    64      62      57      54      63      64      64
Ohio                          60      48      42      45      50      55      63
Pennsylvania                  64      64      51      52      52      57      62
Upstate New York              72      64      64      64      66      63      64
 Southeast Region        54      49      46      49      55      58      59
Delaware-Maryland             56      51      47      52      55      59      59
Georgia                       59      50      47      59      56      57      60
Gulf Coast                    65      54      57      57      64      64      61
Indiana                       70      63      58      59      60      67      66
Kentucky-Tennessee            60      52      44      47      58      58      57
North-South Carolina          39      36      41      39      50      55      57
North Florida                 46      45      41      40      46      49      52
South Florida                 39      39      34      41      51      50      55
Virginia-West Virginia        61      55      53      50      60      65      64
Western Region                55      51      41      45      50      56      60
Central California            56      58      53      53      58      56      58
Los Angeles                   60      52      45      50      60      62      68
Northern California           61      51      36      47      45      54      57
Pacific Northwest             49      50      43      47      50      49      57
Rocky Mountain                54      49      34      38      48      57      60
Southern California           51      48      41      37      42      53      58
Southwest                     55      49      38      49      53      59      62
--------------------------------------------------------------------------------
Note:  Percentages have been rounded to the nearest whole percent. 

Source:  IRS Criminal Investigation Management Information System
data. 



                                    Table II.2
                     
                         Percent of Total DIT Applied to
                     Narcotics Investigations by Location in
                          Fiscal Years 1990 Through 1996

                                      Percent of DIT by fiscal years
                          ------------------------------------------------------
Location                    1990    1991    1992    1993    1994    1995    1996
------------------------  ------  ------  ------  ------  ------  ------  ------
Nationwide                    33      33      31      29      28      24      22
 Midstates Region        37      38      36      35      32      25      26
Midwest                       33      39      37      32      29      25      26
Arkansas-Oklahoma             21      28      27      25      21      19      16
Houston                       34      35      37      32      33      30      40
Illinois                      30      31      33      28      28      24      24
Kansas-Missouri               34      34      34      33      30      23      21
North Central                 34      34      29      22      24      19      12
North Texas                   33      34      36      41      39      22      19
South Texas                   65      63      54      64      50      34      46
 Northeast Region        28      29      28      26      26      25      23
Brooklyn                      14      14      17      15      19      23      23
Connecticut-Rhode Island      31      25      23      21      19      13      10
Manhattan                     38      43      36      36      35      35      32
Michigan                      27      26      27      25      24      26      25
New England                   43      34      30      23      25      22      20
New Jersey                    25      25      28      26      26      24      21
Ohio                          26      32      29      31      26      26      22
Pennsylvania                  26      25      30      28      29      25      25
Upstate New York              21      25      21      22      23      17      12
Southeast Region              34      35      30      28      26      23      21
Delaware-Maryland             35      36      31      30      30      23      26
Georgia                       29      32      29      23      27      25      21
Gulf Coast                    27      30      25      24      23      20      22
Indiana                       18      18      20      20      21      18      17
Kentucky-Tennessee            25      26      18      21      19      16      14
North-South Carolina          43      45      34      35      30      23      23
North Florida                 37      35      29      25      22      17      12
South Florida                 56      52      46      39      33      35      27
Virginia-West Virginia        30      31      30      29      25      21      19
Western Region                33      31      32      28      28      23      19
Central California            36      34      26      19      21      19      14
Los Angeles                   36      34      31      31      29      21      19
Northern California           28      28      33      26      28      22      22
Pacific Northwest             35      28      27      24      26      26      20
Rocky Mountain                33      32      32      27      27      21      18
Southern California           41      39      39      35      34      29      24
Southwest                     25      27      37      30      26      17      12
--------------------------------------------------------------------------------
Note:  Percentages have been rounded to the nearest whole percent. 

Source:  IRS Criminal Investigation Management Information System
data. 



                                    Table II.3
                     
                      Percent of Total DIT Applied to Other
                       Fraud Investigations by Location in
                          Fiscal Years 1990 Through 1996

                                     >Percent of DIT by fiscal years
                          ------------------------------------------------------
Location                    1990    1991    1992    1993    1994    1995    1996
------------------------  ------  ------  ------  ------  ------  ------  ------
Nationwide                     9      13      20      20      17      17      16
Midstates Region              11      15      21      19      18      19      17
Midwest                       11      11      16      13      11      15      10
Arkansas-Oklahoma             20      30      36      29      28      22      25
Houston                        9      13      17      14      12      12      10
Illinois                       6       8      16      18      18      17      14
Kansas-Missouri               10      10      19      22      19      22      15
North Central                  7      16      17      20      15      15      13
North Texas                   18      25      27      25      27      28      24
South Texas                    9      10      28      15      18      19      20
Northeast Region               8      11      16      18      15      14      13
Brooklyn                      13      12      15      19      12      12      13
Connecticut-Rhode Island       5      12      16      19      15      16      14
Manhattan                      6       9      10      13      11      10       9
Michigan                      10      13      14      15      14      11      12
New England                    6      12      22      25      23      24      20
New Jersey                     8       9      13      18      10      11      13
Ohio                          10      16      23      20      20      15      11
Pennsylvania                   7       9      18      19      17      16      10
Upstate New York               6      10      13      12      10      19      22
Southeast Region               9      13      21      20      16      17      18
Delaware-Maryland              6       9      19      16      14      16      13
Georgia                        8      15      22      17      16      18      18
Gulf Coast                     6      13      15      16       9      15      16
Indiana                        8      15      17      16      13      10      12
Kentucky-Tennessee            14      20      35      29      20      23      26
North-South Carolina          16      18      24      24      18      21      19
North Florida                 14      17      26      31      27      30      31
South Florida                  4       7      16      15      12      11      15
Virginia-West Virginia         7      12      15      18      13      13      15
Western Region                 8      15      24      25      19      19      19
Central California             7       6      18      27      19      23      27
Los Angeles                    2      12      22      17       9      14      11
Northern California            8      17      28      25      24      22      18
Pacific Northwest             12      18      27      27      21      22      20
Rocky Mountain                10      18      32      33      24      20      20
Southern California            3       8      16      25      20      15      15
Southwest                     15      20      22      19      18      20      23
--------------------------------------------------------------------------------
Note:  Percentages have been rounded to the nearest whole percent. 

Source:  IRS Criminal Investigation Management Information System
data. 


THE NUMBER AND RESULTS OF CID
INVESTIGATIONS IN FISCAL YEARS
1990 THROUGH 1996
========================================================= Appendix III

This appendix presents information on the number of CID
investigations that were initiated, the number of investigations in
which CID recommended prosecution, and the number of sentences
resulting from prosecutions from fiscal year 1990 through fiscal year
1996.  According to CID officials, completing an investigation and
subsequently prosecuting and sentencing the subject of the
investigation may take a year or more.  As a result, the number of
prosecution recommendations and sentences shown in a particular
fiscal year in tables III.2 and III.3 may not have resulted from the
investigations initiated in the corresponding fiscal year in table
III.1. 



                                   Table III.1
                     
                      Number of CID Investigations Initiated
                     Nationwide in Fiscal Years 1990 Through
                                       1996

                            Number of investigations initiated by fiscal year
                          ------------------------------------------------------
Type of investigation       1990    1991    1992    1993    1994    1995    1996
------------------------  ------  ------  ------  ------  ------  ------  ------
Fraud
Tax gap                    2,895   2,530   3,098   2,927   2,602   2,506   2,857
Other                        781     822   1,345   1,396   1,103   1,201   1,144
Narcotics                  1,603   1,866   2,095   1,825   1,641   1,293   1,333
================================================================================
Total investigations       5,279   5,218   6,538   6,148   5,346   5,000   5,334
--------------------------------------------------------------------------------
Source:  IRS Criminal Investigation Management Information System
data. 



                                   Table III.2
                     
                     Number of CID Investigations Referred to
                        the U.S. Attorney for Prosecution
                     Nationwide in Fiscal Years 1990 Through
                                       1996

                             Number of investigations referred by fiscal year
                          ------------------------------------------------------
Type of investigation       1990    1991    1992    1993    1994    1995    1996
------------------------  ------  ------  ------  ------  ------  ------  ------
Fraud
Tax gap                    1,574   1,561   1,642   1,805   1,535   1,579   1,708
Other                        430     605     937   1,009     889     891     865
Narcotics                  1,226   1,511   1,673   1,453   1,321   1,145   1,032
================================================================================
Total referrals for        3,230   3,677   4,252   4,267   3,745   3,615   3,605
 prosecution
--------------------------------------------------------------------------------
Source:  IRS Criminal Investigation Management Information System
data. 



                                   Table III.3
                     
                     Number of Sentences Nationwide Resulting
                     from CID Investigations in Fiscal Years
                                1990 Through 1996

                                    Number of sentences by fiscal year
                          ------------------------------------------------------
Type of investigation       1990    1991    1992    1993    1994    1995    1996
------------------------  ------  ------  ------  ------  ------  ------  ------
Fraud
Tax gap                    1,310   1,344   1,203   1,225   1,194   1,104   1,223
Other                        333     402     459     630     805     736     691
Narcotics                    766   1,039     973   1,197   1,236     961     863
================================================================================
Total sentences            2,409   2,785   2,635   3,052   3,235   2,801   2,777
--------------------------------------------------------------------------------
Source:  IRS Criminal Investigation Management Information System
data. 


SOURCES OF INFORMATION THAT
RESULTED IN CID INVESTIGATIONS IN
FISCAL YEARS 1990 THROUGH 1996
========================================================== Appendix IV

CID relies on various sources of information for initiating its
investigations, including information from (1) within IRS, such as
from the Examination Division; (2) other government sources, such as
U.S.  Attorneys; (3) currency transaction reports; and (4) the
public.  Although information from other government sources may
result in various types of CID investigations, including tax fraud,
information from within IRS predominantly results in tax fraud
investigations.  Information provided from within IRS and by other
government sources accounted for about 75 percent of the total CID
investigations initiated each year for fiscal years 1990 through
1996.  As shown in figure IV.1, investigations based on information
provided by other government sources increased from about 45 percent
in fiscal year 1990 to about 51 percent in fiscal year 1996. 
Investigations based on information provided from within IRS
fluctuated from about 32 percent in fiscal year 1990 to about 29
percent in fiscal year 1996. 

   Figure IV.1:  Percent of
   Investigations Initiated
   Nationwide by Selected
   Sources-- Fiscal Years 1990
   Through 1996

   (See figure in printed
   edition.)

Source:  GAO analysis of IRS data. 

In 1991, a study group convened to examine CID's workload and to
recommend changes to better balance, direct, and strengthen its
future investigative activities recommended that IRS reemphasize its
internal fraud referral program.  In an effort to increase the
quality of internal fraud referrals from other IRS groups to CID that
may lead to tax fraud investigations, IRS established formal fraud
referral procedures effective for fiscal year 1996.  This included
establishing the position of fraud coordinator in each district
office to act as a focal point for fraud referrals.  According to CID
officials, the objective of these procedures is to increase
coordination between CID and other IRS functions, particularly the
Examination Division, in an effort to ensure that only cases
involving potential criminal fraud, rather than civil fraud, are
referred to CID.  CID officials further stated that it is too soon to
determine the overall success of the new procedures. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE INTERNAL REVENUE
SERVICE
========================================================== Appendix IV


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Charlie Daniel, Assistant Director
Mark Gillen, Assistant Director
Robert McKay, Evaluator-in-Charge
James O'Donnell, Evaluator
Charles W.  Woodward, III, Senior Evaluator

ATLANTA FIELD OFFICE

A.  Carl Harris, Assistant Director
Clarence Tull, Senior Evaluator
Sally P.  Gilley, Evaluator


*** End of document. ***