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TIGTA: The IRS Should Improve Internal Controls Over Restitution Payments

February 2, 2012

TIGTA - 2012-3 David Barnes David.barnes@tigta.treas.gov TIGTACommunications@tigta.treas.gov (202) 622-3062

TIGTA: The IRS Should Improve Internal Controls Over Restitution Payments

WASHINGTON – The Internal Revenue Service (IRS) does not have effective internal

controls to ensure defendants convicted of tax-related crimes comply with conditions of

probation and restitution, according to a new report released publicly today by the

Treasury Inspector General for Tax Administration (TIGTA).

When a defendant pleads guilty or is found guilty of a tax-related crime, the terms of a

defendant’s sentence can include various combinations of imprisonment, probation, and

monetary penalties such as fines and restitution. Probation and restitution act to

discourage similar criminal violations by others.

However, the perception has grown that many defendants, despite being convicted of

violating the tax laws, are escaping all responsibility for the payment of the taxes

associated with the offenses they committed. The overall objective of this review was to

determine whether defendants convicted of tax-related crimes are held responsible for the

payment of the taxes associated with the offenses they committed.

TIGTA found that the IRS’s inability to properly account for restitution payments

resulted in the issuance of erroneous refunds to three defendants and 16 taxpayers

totaling approximately $543,000. In addition, the IRS’s systems for monitoring

defendants’ compliance with the conditions of probation and restitution are neither

effective nor reliable.

TIGTA’s analysis of data used to monitor defendants identified inaccurate tax account

data totaling approximately $330,000 for 25 defendants. TIGTA also determined that

Criminal Investigation (CI) inconsistently used the refund offset procedure to collect

restitution payments. Finally, the IRS was not always granted restitution by the courts in

cases where it appeared to be warranted.

“If the IRS does not collect the restitution that it is owed by criminals who have been

convicted of tax-related crimes, justice has not been served,” said J. Russell George,

Treasury Inspector General for Tax Administration. “All efforts must be made to collect

on the funds due to the American people.”

TIGTA made several recommendations to the Chief of CI to address internal control

weaknesses regarding accurate accounting for restitution payments, including preventing

the issuance of erroneous refunds. In addition, TIGTA recommended establishment of a

single database for monitoring defendants, revising guidelines for earlier notification to

CI of the status of convicted individuals’ adherence to conditions of probation and

restitution, and obtaining the IRS Office of Chief Counsel’s opinion on the use of refund

offsets. Finally, TIGTA recommended that CI document in its investigative files why

restitution was not included in sentences to identify factors that hinder the IRS being

granted restitution.

In their response to the report, IRS officials agreed with the recommendations and stated

that corrective actions are planned or have already been taken to address them.