Scott Michel Comments on Adding Tax Offenses to Nontax Crimes in Tax Notes

While U.S. prosecutors pursuing nontax crimes that generate ill-gotten gains will occasionally tack on tax evasion charges, combined prosecutions for tax and nontax offenses in foreign jurisdictions appear far less common.

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Deciding which charges to pursue is frequently a question of resource management, said Scott Michel of Caplin & Drysdale in Washington. Michel said that in fiscal 2023 fewer than half of the roughly 1,400 tax gap investigations centering on noncompliance opened by the IRS Criminal Investigation division and the Justice Department were referred for prosecution. “So the government has to be selective in seeking cases that will broadly promote tax compliance,” he said in an email.

Michel said that many years ago, his hometown dentist in Louisiana was prosecuted for tax fraud. “Not to pick on a profession, but . . . you can rest assured that every other dentist in the state knew about that case, so it had significant deterrence potential within that community,” he said.

Michel contrasted that use of prosecutorial discretion with the decision-making process in debating whether to add a tax charge to a securities fraud case. That “likely reaches a different set of observers,” he said. “Your typical Louisiana dentist probably pays it no mind and doesn’t likely connect that kind of enforcement action to his or her own behavior, so the significance of the add-on tax offense for public messaging about tax enforcement seems less powerful than in a 'taxcentric' case.”

Striking the right balance between pure tax cases and cases in which tax charges are brought in addition to other types of federal fraud charges has been a discussion topic in the profession for decades, Michel said. “Having said that, where investigators looking at a nontax criminal case also see evidence of tax fraud, that evidence should be pursued and, if appropriate, charges should be brought.”

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Michel agreed. “And prosecutors may welcome such an addition for a number of reasons, including evidentiary [ones],” he said. “With a tax charge in the indictment, they may be able more easily to get certain kinds of financial information admitted into evidence, as well as potentially a more severe sentence.”

For the full article, please visit Tax Notes’ website (subscription required).