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Mark Matthews Comments on Fraud Referrals Under New IRS Division Head in Tax Notes

August 20, 2019, Tax Notes

IRS Commissioner Charles Rettig’s commitment to fighting tax fraud seems to have manifested itself in at least one of his recent personnel moves.

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Mark E. Matthews of Caplin & Drysdale, said interagency moves in or out of CI are rare but happen occasionally, and one reason for Hylton’s selection has to be to increase fraud referrals from civil investigators.

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Matthews, a former CI chief, said that he expects fraud referrals at SB/SE to increase under Hylton. “For the exam side, it’s a clear win. You sort of hate for CI people to lose a strong executive like Eric, but they will still gain from him sitting in his new position,” he added.

Since last year, SB/SE has been updating the IRS’s National Fraud Program.

Employment Tax Cases

Hylton’s presence is also expected to bring a particular improvement to SB/SE’s employment tax fraud referrals.

Matthews said Hylton should bring his experience evaluating the jury appeal of a case to civil examiners’ consideration of potential fraud referrals. When Matthews was CI chief, civil examiners might have looked at an unpaid employment tax case, seen flashy assets like a big house or a boat, and jumped to the conclusion that those are where the withheld taxes went, he said. This approach ignores the importance of the timing of the unpaid taxes and asset purchases.

Large purchases after the tax debt arose may make for a good criminal tax case, but large purchases long before a cash flow crunch or business downturn could lead to rejection of a fraud referral, Matthews said. Civil examiners sometimes took rejection of the latter cases as a message that CI and the Justice Department didn’t want employment tax cases, he said, adding that clear communication of the importance of jury appeal can head off this issue.

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

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