Criminal Tax Sentencing Statistics – 2023
Each fiscal year, the Department of Justice (DOJ) releases statistics for criminal tax offenders in the federal system. These reports provide insights into the offenses DOJ is targeting and the way Courts are handling sentences. Over time, conclusions can be drawn on the nature of criminal tax prosecutions under a given administration and the punishments being considered by the sentencing Courts.
The following post will highlight the major statistics for fiscal year 2023, including the demographics of criminal tax offenders, the commonly charged criminal tax offenses, the sentences being imposed, and a comparison to prior fiscal years. The DOJ statistics apply to all forms of tax fraud, including tax evasion, filing a false return, failure to file or supply information, and assisting a taxpayer with filing a false return (return preparer cases).
Demographics of Criminal Tax Offenders
In 2023, the DOJ obtained convictions on a total of 363 criminal tax offenses across the country. The demographics of those offenders is as follows:
- Gender – 70.3% were male and 29.7% were female.
- Race – 47.3% white, 25.6% black, 16.7% Hispanic, and 10.6% other races.
- Age – the average age for all offenders was 52.
- Citizenship – 93.6% of tax fraud offenders were United States citizens.
- Criminal History – 85.6% of offenders had little to no criminal history.
Median Tax Loss for Criminal Tax Cases
The tax loss refers to the amount of loss the criminal tax scheme intended to inflict on the Department of Treasury. The calculation varies slightly with the specific offense.
For filing a false return or assisting in such a filing, the loss is based on the difference between the filed return and an accurate return. For instance, let’s assume a taxpayer files a false return claiming they made $40,000 in taxable income. However, their bank accounts show they made $500,000 during that year. The tax loss would be calculated by analyzing the taxes owed on the unreported income. Here, the tax loss would be around $128,000 ($500,000 – $40,000 = $460,000 (unreported income); 28% of $460,000 = $128,800).
For failure to file cases, the tax loss calculation is simple. The tax loss equals the amount of tax owed in the fiscal year where the return was filed late.
For tax evasion cases, the tax loss equals the amount of tax the offender attempted to avoid under the scheme. If the tax evasion scheme involved moving money overseas to justify a false return, the tax loss calculation would mimic the calculation above for false return cases. If the tax evasion scheme involved moving assets overseas to avoid IRS collections, the tax loss would be the amount of tax owed (including penalties and interest) when the overt acts of evasion were conducted.
In fiscal year 2023, the median tax loss was $358,827. 14.4% of cases involved tax loss amounts less than $100,000. 16.8% involved a tax loss greater than $1.5 million. By deduction, 68.8% of cases involved a loss between $100,000 and $1.5 million.
In our experience, the DOJ does not spend significant resources targeting cases where the loss falls below $100,000. Normally, a tax loss under $100,000 comes through negotiations with the federal government regarding errors in IRS calculations. While we do handle cases that result in tax loss findings under $100,000, those cases hardly ever start with an allegation in that range.
United States Sentencing Guideline Applications
All criminal tax cases fall under § 2T1.1 or § 2T1.4 of the guideline manual. The guideline recommendation is built by combining the tax loss with some well known sentencing enhancements that may apply to a white collar offender. Those enhancements include sophistication, role adjustments, abusing a position of trust, and obstruction.
Criminal Tax and Sophisticated Means
A criminal tax offender could receive a two-level increase in the offense level if they used sophisticated means in the scheme. This enhancement aims to separate the taxpayer that simply fudges on their taxable income from the taxpayer that uses a complex web of foreign bank accounts to hide the offense. Under the guidelines, the Court should punish offenders more harshly if sophisticated steps were taken to conceal the offense.
In 2023, 13.6% of criminal tax offenders received the two level enhancement for sophistication.
Criminal Tax and Role Adjustments
If a criminal scheme involves multiple participants, the sentencing guidelines attempt to organize each participant based on their role in the scheme. The guidelines apply enhancements to those offenders with greater culpability and point deductions for smaller players. An example will likely help illustrate this concept. Let’s assume we have a tax preparation firm that is assisting their clients with filing false returns for large refunds. The tax preparation firm employs tax filers, accountants, reception staff, and recruiters. Clearly, not every person in the firm takes on the same role in the scheme; though all can likely be charged criminally if they have knowledge of the activity and agree to facilitate the conduct.
Under the guideline manual, the owner of the firm would likely receive a four-point enhancement for being the “leader or organizer” of the scheme. The preparers would likely receive no adjustment as an average participant. The receptionist could receive a two-point reduction for playing a minimal role.
In 2023, 7.5% of criminal tax offenders received a four-point adjustment for being the leader or organizer of a scheme. 1.4% received two-point reductions for playing a minor role. These low percentages make some sense. Most criminal tax offenses do not involve large conspiracies that require the Court to organize a long list of defendants. In most cases, the two or three offenders under indictment will fit neatly in the “average participant” category.
Attorneys should be mindful that role adjustments are only applied when there are multiple participants. Participants are defined under the guidelines as persons that are criminally responsible. We have had probation departments attempt to tag our clients with upward adjustments in schemes where they were the sole participant. Even if the taxpayer is the “leader” of multiple parties involved in certain transactions, the role adjustments do not apply unless those parties are criminally responsible. This requires some proof the parties had knowledge of the scheme.
Criminal Tax and Abusing a Position of Trust
Under the guideline manual, a criminal tax offender can receive a two-level adjustment if they “abused a position of trust” during the commission of the offense. This adjustment is normally reserved for offenders that have obtained licensing from a state or federal entity, and that license was used to facilitate the scheme. For instance, a doctor who files false claims to Medicare will always receive this enhancement. Likewise, a CPA or certified tax preparer, can receive the enhancement for using their licensing credentials to facilitate the conduct.
In 2023, 3.3% of offenders received the two-point enhancement for abusing a position of trust.
Criminal Tax and Obstruction of Justice
Under the guideline manual, an offender can receive a two-point adjustment for obstructing or impeding the administration of justice. Filing a false return or attempting to evade taxes is insufficient to meet this enhancement. This enhancement adjusts sentencing recommendations for those offenders that deceive the government after the taxpayer has been made aware of the criminal investigation. Common actions that can trigger this enhancement include lying to IRS agents during criminal interviews, committing perjury on the witness stand, and destroying records to conceal the offense.
In 2023, 4.7% of criminal tax offenders received the two-point adjustment for obstructing or impeding justice.
Federal District Concentration
The government’s resources vary across regions. Certain major cities have numerous IRS criminal investigators, tax focused Assistant United States’ Attorneys, and regional offices for the DOJ tax division. In these areas, the government is well-equipped to handle multiple criminal tax prosecutions per year. In addition to government resources, the DOJ wants to focus its attention on the big players in this arena. The goal of criminal tax enforcement is to deter potential violators and recover as much money as possible. The latter goal can only be met by going after large schemes. These schemes are normally found in the most populous business centers in the country. These two factors feed off each other and create hotbeds for criminal tax enforcement.
In 2023, the top five federal districts for criminal tax cases were: Central District of California (18 cases), Middle District of Florida (18), Southern District of Texas (15), Western District of Texas (15), and District of New Jersey (14). These five districts accounted for over 22% of all criminal tax prosecutions in 2023.
These districts fit the profile for high volume enforcement as they hold large cities (and likely high loss schemes) and have the resources to handle these cases.
Central District of California – the Los Angeles area (2nd most populous city in the country).
Middle District of Florida – Tampa, Orlando, and Jacksonville (3 of top 4 cities in Florida by population).
Southern District of Texas – the Houston area (4th most populous city in the country).
Western District of Texas – Austin and San Antonio area (both top ten cities nationally by population).
District of New Jersey – covers the entire state of New Jersey (larger population than New York City).
Sentences Delivered in Criminal Tax Cases
While criminal tax cases often bring the potential for probation (if the taxpayer pays the IRS in full and the loss is relatively low), prison time has become the norm. In federal court, the sentencing judge must consider the guideline recommendation before deciding the final sentence. As stated above, the guideline recommendation will be based on the tax loss and the infusion of various enhancements. The sentencing guidelines are always going to recommend a prison sentence in a period of months. That could range from a 12 month recommendation to a recommendation over eight years depending on the facts.
After considering the guideline recommendation, the Court can consider a host of other factors before deciding the final sentence. These include health issues, military service, family characteristics, payment of restitution to the IRS, and any other factor that separates the taxpayer from other criminal tax defendants. If the factors are persuasive, the Court may grant a variance downward from the recommended range and provide a sentence under the guideline recommendation.
For instance, let’s assume a taxpayer is convicted of tax evasion. The tax loss is $500,000 and the offender used sophisticated means to execute the offense. Under those basic facts, the guidelines would recommend a sentence of 33-41 months (or around 3 years). If that taxpayer was 70 years of age, caring for their elderly spouse, and paid the $500,000 restitution prior to sentencing, the Court would likely grant a variance from the recommendation. That variance could result in probation or a prison sentence anywhere from 12 to 32 months. In our experience, this hypothetical defendant would likely be looking at probation or a 12-month sentence (depending on the Court).
Though the mitigating factors vary, most criminal tax offenders do find themselves in position to request, and receive, a downward variance. Especially, if they can come up with restitution prior to sentencing.
In 2023, 67.7% of criminal tax offenders received a downward variance at sentencing. 63.6% of offenders were sentenced to prison time with 36.4% receiving a sentence that did not include prison time (home confinement or probation). The average sentence length for those that did receive prison time was 16 months in federal custody.
Usefulness of the Criminal Tax Offender Data
The DOJ report serves two main purposes: 1) it updates the general public on the prevalence of criminal tax prosecutions and the sentences that follow and 2) it provides criminal tax attorneys with useful information for use at a sentencing hearing. Under 18 U.S.C. § 3553, a sentencing court should craft a sentence that avoids sentencing disparities between similarly situated defendants. In any criminal tax sentencing, the judge should be made aware of the common sentencing statistics nationally for these offenses. Most judges want to ensure sentencing conformity across jurisdictions. They want to avoid a situation where criminal tax offenders are sentenced to prison 100% of the time in Houston while defendants from Los Angeles commonly receive probation.
These statistics give the judge a good basis to lean into a downward variance in nearly all criminal tax cases. If the Court feels the guidelines are a bit harsh, noting the prevalence of downward variances can give them the ammunition they need to deliver a light sentence.
In many ways, the sentencing history for criminal tax offenders feeds on itself. Courts deliver lenient sentences, the statistics are compiled, the statistics are used to avoid disparities, and the process repeats. For now, the climate for criminal tax offenders is quite reasonable. Those offenders with no prior criminal history and a willingness to pay their debts, will find themselves in striking distance of probation in most cases. While others will provide the pound of flesh for a system that prides itself on deterrence.