IRS-CI Identifies Over $31 Billion in Tax and Financial Crimes

IRS CI

PHILADELPHIA, PA — In fiscal year 2022 (FY22), IRS Criminal Investigation (IRS-CI) initiated more than 2,550 criminal investigations, identified over $31 billion from tax and financial crimes, and obtained a 90.6% conviction rate on cases accepted for prosecution. The IRS-CI FY22 Annual Report, released Thursday, details these statistics, as well as important partnerships and significant criminal enforcement actions from the past fiscal year, which began Oct. 1, 2021, and ended Sept. 30, 2022.

In FY22, IRS-CI expanded partnerships with foreign counterparts to help combat tax and financial crimes on a global level. IRS-CI special agents delivered trainings in countries like Argentina, Germany, Colombia, and Palau on topics ranging from cybercrime to human trafficking. IRS-CI Mexico City, after changes to Mexico law that enabled the extradition of tax fugitives, launched an initiative to identify fugitives who had absconded to Mexico and nearby countries. This initiative resulted in the location of 79 criminal fugitives and the apprehension of eight during the first year.

IRS-CI joined Taskforce Kleptocapture in March 2022 to target Russian oligarchs and other sanctions-evaders. It also worked with the Chiefs of Global Tax Enforcement (J5) to identify potential sanction evaders or sanctioned assets as part of a global strategy to deter Russia’s aggression. As of September 2022, the agency had identified nearly 50 individuals and entities for potential sanctions-related enforcement.

IRS-CI’s 2,077 special agents spent about 70% of their time investigating tax-related crimes like tax evasion and tax fraud during FY22, while nearly 30% of their time was spent on money laundering and drug trafficking cases. Special agents identified over $31 billion from tax and financial crimes, and the agency seized assets valued at approximately $7 billion in FY22. IRS-CI is the only U.S. federal law enforcement agency that focuses 100% on financial investigations.

“Criminals have gotten very brazen with schemes to steal from hardworking Americans and the government,” said IRS-CI Special Agent in Charge Yury Kruty. “Quite often, they fail to account for the highly skilled IRS-CI Special Agents, who work day and night, to thwart the criminals’ efforts. Honest Americans should rest assured that we would not waver in our commitment to hold accountable those who engage in financial schemes that target our nation’s tax system.”

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Here are some local case examples:

Samuel Bullock was sentenced to two and a half years in prison, one year of supervised release, and ordered to pay restitution in the amount of $3,501,261.00 to the IRS. Bullock orchestrated a tax fraud scheme to avoid paying nearly $1.3 million in federal income taxes, and millions more in interest and penalties. After Bullock had repeatedly failed to file his federal income tax returns, the IRS secured liens for more than $1.9 million that Bullock owed in taxes, interest, and penalties. Bullock responded by taking steps to avoid collection. Specifically, he arranged to have his business income paid over to a sole proprietorship that he had set up in the name of his spouse. In addition, he provided his clients with new Forms W-9 with his spouse’s Social Security number. He also opened a new business checking account in his spouse’s name as the alleged sole proprietor. Bullock then reported his own income on the tax return of his spouse, using the filing status “Married filing separately.” Although he was aware that he had earned income and was obliged to file a federal income tax return, Bullock failed to do so.

Dr. Karin Breitlauch and Linda Breitlauch were each sentenced to 12 months and one day in prison for failure to remit payroll taxes from their veterinary business.  They were each ordered to serve three years of supervised release following their incarceration. They were also ordered to pay restitution in the amount of $2,486,495.99. Karin Breitlauch is a veterinarian who owns and operates Creature Comforts Veterinary Service. Linda Breitlauch, her sister, is the comptroller for the business. For years, the Breitlauchs withheld federal income taxes from their employees’ paychecks but failed to remit the withholdings to the IRS. They also failed to pay the employer portion of the payroll taxes. This money included Social Security payments that would benefit their employees.

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Sara Collins was sentenced to six months in prison, followed by 18 months of supervised release. Collins was ordered to pay restitution in the amount of $930,007.85. Collins served as the Corporate Secretary of a plumbing, heating, and air conditioning business for over twenty years. She was responsible for overseeing payroll disbursement and filing tax documents on behalf of the business. For approximately six years, Collins failed to file quarterly forms with the IRS. In addition, she paid fewer than $37,000 in payroll taxes for the entire six-year period. In total, Collins failed to pay over $930,000 owed to the IRS by the business

Justin Sean Johnson was sentenced to 60 months in prison for Conspiracy to Defraud the U.S., and 24 months in prison for Aggravated Identity Theft, for a total of 84 months incarceration, for hacking the human resources databases of the University of Pittsburgh Medical Center and stealing Personally Identifiable Information (PII) of more than 65,000 UPMC employees.  Johnson, who was known on the dark web as TheDearthStar and Dearthy Star, infiltrated and hacked into the UPMC human resource server databases in 2013 and 2014 and stole sensitive PII and W-2 information belonging to tens of thousands of UPMC employees. Johnson then sold the stolen information on dark web forums for use by conspirators, who promptly filed hundreds of false tax returns in 2014 using UPMC employee PII. These false tax returns claimed hundreds of thousands of dollars of false tax refunds. The tax refunds were converted into Amazon.com gift cards, which were then used to purchase Amazon merchandise which was shipped to Venezuela.  Additionally, Johnson stole and sold nearly 90,000 additional (non-UPMC) sets of PII to buyers on dark web forums, which could be used to commit identity theft and bank fraud. The scheme resulted in approximately $1.7 million in false tax return refunds.

Ephrem Lijalem was sentenced to 36 months in prison after previously pleading guilty to charges of Aiding or Assisting in the Preparation or Filing of False Federal Income Tax Returns. Lijalem was also ordered to pay restitution to the IRS in the amount of $7,225,663.  Lijalem, who operated Citi Tax Refund stores in Pittsburgh, and his tax return preparers defrauded the IRS of $7.2 million in illegal tax refunds that were generated by the filing of false Schedule C tax returns with the IRS. The tax return preparers at the Citi Tax Refund stores owned by Lijalem regularly filed false Schedules C with the personal income tax returns of customers that represented non-existent businesses, inflated income, and altered expenses in order to maximize the tax refunds for customers.

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The IRS-CI Cyber Crime Unit, with assistance from U.S. authorities, traced billions of dollars of Bitcoin stolen from Bitfinex, a cryptocurrency exchange, after a 2016 hack. This led to the February 2022 arrest of Ilya Lichtenstein and his wife, Heather Morgan, for alleged conspiracy to launder stolen cryptocurrency. IRS-CI special agents lawfully seized and recovered more than 94,000 stolen Bitcoin, which was valued at over $3.6 billion at the time, marking the largest seizure in U.S. history.

The report also includes additional case examples for each U.S. field office, an overview of IRS-CI’s international footprint, details about the specialized services provided by IRS-CI and investigative statistics, broken down by discipline, for FY22.

IRS-CI is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations, including tax fraud, narcotics trafficking, money-laundering, public corruption, healthcare fraud, identity theft and more. IRS-CI special agents are the only federal law enforcement agents with investigative jurisdiction over violations of the Internal Revenue Code, boasting a nearly 90 percent federal conviction rate. The agency has 20 field offices located across the U.S. and 12 attaché posts abroad.

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