The government is not required to prosecute persons whom it believes has violated the law. Certainly, in the tax context, only a small percentage of people who are known or reasonably suspected to have committed a tax crime are investigated and prosecuted. Judgment calls abound – from the first discovery of information through prosecution.
Given the limited resources that can be applied to tax prosecutions, the government must be highly selective. The ability to “pick and choose” which cases it prosecutes is the reason why it has such a high conviction rate. The message from Uncle Sam to taxpayers is this: “Sure, we don’t prosecute all tax cheats, but if we get you in our prosecution cross-hairs, you are dead.”
All recommendations for prosecution of a criminal tax case have elaborate processing and review requirements in the Criminal Enforcement Section (CES). These requirements are designed to ensure the case’s suitability under the priorities for the criminal enforcement system. According to CTM 2.00, “The standards underlying review of criminal tax matters for authorization of prosecution require evidence supporting a prima facie case and a reasonable probability of conviction.”
Actually, reasonable probability of conviction probably understates the quality of case the government requires. Indeed, the conviction rate is very high. Recent statistics released from the IRS indicate a conviction rate of around 90%.
In terms of supporting tax compliance, is it better to bring 2,000 prosecutions where the conviction rate is 90% or to bring 10,000 prosecutions where the conviction rate is 50%? Certainly, with a higher number of prosecutions and lower conviction rate, the government puts more tax cheats in jail.
But the message to the public would be that, when the government decides to prosecute, there is a 50% chance to beat the charge. What message would that send? On the other hand, when there are fewer prosecutions but a higher conviction rate, the message to taxpayers carries a knockout punch: “If you get caught up in our tentacles, you are dead (or 90% dead, anyway).”
From the government’s perspective, not only is that a stronger message to send to the public – after all, it maximizes the deterrent effect – but it also consumes less of the government’s scarce investigation, prosecution, and judicial resources. For the government as a whole, fewer cases and greater selectivity is “win-win.”
Having some sense of DOJ’s criminal tax enforcement priorities is invaluable for defense counsel. For example, if defense counsel can convince the government that it has only a 50% chance of convicting the client, the government may not even prosecute.
So, you may ask, where’s the break point? The government probably will not bring a criminal prosecution in a garden variety tax case unless it assesses its chances of obtaining a conviction at 75 to 80% or better.
Of course, it is not easy to assess a case in this percentage fashion, but all trial lawyers assess cases in broad strokes. That’s how settlements are achieved in civil cases and plea bargains struck in criminal cases. However, before ever reaching that stage, defense counsel should be attempting to persuade the government that its chances of prevailing are so much less than the critical 90% benchmark that it is not even worth pursuing an indictment.