IRS budget, agent cuts limiting financial crime probes

Budget pressures at the Internal Revenue Service's Criminal Investigation Division are cutting the number of investigators there to the lowest level in four decades, and officials say the changes are forcing the division to scale back its fight of financial crime.

It will also hurt government coffers, they add, since IRS probes can bring in hefty fines.

The division investigates a variety of financial misconduct, from tax fraud and money laundering to identity theft, narcotics and counterterrorism. Federal prosecutors around the country often seek help for cases involving money issues.

Recent high-profile investigations include probes into tax evasion by Credit Suisse Group AG and Sudan, Cuba and Iran sanctions violations by BNP Paribas, which resulted in settlements of $2.5 billion and $9 billion, respectively.

IRS Criminal Investigation also has been involved in public corruption cases such as the conviction of Jesse Jackson Jr., a former U.S. representative and the son of civil rights leader Rev. Jesse Jackson Sr., for misusing campaign funds.

"The reason they are so important is because of the tax angle," said Ronald Machen Jr., the U.S. attorney for the District of Columbia, adding that he wished there were more agents. "When you are looking at individuals who steal money, they are always going to want to claim less on their taxes than they have in their various bank accounts."

According to data seen by Reuters, the division expects to see the number of special agents decline to 2,130 by fiscal year 2016 due to attrition, down 13 percent from this year. That is despite hiring 48 agents this year. At its peak in 1995, the agency had 3,358 agents.

Richard Weber, the division's chief, said in an interview, "We are at the same staffing levels that we were at in the 1970s. This is not sustainable." The rise of the tea party movement, which promotes minimalist government, and an IRS scandal, has made the agency's life tougher. The IRS last year revealed it gave extra scrutiny to conservative tea party groups seeking nonprofit status. Republicans responded with a storm of criticism and budget cuts.