Oklahoma Tax Commission Special Tax Enforcement Unit annual report

              T 500.3 T235e 2003 c.l
OKLAHOMA TAX COMMISSION
SPECIAL TAX ENFORCEMENT UNIT
2003
ANNUAL REPORT
TABLE OF CONTENTS
PAGE
INTRODUCTION.................................................................... 1
ENFORCEMENT.................................................................... 2
2003ENFORCEMENTDATA 5
STAFFING 6
PUBLICINFORMATION......................................................... 7
SOURCEOFREFERRALS.................... 7
TRAINING AND OTHERACTIVITIES........................................ 8
OBJECTIVESFOR2004 8
CONCLUSION....................................................................... 9
REPORT
Date: January 31,2004
TO: The Honorable Brad Henry
Governor of the State of Oklahoma
The Honorable Cal Hobson
President Pro Tempore
Oklahoma State Senate
The Honorable Larry E. Adair
Speaker of the House
Oklahoma House of Representatives
The Honorable James Williamson
Minority Floor Leader
Oklahoma State Senate
The Honorable Todd Hiett
Minority Floor Leader
Oklahoma House of Representatives
FROM: Thomas Kemp, Jr., Chairman
Oklahoma Tax Commission
Jerry Johnson, Vice-Chairman
Oklahoma Tax Commission
Connie Irby, Secretary-Member
Oklahoma Tax Commission
As required by law, 68 O.S. §260, the Oklahoma Tax
Commission submits the attached report for the Special Tax
Enforcement Unit activities for the year 2003.
Oklahoma Tax Commission
Audit Division
Special Tax Enforcement Unit
2003 REPORT
The Special Tax Enforcement Unit (STEU) of the Oklahoma Tax
Commission (Commission) was established in 1985 (Title 68 O.S. § 260) for
the purpose of determining compliance with and enforcement of the
Oklahoma tax laws. As part of the Commission's reorganization in 1995,
STEU was placed in the Audit Division and remains in that Division today.
Its primary function is enforcement of state tax laws through criminal
investigation. The Office of the General Counsel of the Commission and the
various District Attorneys prosecute tax law violators, based on the
investigations of the STEU, in the State of Oklahoma.
ENFORCEMENT
Enforcement of the criminal penalties of state tax laws is a key
component to the Commission's overall effort to increase voluntary
compliance. Prosecution of tax violators offers the opportunity to bring
violators to justice and to make tax evasion and/or fraud a public issue since
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criminal activities affect our whole society. Prosecution efforts serve three
mam purposes:
1. To punish individual tax violators;
2. To deter others who may be inclined to violate state tax laws; and
3. To enhance voluntary compliance through public information.
Criminal tax prosecutions benefit the state by preserving the integrity
of its tax laws and strengthening its revenue collecting activities. The
collection of taxes is largely a voluntary process. When tax law violators are
prosecuted, honest taxpayers receive assurance that dishonest taxpayers are
being punished. It is also a major step toward changing apathetic attitudes
regarding state tax laws and encourages voluntary compliance. Although the
dollar amount of revenue generated by this "voluntary compliance" may be
difficult to measure, it does have a significant impact.
Increased prosecution and public awareness of the importance of
prosecuting tax violators have resulted in more severe sentences being
administered by the Courts. The following are examples of results from
STEU prosecution cases in 2003.
Two cases were referred for prosecution in 2003. One case involved
an individual that failed to report income of approximately $265,909.00 over
a period of four years. The second case involved an individual who failed
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to file tax returns for five years and failing to report approximately
$481,775.00 in income. The tax, penalty and interest that would be due on
this income at the date the case was referred for prosecution would be
$69,914.00.
During the year, STEU investigators started to work a case involving
interception of refunds requested on apparent fraudulent original returns
filed during the 2003 tax season. There were four different individuals
involved filing several electronic returns with incorrect withholding
information in an attempt to obtain large fraudulent refunds.
A STEU investigator also assisted the criminal investigation division
of the Internal Revenue Service in the successful prosecution of a former
Chief Executive Officer (CEO) ofa Tulsa based company. The CEO had
not filed federal returns; however, they had timely filed Oklahoma income
tax returns with federal returns attached. The STEU investigator sponsored
the Oklahoma returns into evidence during the trial.
In virtually all of the criminal prosecutions, full restitution of taxes is
ordered. The increased severity of punishment has resulted in greater
voluntary compliance throughout the state. STEU is achieving the
legislative intent of intensified enforcement of state tax laws. The STEU
compiled the following statistics for 2003.
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2003 ENFORCEMENT DATA
STEU TAX COLLECTIONS 200]
Court Ordered Restitution & Other Collections $ 22,862.00
Collections from intercepted fraudulent refunds $ 70,197.00
Total Tax Collections $ 93,059.00
ASSIGNED ACTIVITY FOR 2003
BEG. OF ADDITIONS CLOSE OR END
YEAR WITHDRAWAL OF
TAX TYPE YEAR
Income Tax 63 5 8 60
Sales Tax 14 0 3 11
Withholding 5 4 0 9
Excise 1 0 1 0
Tobacco &
Spirits 1 0 1 0
Gross
Production 1 0 0 1
Total Cases 85 9 13 81
Thirteen (13) cases assigned and investigated were discontinued or
closed due to the taxpayer's voluntary compliance with tax laws for the
violation under investigation. The $70,197.00 in collections from
intercepted refunds represents fraudulent refunds requested by taxpayers
who are currently being investigated for prosecution. Investigator time was
spent on 87 leads, 84 of which were declined for investigation. Most
investigations were declined because of insufficient information, informants
were in error or another section or agency was better suited to handle the
matter. Two investigators spent the majority of their time this past year on a
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very large withholding case that has the potential to recover a substantial
amount of embezzled trust funds. This investigation is still pending.
STAFFING
The Special Tax Enforcement Unit consists of a unit coordinator, a
clerical support person and three (3) investigators. The investigators are
responsible for conducting investigations throughout the State of Oklahoma.
The Oklahoma Tax Commission attorneys provide legal advice to the
investigators during the course of an investigation and then review the cases
for recommendation on charges to be filed. The local district attorneys
usually file charges. Commission investigators and attorneys are available,
when requested, to assist the district attorneys with all stages of the
proceedings from initial appearance, trial and disposition. However, on
several occasions the local district attorney has requested that the
Commission file charges due to a conflict. Oklahoma Tax Commission
attorneys handle all stages of the proceedings when charges are filed by the
Commission.
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PUBLIC INFORMATION
The Communication Division of the Oklahoma Tax Commission
works closely with the STEU to increase public awareness of enforcement
programs, objectives and activities. Television, radio and newspaper
coverage of the STEU cases is a major step toward educating taxpayers.
regarding state tax laws.
SOURCE OF REFERRALS
A majority of the total cases accepted for criminal investigation
resulted from lead information received from the public. Public referrals
arrive as telephone calls, voice and e-mail messages, personal visits with
informants, as well as letters from taxpayers. Divisions within the
Oklahoma Tax Commission, regularly refer potential criminal cases to the
STEU for consideration. Referrals are also received from local police
departments and other law enforcement agencies throughout the state. Every
lead received is investigated. The accuracy and validity of allegations are
evaluated. Leads are then reviewed by the STEU Committee. If the lead is
not credible, no further action is taken on the matter. If a lead appears
credible it will be pursued either by referral for civil action or further
criminal investigation as appropriate.
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TRAINING AND OTHER ACTIVITIES
In 2003, STEU investigators received training from the Association of
Certified Fraud Examiners, several Human Resource Development Services
(H.R.D.S.) courses as well as Oklahoma Tax Commission in-house courses.
OBJECTIVES FOR 2004
Objectives for the next twelve-(12) months are as follows:
~ Enhance the skills of Special Investigators through education and training;
~ Increase public awareness that tax violators are subject to criminal
prosecution;
~ Continue to encourage voluntary compliance with Oklahoma tax laws from
individuals that are under investigation;
~ Obtain maximum restitution of delinquent taxes through prosecution of tax
criminal cases;
~ Utilize all means available to provide the public with a readily accessible
avenue to report suspected tax law violations. A wide variety of easily
accessible means to receive tips from informants is essential to the unit.
Telephone voice mail and e-mail has increased the available methods to
report suspected wrongdoing. Of additional benefit is the fact these services
are available twenty-four hours.
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CONCLUSIONS
The Special Tax Enforcement Unit continues to be very important to
the enforcement and collection efforts of the Oklahoma Tax Commission.
In reviewing available indicators it is evident that voluntary compliance has
increased throughout the State as a result of the Special Tax Enforcement
Unit efforts.
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