Carolyn Schenck Weighs in on “IRS’s Cool Cats” – IRS Criminal Investigation Division in Tax Notes 

IRS Criminal Investigation division officials are the agency’s “cool cats,” according to Treasury Secretary Scott Bessent. Speaking at a recent event in Minnesota, he gave the roughly 2,500 criminal investigators in CI credit for the initiative to apprehend and prosecute welfare benefits fraud in Minnesota and other states. Bessent’s praise comes on the heels of significant changes at the IRS.

“They can take apart a balance sheet, and they can knock on a door and arrest someone,” Bessent said, adding that “they led the charge here” in Minnesota. He reiterated that he’s relying on CI to unravel “what may be the most egregious welfare scam in our nation’s history to date.” He said that billions of dollars were diverted by fraudsters and that Treasury was committed to “recovering stolen funds, prosecuting fraudulent criminals, preventing scandals like this from ever happening again, and investigating similar schemes state by state.” Prosecutions for public benefits scams in Minnesota have been ongoing since the Biden administration.

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Prosecutors’ job for benefits fraud will be to show that the defendant submitted false documents to receive payments, and then to trace the money through bank accounts and institutions until it was spent. Identifying the movement of money is key to money laundering charges under title 31. And there are potential charges for the main players in a fraud under title 18, including conspiracy and willfully making false statements to the government under section 1001. The IRS is phenomenal at developing proof for fraud and conspiracy cases, and it routinely examines banks that may have participated in the laundering of funds, said Carolyn A. Schenck of Caplin & Drysdale. Other charges that may be asserted include obstruction under section 7206 and conspiracy under 18 U.S.C. section 371.

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To recover assets that may have been sent abroad, the government could also use the approach pioneered in United States v. Schwarzbaum, 9:18-cv-81147 (S.D. Fla. 2025), in which failure to file foreign bank and financial account reports was used to secure an almost $18 million judgment and an asset repatriation order, Schenck noted. (Prior coverage: Tax Notes Federal, Jan. 8, 2024, p. 364.) Depending on where the asset and defendant are located, it’s possible to get the asset back, she said.

Treasury posted January 9 on the social platform X that it was investigating the misuse of tax-exempt status by entities in social services fraud schemes. “The focus there will be on whether this organization was operating for the stated tax-exempt purpose and whether there was private benefit or misuse of grants,” Schenck said. Tax returns filed for tax-exempt entities with misrepresentations that the filers or principals of the entity knew were false could be the basis for tax charges, she said. The government could explore money laundering charges and bring cases to the Joint Terrorism Task Force or choose section 7206 tax charges, she said. “While this hasn’t been an area that the government has gone down frequently, it does seem this situation may lend itself to that,” Schenck said.

To read the article in full, please visit Tax Notes’ website.