The Tax Times: IRS-CI’s Banner Year: What the 2025 Criminal Investigation Report Means for Taxpayers

This post reviews IRS Criminal Investigation’s Fiscal Year 2025 Annual Report and what it means for taxpayers, financial institutions, and advisors. It focuses on the sharp growth in tax‑related criminal enforcement, the division’s new data‑driven tools, and how those trends should shape risk management going forward.

IRS-CI’s FY25 “Banner Year”: Why It Matters

IRS-CI labeled FY25 a banner year, identifying $10.59 billion in financial crimes—a 15.7% jump over FY24. More telling for practitioners, $4.5 billion of that total involved tax fraud, representing roughly a 112% increase in identified tax fraud from the prior year.

From a policy standpoint, those numbers underscore two themes: IRS-CI is increasingly data‑driven, and it is firmly back in the business of pursuing traditional tax cases at scale. For businesses and individuals, that means the likelihood of sophisticated criminal scrutiny is higher—especially where tax positions intersect with government programs, payroll, or complex financial structures.

How IRS-CI Is Using Its Time

The FY25 report shows IRS-CI dedicating nearly 64% of its investigative time to tax crimes, a notable allocation in a division that also handles narcotics, money laundering, and other financial offenses. About 11% of time went to narcotics‑related financial cases, resulting in 447 convictions, while cyber‑related investigations continued to expand.

On the cyber front, IRS-CI seized 2.35 petabytes of digital data in FY25—nearly 60% more than in FY24—a figure that reflects both the explosion of digital evidence and the division’s growing technical capacity. These trends suggest that even “ordinary” tax cases with digital payment flows, crypto exposure, or online business models may now fall within more sophisticated investigative frameworks.

Investigative Results

Total Financial Crimes Identified: IRS-CI identified financial crimes totaling $10.59 billion, a 15.7% increase from FY 2024.
Tax Fraud: Tax fraud cases accounted for $4.5 billion of the identified total, more than double the previous year.
Conviction Rate: The agency maintained a high conviction rate of 89%.
Enforcement Metrics: The report noted a 25% increase in search warrants executed and a 14% increase in prosecution referrals to the Department of Justice.
Asset Seizures: Agents seized over $800 million in assets and returned $100 million to crime victims.

New Initiatives: CI-FIRST and OFRR

Two initiatives introduced in FY25 are particularly important for banks and other financial intermediaries: CI‑FIRST and the Optimizing Financial Records Requests (OFRR) project. CI‑FIRST (Feedback in Response to Strategic Threats) is a flagship public‑private partnership designed to close the feedback loop with financial institutions on BSA and suspicious activity reporting.

Rather than simply collecting SARs, IRS-CI will now provide more structured feedback on which reporting is most useful, with the goal of improving the quality and targeting of future submissions. OFRR, meanwhile, aims to standardize and accelerate how IRS-CI requests financial records and how institutions respond to subpoenas and legal demands, shortening investigative timelines and reducing process friction.

High-Profile Cases as Policy Signals

The report’s case examples read like a roadmap of enforcement priorities. The Feeding Our Future case, involving more than $250 million in stolen child‑nutrition funds, resulted in lengthy sentences, including 28 years for scheme leader Abdiaziz Shafii Farah, and highlights CI’s focus on pandemic‑era benefit fraud.

On the digital asset side, the sentencing of Bitfinex hack defendants Ilya Lichtenstein and Heather Morgan—receiving 5 years and 18 months, respectively—demonstrates CI’s continued investment in crypto tracing and laundering prosecutions. Likewise, the TD Bank matter, in which CI uncovered AML failures that allowed more than $670 million in illicit funds to move through the bank and helped secure roughly $1.8 billion in penalties, sends a strong message about Bank Secrecy Act compliance expectations.

Practical Takeaways for Taxpayers and Advisors

For taxpayers and their advisors, the FY25 report is less about headline numbers and more about where IRS-CI is pointing its resources next. Expect increased criminal exposure around:

· High‑dollar refund and payroll schemes, including abusive ERC and employment tax arrangements that blend civil and criminal risk.

· Pandemic‑related benefit programs and other government‑funded initiatives where fraud indicators overlap with aggressive tax positions or fabricated entities.

· Crypto‑related activity, particularly mixing services, chain‑hopping, and offshore exchanges used to obscure ownership or taxable gain.

· Weak AML and BSA controls at financial institutions, especially where SARs are inconsistent, boilerplate, or disconnected from emerging typologies flagged by CI-FIRST feedback.

For businesses, this is an opportune time to revisit internal controls, documentation, and training around payroll tax, credits, and any touchpoints with federal programs. Financial institutions should be prepared not only to respond faster and more consistently to records requests, but also to integrate CI-FIRST feedback into their risk models and SAR drafting.

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