The Trump administration wants to bulk up its antifraud push by pursuing tax charges on illicit gains, but its effort risks running up against its own budget cuts.
The Justice Department's new fraud czar said this month he wants prosecutors to weigh adding tax counts in every single case they pursue. Gains from fraud should be reported as income, and failing to do so could lead to additional charges, said Colin McDonald, head of the Justice Department's national fraud-enforcement division.
"When fraudsters benefit financially from their crimes, they are required to report their income -- whether honestly or fraudulently obtained -- to the IRS and pay appropriate income tax," McDonald said. "Unsurprisingly, most fraudsters do neither."
The department followed up by announcing a tax-fraud enforcement surge, highlighting dozens of cases accusing swindlers of trying to cheat the government out of a combined $490 million.
Federal prosecutors have for decades used tax-fraud allegations as a tool of enforcement, including when Internal Revenue Service investigators helped nab Al Capone after other law-enforcement agencies had failed to bring him to heel. The fraud-enforcement division said it was turning to tax law in part so it could "attack fraud from all angles."
The Trump administration has made fraud a priority, vowing to root it out in government spending. A 2024 Government Accountability Office report said losses from fraud could total as much as $521 billion annually. As part of the antifraud push, the Justice Department created McDonald's fraud division earlier this year, sparking infighting among the department lawyers tasked with handling white-collar crime.
Legal experts said the new tax directive could help prosecutors advance the antifraud effort and collect some of the money lost to tax fraud each year, which a recent GAO estimate said could be as high as $304 billion. But they said prosecutors would struggle to carry out the policy because of recent funding cuts and the complex nature of such cases.
The IRS's criminal-investigation unit said it continued to investigate tax crimes while supporting broader federal public-safety efforts. The unit said it contributed investigative expertise, intelligence gathering, surveillance, financial analysis and tactical support to multiagency operations while maintaining its focus on major tax and financial crimes.
A Justice Department spokesperson said criminal tax prosecutors' work "continues apace," pointing to the results of the recently announced enforcement surge.
Last year, the Trump administration dissolved its roughly 90-year-old tax division, which handled both criminal and civil enforcement. Its personnel were reassigned to other teams. The dissolution came after several veteran tax prosecutors left the agency, including former tax-division head David Hubbert and former criminal tax chief Stuart Goldberg, both of whom had decades of prosecutorial experience.
The policy runs counter to the economic and staffing reality facing the IRS and Justice Department, said Carolyn Schenck, a partner at law firm Caplin & Drysdale who served as an IRS official for nearly 20 years.
"Criminal tax cases are resource-intensive," Schenck said. "I think it's going to be tough."
The Internal Revenue Service Criminal Investigation team, whose specialized agents call themselves "accountants with guns" and play a crucial role in Justice Department tax prosecutions, lost 331 staff members last year, including 101 agents, according to a 2025 enforcement report. The Trump administration, which said it is working to unwind a 20,000-person increase in overall IRS staffing under President Joe Biden, has proposed cutting the IRS budget by an additional $1.4 billion in 2027.
IRS-CI's ability to fight tax crime has been further eroded by the Trump administration's immigration and street-crime enforcement pushes. The unit provided labor valued at $37 million, the equivalent to the work of 170 full-time special agents, to such enforcement between May 2025 and March 2026, a U.S. Treasury Inspector General report found. Most of that work is complete, the report said.
Bringing tax charges in more cases could also divert investigators from more complex corporate-tax cases, said Sean O'Connell, a partner at law firm Baker Donelson who has prosecuted both tax and fraud cases.
"Those types of cases are not contemplated by this particular memo," O'Connell said. "This particular memo seems to treat tax cases as, 'Well, you guys can tag along on pre-existing fraud cases.'"