Key Takeaways
- The Department of Justice’s (DOJ) National Fraud Enforcement Division (the Fraud Division) officially has complete oversight over tax investigations and prosecutions, marking a significant change in tax enforcement that stood for decades.
- Under a final rule, effective Aug. 24, the assistant attorney general for the Fraud Division (AAG) – currently, Colin M. McDonald – now has exclusive authority over cases arising under the internal revenue laws, among several other broad subject matter areas. This departs from previous policy, under which the chief of the DOJ’s Criminal Division had oversight over all tax prosecutions.
- Given the government’s increased attention and resource allocation to the Fraud Division, as emphasized in AAG McDonald’s Aug. 13 memorandum (the Memorandum), companies and individuals should anticipate heightened scrutiny in the stated areas of focus, including compliance with the Internal Revenue Code.
- What’s more, given the Fraud Division’s breadth of investigative power, nonprofit charitable organizations are likely to continue to see increased scrutiny. Indeed, the DOJ and IRS have stated their intention to focus on nonprofit entities that they believe may be operating illegally, including the “knowing” use and receipt of funds for activities that exceed the organization’s charitable purpose.
Key Details
A final rule[1] (the Rule), which came into effect on Aug. 24, substantially bolsters the investigatory and prosecutorial powers of the recently created Fraud Division. In April 2026, the DOJ created the Fraud Division to combat fraud against the government and the public. To accompany the Rule, AAG McDonald released the Memorandum outlining what he referred to as a “broad mandate” to combat various types of fraud. The Memorandum includes an outline of the government’s substantial mobilization of resources for use in the Fraud Division. These resources include hiring personnel and investing in technology to aid the division’s ability to detect wrongdoing. The Memorandum also highlights key enforcement priorities, including the prosecution of those who are viewed as potentially evading taxes or assisting others in doing so.
As it relates to tax enforcement, the Rule formally transfers enforcement oversight for Internal Revenue matters to the head of the Fraud Division. This is a momentous shift in the authority over tax investigations and prosecutions, which have historically been overseen by the separate Tax Division within the DOJ and, more recently, the Tax Section within the Criminal Division. The Rule also empowers the head of the Fraud Division with additional authority to conduct investigations into Internal Revenue misconduct, including through the AAG’s nationwide jurisdiction to open special grand juries and the ability to conduct investigations anywhere in the U.S.
Background
Until recently, sole enforcement authority for federal tax crimes was held by the DOJ’s Tax Division. However, following a reorganization in December 2025, the former Civil and Criminal Tax Division attorneys were relocated to the DOJ’s Civil and Criminal Divisions, respectively. Now, these resources and the authority to prosecute violations of the Internal Revenue Code have been removed from within the Criminal Division and placed under the purview of the newly formed Fraud Division. How this reorganization will affect long-standing tax enforcement policies, including tax prosecutions requiring Tax Division approval and the ability of a taxpayer under investigation to present its case to Tax Division attorneys at a Taxpayer Conference before charges are brought – important procedural safeguards for individuals and entities under criminal investigation – remains to be seen.
The Rule and establishment of the Fraud Division are part of this administration’s larger focus on fraud enforcement. The DOJ stated that its work to “combat fraud supports President Trump’s Task Force to Eliminate Fraud, a whole-of-government effort chaired by Vice President J.D. Vance to eliminate fraud, waste, and abuse with Federal benefit programs.”[2]
Tax Enforcement
The newly enacted Rule[3] designates the functions assigned to the AAG of the Fraud Division. For tax enforcement purposes, the AAG of the Fraud Division will oversee all criminal proceedings arising under the Internal Revenue laws, including criminal proceedings involving money owed to or paid by the U.S.[4]
The Rule also amends the Criminal Division’s regulations. Before the Rule’s adoption, the duty to investigate and pursue criminal fraud litigation was generally assigned to the Criminal Division. Now, the DOJ has assigned this duty to the new Fraud Division, and it has been directed to prioritize certain types of cases, including those related to tax fraud.[5]
The Memorandum specifically outlines the Fraud Division’s mandate to prioritize prosecuting certain tax schemes and crimes, including those involving so-called refund mills – where “unethical return preparers include false claims on individuals’ tax returns,” often in exchange for higher fees. The Memorandum also emphasizes investigation and prosecution of false returns and abusive promoters.
The Fraud Division not only will focus on tax enforcement but also will deploy a range of modern tools to do so. According to the Memorandum, the Fraud Division “will deploy the full arsenal of criminal tax tools paired with data analytics, financial forensics, and nationwide coordination.” The Memorandum states that these capabilities will allow the Fraud Division to “identify tax misconduct earlier, pursue tax offenders more efficiently, and deliver meaningful deterrence in service of the American taxpayer.”
Enforcement Generally and Powers of the Fraud Division
In addition to jurisdiction over tax crimes, the Fraud Division will manage criminal proceedings in the following areas: criminal fraud (except cases specifically assigned to the Antitrust Division);[6] trade fraud; customs duties, tariffs, or other external revenue or foreign commerce; fraud or abuse with respect to health plans; healthcare fraud; and controlled substances distribution and diversion schemes.[7]To “ensure necessary flexibility,” the Fraud Division will also oversee other cases assigned by the attorney general.[8] Relatedly, the attorney general or deputy attorney general may also assign to the Fraud Division other duties and functions.[9] This development also coincides with the formation of the White House’s own Antifraud Task Force, of which Vice President Vance is the chairman and that will include a representative of the DOJ.[10] The DOJ has explicitly stated the Fraud Division will support Vice President Vance’s efforts.[11]
Additionally, the Fraud Division has authority to seek injunctions against fraud under 18 U.S.C. 1345; obtain restitution, seize or forfeit property, and recover forfeitures or damages; enforce compliance with final judgments; and recover and impose penalties, including actions for the imposition of penalties for conspiring to defraud the U.S. (when such actions are related to specifically identified areas).[12] The Rule vests with the head of the Fraud Division or his deputy assistant attorneys general the ability to bring special grand juries in any U.S. jurisdiction and certify that a legal proceeding is against a person who is believed to have participated in an organized criminal activity, for purposes of obtaining depositions to preserve testimony.[13] The Rule also removes a prohibition on redelegating authority and allows assistant attorneys general to delegate all litigating authority to section chiefs.
Practical Implications
In practice, broad enforcement powers beget heightened scrutiny. Consistent with the priorities described in AAG McDonald’s Memorandum, the Rule emphasizes the Fraud Division’s commitment to bringing enforcement actions involving efforts to defraud the government or “steal” taxpayer dollars.
The broad grant of authority to prosecute tax fraud and matters arising out of the Internal Revenue laws, coupled with AAG McDonald’s recent statements concerning the Fraud Division’s efforts to “deploy the full arsenal of criminal tax tools paired with data analytics, financial forensics, and nationwide coordination,” in order to “identify tax misconduct earlier,” and deliver “meaningful deterrence” is significant.[14] Individuals and companies should review their policies and compliance programs to ensure adherence to all applicable laws. In addition, entities should have a plan in place if they find out they are or may be subject to a DOJ or IRS investigation, including if a search warrant is executed on the entity’s office.
Continued Focus on Nonprofit Enforcement
Nonprofit entities, which have already faced heightened scrutiny under the current administration, should continue to be vigilant given this new Rule and the accompanying Memorandum. In the past year, the DOJ and the IRS have opened investigations against and, in some cases, indicted tax-exempt organizations. The establishment of the Fraud Division and the enactment of the Rule suggest that this trend will continue. These inquiries will be further bolstered by the DOJ’s work with IRS Criminal Investigations (CI). IRS CI has also been keenly focused on tax-exempt organizations, with Chief Jared Koopman recently discussing his goal of preventing criminal activity from funneling money through tax-exempt groups.[15] These efforts by the IRS include updating the annual nonprofit tax return, the Form 990, to require additional information related to government contracts, grants and fiscal sponsorship agreements.
Those operating in the nonprofit and charitable contribution spaces should evaluate their operations and, if necessary, work with counsel to minimize their potential exposure and the risk of being swept up into the wave of investigations.
Conclusion
The creation of the Fraud Division, the mobilization of significant resources and the Fraud Division’s oversight of criminal tax enforcement represent a significant change in the DOJ’s tax enforcement strategy. The Rule consolidates broad investigative and prosecutorial authority within a division tasked with pursuing fraud against the government and taxpayers, signaling that criminal tax enforcement is a top priority. Nevertheless, questions remain regarding how long-standing Tax Division policies will operate under the new structure. Until further guidance emerges, individuals, businesses, tax professionals and nonprofits should monitor developments, review compliance programs and prepare for increased scrutiny from the DOJ and its newly equipped Fraud Division.
The BakerHostetler Criminal Tax Defense team and White Collar, Investigations and Securities Enforcement and Litigation team include dozens of experienced individuals, including numerous attorneys who have served in the DOJ and the DOJ Tax Division. Our team has extensive experience in defending regulatory investigations and litigation and in providing compliance counseling. Please feel free to contact any of our experienced professionals if you have questions about this alert.
[1] 28 CFR pt. 0 (2026).
[2] Press Release, Department of Justice Announces Launch of National Fraud Detection Center to Combat Fraud Against Taxpayer-Funded Programs, Dep’t of Just. (Aug. 24, 2026), available at https://www.justice.gov/opa/pr/department-justice-announces-launch-national-fraud-detection-center-combat-fraud-against.
[3] 28 CFR pt. 0, Subpart M, §§ 0.70 and 0.71.
[4] See 28 CFR § 0.70(b), (d).
[5] See 28 CFR § 0.55(b).
[6] However, the Fraud Division has the specific authority to investigate cases involving defective pricing and bid-rigging schemes – typically areas that the Antitrust Division would have authority over.
[7] See 28 CFR 0.70(a), (c), (e), (f). The BakerHostetler team covered these areas in greater detail in a recent alert – see Assistant Attorney General Memorandum to Fraud Division Outlines Division’s Key Enforcement Priorities, BakerHostetler (Aug. 21, 2026), available at: https://www.bakerlaw.com/insights/assistant-attorney-general-memorandum-to-fraud-division-outlines-divisions-key-enforcement-priorities/.
[8] See 28 CFR 0.70(g), (h).
[9] See 28 CFR 0.70(l).
[10] Exec. Order, Establishing the Task Force to Eliminate Fraud (Mar. 16, 2026), available at: https://www.whitehouse.gov/presidential-actions/2026/03/establishing-the-task-force-to-eliminate-fraud/.
[11] Press Release, This Week in Fraud: DOJ’s New Fraud Division Announces Numerous Fraud Enforcement Actions and a New Strike Force to Investigate and Prosecute Fraud on the West Coast, Dep’t of Just. (May 1, 2026), available at: https://www.justice.gov/opa/pr/week-fraud-dojs-new-fraud-division-announces-numerous-fraud-enforcement-actions-and-new.
[12] See 28 CFR 0.70(i).
[13] See 28 CFR 0.71(a), (b).
[14] See Memorandum from Assistant Att’y Gen. Colin M. McDonald, The Fraud Division’s Enforcement Priorities (Aug. 13, 2026), available at:https://www.justice.gov/opa/pr/assistant-attorney-general-colin-m-mcdonald-issues-memorandum-national-fraud-enforcement.
[15] Erin Schilling, IRS Focuses Enforcement on Nonprofits, Easing Compliance Burdens, Bloomberg Law (Aug. 26, 2026), available at: https://www.bloomberglaw.com/product/blaw/bloomberglawnews/daily-tax-report/BNA%20000001a03a31df9badf37b35a51e0000?bna_news_filter=daily-tax-report.
