Internal Revenue Code (USC Title 26) provides civil and criminal sanctions for violations of the Internal Revenue laws. Civil considerations must be taken into account when a joint or parallel investigation is conducted with SB/SE, LB&I, TE/GE or TS. Typically, civil assessments and penalties are not assessed until the criminal aspects of an investigation have been formally closed. However, civil assessments, penalties, offers, etc., while separate from criminal activities can still impact the criminal investigation. This section deals with some of those civil matters that may warrant consideration.

See IRM 9.1.2, Authority for delegated authority relating to IRM 9.5.13, Civil Considerations.

The Director of Financial Crimes, under CI Global Operations Policy and Support, develops and oversees the information in this IRM.

The Director of Financial Crimes, under CI Global Operations Policy and Support, and program owners manage this section of the IRM and review the information.

During quality review, managers evaluate whether employees researched, interpreted, and correctly applied IRM instructions when performing their duties.

The following table lists the terms and acronyms used throughout this IRM section and their definitions.

26 U.S. Code Chapter 68 - Additions to the tax, additional amounts, and assessable penalties.

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The Criminal Tax (CT) deficiency may differ from the civil tax deficiency in the civil process. Criminal violations are charged only against the tax deficiency that results from fraud. The civil tax deficiency is much broader and includes all tax due on a return, i.e., the tax from the evaded income and the adjustments to the subject’s itemized deductions.

Civil tax liability may differ from criminal tax liability for a number of reasons:

IRM 1.2.1.5.11, Policy Statement 4-26 (Formerly P-4-84), Criminal and civil aspects in enforcement, provides, among other things, that the consequences of civil enforcement actions on matters involved in the criminal investigation and prosecution case should be carefully weighed. Policy Statement 4-26 (formally P-4-84) requires balancing the civil and criminal aspects of investigations to maximize civil enforcement without imperiling criminal prosecution. This policy requires the full and positive support of all enforcement divisions/functions to maintain continuing cooperation and coordination. Experience has demonstrated that pursuing both the criminal and the civil aspects of an investigation concurrently may jeopardize the successful completion of the criminal investigation. As a result, if there is doubt as to whether a proposed civil action would imperil prosecution, the field office should consult with CT Counsel.

In addition to tax due and owing on a tax return, there are many types of civil penalties which may be applicable to any given case. Special agents should be alert to violations which may subject the taxpayer to other civil penalties as set out in IRM 20.1, Penalty Handbook. Shown below are penalties most often included in an assessment of a subject being investigated by CI. A very brief overview of some of the more common penalties can be found in Exhibit 9.5.13-1.

The civil sanctions, generally assessed as additions to the tax and often referred to as ad valorem penalties, are covered in IRC Chapter 68. Some of these penalties are briefly described in the subsections below.

When the term "willfulness" is found in a civil penalty statute, it means actions "knowingly" , "consciously" , or "intentionally" taken. A voluntary course of action, rather than an accidental cause of action, would seem to satisfy the civil requirements. When used in criminal revenue statutes, the word willful means a voluntary, intentional violation of a known legal duty. The word is also employed to characterize a thing done without ground for believing it is lawful or conduct marked by careless disregard whether or not one has the right to so act.

Title 18 USC 1956(b) provides that violators under 18 USC 1956(a)(1) or (a)(3), or 18 USC 1957 are also liable for a civil penalty of not more than the greater of $10,000 or the value of the property, funds, or monetary instruments involved in the transaction. The civil penalty is intended to be imposed in addition to any criminal fine.

Title 12 USC 1829 provides that individuals convicted of 18 USC 1956 or 18 USC 1957 shall be precluded from all affiliation with a FDIC insured institution, including employment or ownership, for a minimum of 10 years from the date of conviction.

Civil penalty assessments for Title 31 violations are assessed by the Secretary of the Treasury. The statute of limitations for such assessments expires six years from the date of the transaction that is the basis for the civil penalty.

A civil monetary penalty and a criminal penalty may be imposed for the same Title 31 violation.

The civil penalties are as follows:

Tax information can only be released if a related statute call has been made (see IRM 9.3.1, Disclosure). If it has, it should be communicated to FinCEN Enforcement Division, so that it is recognized that 26 USC 6103, tax disclosure rules, must be followed regarding subsequent use.

The SB/SE, Technical Support Advisory is responsible for coordination of all civil enforcement actions on cases under criminal investigation. Policy Statement 4-26 (formally P-4–84) requires balancing the civil and criminal aspects of investigations to maximize civil enforcement without imperiling criminal prosecution.

The special agent, who placed controls, should be notified of the pending offer. The process examiners and offer examiners (individuals who process the offers) must contact the special agent before any contact with the taxpayer regarding a filed offer. In the event there is doubt as to whether a proposed civil action would imperil prosecution, the field office should consult with CT Counsel. See IRM 5.1.5, Balancing Civil and Criminal Cases, on the Technical Support, Advisory Responsibilities regarding cases under criminal investigation.

In situations relating to offers in compromise in which there is either:

Criminal Tax Counsel may request an examination or investigation of a subject’s financial status in connection with an offer in compromise submitted in a case in which criminal proceedings are pending in CI, DOJ Tax Division, or the US Attorney’s Office. Criminal Investigation will conduct the investigation jointly with the examination function of the appropriate operating division.

Reports of joint investigations of a subject’s financial status in connection with an offer in compromise are of such varied type that no format is prescribed. Special agents preparing such reports will be guided by the particular request.

A jeopardy or termination assessment will be made by the IRS if collection is determined to be in jeopardy because at least one of the following conditions exists:

Notwithstanding the existence of one or more of the above-cited conditions, if a jeopardy or termination assessment might cause serious harm or inconvenience to the general public, prior notice should be provided to the appropriate Area Director. If necessary, the Area Director will notify the Division Commissioner. Examples include investigations of banks, newspapers, insurance companies, hospitals, and public utility companies.

Form 2644, Recommendation for Jeopardy/Termination Assessment, should be used for jeopardy or termination assessment reports. Emergency situations may be handled orally and later documented in written reports.

The following information should be submitted in all reports to the extent practicable:

In all reports originating in CI regarding the assertion of a jeopardy or termination assessment, the SAC shall inform the other Operating Division Director with jurisdiction over the assessment, in writing, whether it appears likely that criminal prosecution will be recommended in the investigation and also whether the assertion would imperil the successful investigation if a prosecution recommendation were likely.

The following management officials must sign Form 2644:

Final approval of any jeopardy or termination assessment rests with the Other Operating Division Director who has jurisdiction over the assessment. The other Operating Division Director must recuse himself/herself from personal involvement in those investigations where:

In the event the other Operating Division Director has to recuse himself/herself from personal involvement for reasons prescribed above, any of the following individuals may approve the assessment as long as he/she does not fall within any of the exclusionary situations listed in paragraph 3 above.

If the recommendation for a jeopardy assessment involves an investigation pending in the field office of the SAC, complete information relative to the recommendation and the action taken will be incorporated in the prosecution recommendation report.

If the recommendation for a jeopardy assessment involves an investigation in which prosecution has been recommended and the prosecution recommendation report is no longer pending in the field office of the SAC, an original and copies of the report recommending the jeopardy assessment will be prepared. Copies will be distributed in the same manner as the copies of the final report at the time advice is requested as to whether a jeopardy assessment would be prejudicial to the criminal investigation. Another copy, which would normally become part of the file transmitted to either SB/SE, LB&I, TE/GE or TS, will be held by the SAC for transmittal to the appropriate operating division after the assessment has been made so the other operating division may issue the statutory notice.

The original prosecution recommendation report recommending a jeopardy assessment will be forwarded, together with a transmittal memorandum from the SAC, to the Director, LB&I (International) for appropriate action. If it was necessary to obtain the comments of other officials, the transmittal memorandum will recite their views regarding the proposed jeopardy assessment. In such cases, the transmittal memorandum will be prepared as an original with copies, and other than the original, distributed in the same manner as the jeopardy assessment report. The copies of the transmittal memorandum should be retained until after assessment action has been taken. A summary of such action shall be noted on the copies prior to distribution. If there is insufficient room, an addendum should be added.

When DOJ or the attorney for the government does not concur in a jeopardy assessment recommendation in any investigation within their jurisdiction and the recommendation for jeopardy assessment is renewed, reports of the new circumstances and a request for review of the prior recommendation will be processed in the same manner as set forth above for the original jeopardy assessment report.

Jeopardy assessments will be withheld in potential criminal tax investigations to the extent necessary to avoid imperiling successful investigations or prosecution of such investigations. On the other hand, in those investigations when such action is warranted it must be taken whenever feasible. The Director, LB&I (International) is responsible for this practice when jeopardy assessment recommendations are submitted for approval. See Policy Statement 4-26 (formally P-4-84).

The SAC should coordinate with CT Counsel any recommendations for jeopardy or termination assessments which may affect pending criminal investigations. In investigations pending with DOJ, an opinion should be obtained from CT Counsel. In investigations pending with the US Attorney’s Office, an opinion should be obtained from the SAC. Telephone authorizations, although normally not desirable, can be obtained in exigent situations. Should the field office which has jurisdiction over the investigation conclude that the assessment would imperil successful criminal prosecution, such assessment will not be made until all the criminal aspects of the investigation which may be imperiled by the action, including appeals, are completed. The recommendation for assessment may, however, be renewed if new circumstances make such action appropriate.

To prevent premature processing of any documents filed by the subject, the SAC will process requests from the other operating divisions for input procedures of Master File transaction code.

Title 26 USC 7429, added by the Tax Reform Act of 1976, provides an expedited review of jeopardy and termination assessments. Within five days after the assessment or levy, the IRS must give the taxpayer a written statement of the information relied upon in making the assessment. Pattern Letter P-49 (Rev. 5-78) is used for this purpose and includes a computation of income and tax as an enclosure.

The taxpayer may request administrative review of the assessment within 30 days after the day the statement is provided or within 30 days after the last day of the period during which the statement is required to be furnished. The IRS has 15 days to complete its administrative review.

If the IRS finds that the assessment is inappropriate or excessive in amount, it may abate the assessment in whole or in part. If the administrative review is not satisfactory to the taxpayer, he/she may, within 90 days after the earlier of the day the IRS notifies the taxpayer of the review determination or the 16th day after the request for review, bring an action in the US District Court for the district in which he/she resides.

Within 20 days after the taxpayer begins the action, the US District Court is to make new, independent determinations regarding the reasonableness of the jeopardy or termination assessment, and the appropriateness of the amount assessed. The court can order the IRS to abate the assessment or to re- determine the amount assessed in whole or in part. The Commissioner has the burden of proving whether the jeopardy or termination assessment is reason- able under the circumstances. The taxpayer has the burden to refute the reasonableness of the amount assessed; however, the IRS will provide a written statement as to how the amount was determined. Any determination made by the court is not reviewable. A determination under 26 USC 7429 has no effect upon the determination of a correct tax liability in a later proceeding.

The 20-day period may be extended by the court for up to an additional 40 days, but only at the request of the taxpayer, if the taxpayer establishes reasonable grounds for such an extension.

Applications for enrollment to practice before the IRS (Form 23) are processed by the OPR in accordance with Treasury Department Circular No. 230. For those individuals who established eligibility for enrollment by completion of the Special Enrollment Examination, OPR forwards a listing of the successful candidates to Area Support Manager and/or PSP Return Preparer Coordinator. The list is reviewed and circulated to the appropriate operating divisions to determine whether there exists any derogatory information about the successful examinees that should be considered before granting enrollment to practice before the IRS. The list of successful candidates is furnished to CI to determine if any candidate was the subject of a criminal investigation. Any derogatory information is then returned to OPR.

Applications for enrollment received from former employees of IRS are forwarded to TIGTA with a request for any information relative to the applicant. Simultaneously, the application is forwarded to the applicant's last IRS office of employment with a request for a recommendation from the supervisor of the particular IRS operating divisions as to whether that employee is or is not technically or otherwise qualified for enrollment. If it is determined that the employee is not qualified for enrollment, a detailed report is to be submitted to OPR explaining why such a determination was made.

To maintain active enrollment to practice before IRS, each individual enrolled is required to have his/her enrollment renewed as set forth in section 10.6 of Treasury Department Circular No. 230.

Special agents who have reason to believe an unenrolled agent has violated any provision of the laws or regulations governing practices before the IRS, or receives information to that affect, will make a written report to be immediately forwarded through the SAC to the appropriate IRS Area Manager who determines the practitioner's eligibility to engage in limited practice before all levels of the IRS.