This section focuses on administrative investigations (i.e., investigations worked outside of the grand jury process).

Audience: All CI employees.

Policy Owner: Director, Global Financial Crimes & Policy.

Program Owner: Director, Global Financial Crimes & Policy.

Primary Stakeholders: All CI employees.

Contact Information: N/A.

Goal: To discuss general investigative issues and rules of evidence applicable to all types of investigations, including grand jury investigations.

Administrative investigations may be initiated whenever information indicating possible violations of tax, money laundering, or bank secrecy laws is received or developed by the Office of Fraud Enforcement (OFE), Lead Development Center (LDC), Refund Fraud and Investigative Support (RFIS), and/or a CI program/subprogram.

Administrative investigations are initiated (numbered) as general investigations (GI), primary investigations (PI), or subject criminal investigations (SCI) in CIMIS. For detailed descriptions of these three types of investigations (see IRM 9.4.1, Investigation Initiation).

The Special Agent in Charge (SAC) and/or the SAC’s designee have the approval authority to authorize investigation of all information items which, after evaluation and screening, are deemed to warrant further inquiry (see IRM 9.9.1, Employee Criminal Investigation Management Information System (CIMIS) Responsibilities and Procedures).

A brief summary of the basis for opening the investigation should be prepared and retained in the administrative file. At the discretion of the SAC, the summary may be contained in a separate document, such as a memorandum prepared by the evaluating special agent, or it may be incorporated in an existing document used in the field office's investigation initiation process. The Unified Checklist SharePoint site on CI Connections contains a primary evaluation memorandum template for the investigation summary and referral recommendation.

The automated data processing (ADP) account control transaction code 914 must be placed on the appropriate master file module(s) for all Title 26 and tax-related Title 18 subject criminal investigations. Controls and procedures are discussed in Criminal Investigation Law Enforcement Manual (LEM) 9.14.4 - Automated Data Processing Account Controls (on CI Connection in CASE (Communities Accessing and Sharing Expertise)).

All assigned investigations are subject to sufficient investigative inquiry to support the disposition recommendation in the report, except when surveyed.

A POA is a document signed by a taxpayer appointing an individual as attorney-in-fact to perform certain specified acts or types of acts on the taxpayer’s behalf. The taxpayer’s appointed representative may be an attorney, a CPA, an enrolled agent, an enrolled actuary or another individual described in 26 CFR 601.502(b).

The requirements for filing a POA are outlined in Subpart E, Conference and Practice Requirements (26 CFR 601.501 – 601.509). The taxpayer's representative may submit Form 2848, Power of Attorney and Declaration of Representative, or a substitute form that meets the specifications of 26 CFR 601.503(a). However, for purposes of processing the form onto the Centralized Authorization File (see below), a completed Form 2848 must be attached, even if not signed by the taxpayer.

With certain exceptions set forth in 26 CFR 601.504(b), a power of attorney is required in order for the taxpayer's representative to perform any of the acts described in 26 CFR 601.504(a). These specific acts can also be found on the front page of Form 2848. In all other instances involving the receipt of confidential tax information, Form 8821, or an appropriate substitute, may be used instead of Form 2848.

A document used in place of Form 2848 must contain the following information:

If a power of attorney is granted to a person other than an attorney, CPA, or enrolled agent, Revenue Procedure 81-38, C.B. 1981-2, prohibits such person from performing the following acts:

Information concerning a taxpayer should not be released to a third party without written authorization from the taxpayer. If questions arise as to the propriety of disclosing information to a person representing the taxpayer, the disclosure office should be contacted for guidance.

CAF is a centralized database containing detailed information on third parties authorized to act on behalf of a taxpayer (see IRM 21.3.7, Processing Third Party Authorizations onto the Centralized Authorization File (CAF)).

The CAF contains:

The CAF number is a unique number assigned to each third party. The third party is expect to use it whenever he or she represents or acts on behalf of a client or requests oral or written tax information.

The CAF information is a particularly useful tool in investigations where routine investigative sources have not been successful in identifying former and current clients of a return preparer(s).

CAF Information Requests are used to determine and list the clients of the subject of a criminal investigation. A CAF Information Request differs from the IDRS command code CFINK, which researches particular tax returns or taxpayers on which a third party has been listed as a power of attorney or an authorized representative, and who has been issued a CAF number. A CFINK request can be run through IDRS if the operator has access to the command code. Consult IRM 2.3.31, IDRS Terminal Responses, Command Codes CFINK , RPINK, KAFFQ and KAFTQ for CAF Inquiry, for instructions on the use of command Code CFINK.

The Internal Revenue Code (IRC) has both civil and criminal provisions to address abusive tax schemes. In certain situations, the IRS will suspend a civil investigation until the related criminal investigation is completed, in order to avoid jeopardizing the success of the criminal case. However, criminal and civil investigations may be conducted simultaneously with respect to ongoing, abusive tax schemes that result in significant losses to the US Treasury. This manual section provides special agents with guidance with respect to CI's involvement and obligations when conducting a parallel investigation. IRM 4.32.2, Abusive Transaction, The Abusive Transactions (AT) Process should also be consulted for detailed descriptions of the policies and procedures of both CI and the civil operating divisions with respect to parallel investigations.

Information sharing among examiners, special agents and government attorneys increases the efficiency of parallel investigations.

Special agents should develop as much evidence as possible before using the grand jury process. This can be done through summonses, search warrants, witness interviews and undercover operations. Unless prohibited by the grand jury secrecy rules of Rule 6(e) of the Federal Rules of Criminal Procedure or the disclosure provisions of 26 USC 6103, information developed by CI may be shared with the civil operating division.

Grand jury information may not be shared with the civil operating division. Judicial districts and appellate courts have diverse rulings on what constitutes grand jury information. The grand jury process may never be used to perfect a civil investigation.

In grand jury investigations, concurrence of the DOJ attorney assigned to the criminal investigation must be secured prior to releasing or allowing civil examiners access to any records in CI's possession in order to avoid inadvertent release of grand jury information.

Title 26 USC 6103(h)(2) allows disclosure of relevant returns and return information to DOJ attorneys personally engaged in a grand jury proceeding or in preparation for a grand jury proceeding. However, unless a Rule (6)e order has been secured from the court, grand jury information cannot be shared with a civil DOJ attorney.

Criminal attorneys have a mandatory obligation to disclose certain information to criminal defendants. Therefore, examiners must provide CI access to all information in the civil examination and attorney files, including documents, interview notes and any other information the civil team gathers. To avoid unnecessary delays, sharing information should be an ongoing process throughout the investigation.

In general, civil actions will be temporarily stayed if CI is conducting an undercover operation or developing probable cause to execute a search warrant. Therefore, the benefits of an undercover action or search warrant should be weighed against the need to seek an injunction against a promoter.

Evidence obtained through the execution of a search warrant is generally not grand jury information. Therefore, if such evidence is obtained while grand jury proceedings are ongoing, and the search warrant affidavit does not contain grand jury information, the evidence may be made available to civil examiners. Further, it is the services position that, if grand jury information is included in the affidavit, the items seized during the search may be disclosed even if the affidavit may not be. If the affidavit supporting the warrant has been sealed by the court, consideration should be given to the fact that sharing the items seized in the search with civil examiners or attorneys may result in the affidavit being unsealed. Examiners should seek the guidance of Area Counsel for direction in these circumstances.

Disclosure of evidence obtained through the execution of a search warrant or through an undercover operation must be approved by the assigned DOJ attorney. Requests should be coordinated with CI, Area Counsel and the DOJ.

In a parallel investigation, if the criminal investigation is being pursued administratively by CI rather than through a grand jury, and if there has been no criminal tax referral to the DOJ with respect to the tax liabilities involved in the civil investigation, civil tax examiners may generally issue an administrative summons to the subject of the investigation.

If an administrative summons is proposed and there has been a referral of the subject to the DOJ for grand jury investigation or criminal prosecution, the civil examiner must discuss the matter with Area Counsel and CT Counsel along with any DOJ attorney assigned to the investigation before issuing the summons (see IRM 4.32.2, Abusive Transactions, The Abusive Transactions (AT) Process).

Title 26 USC 7602(d) generally prohibits the issuance of an administrative summons if there is a DOJ referral in effect with respect to the subject of the investigation. However, if a DOJ referral is in effect but the liability at issue in the civil investigation is different, the prohibition may not apply. For example, if a DOJ referral is in effect for the subject’s income tax liability, a summons may be issued related to the investigation of the subject’s liability under 26 USC 6700 for the subject’s conduct during the same year (see Treas. Reg. 301.7602-1(c)(4)(ii), example (5)). The above-described discussions should be held to determine whether this exception applies.

Generally, CI should request that the assessment of promoter and preparer penalties be delayed until completion of the criminal investigation. Discussions with CT Counsel should occur before requesting the delay.

An immediate civil assessment should be considered if the promoter is likely to flee the United States, dissipate assets or property, or place assets beyond the reach of the US Government. Special agents should consult with CT Counsel or DOJ attorneys if an immediate assessment is contemplated.

Criminal Investigation may provide a participant list or client list to civil examiners assigned to promoter investigations.

If CI does not have a participant list or client list, civil examiners should be given access to the available non-grand jury information, such as bank records, in order to establish a particular list or client list. In grand jury investigations, the use of CI evidence must be approved by the DOJ attorney assigned to the criminal investigation to prevent unintentional release of grand jury information.

Special agents should review the participant list and exclude those considered potential subjects in the criminal investigation.

Original tax returns, photocopies, transcripts, and/or all evidentiary matters relevant and material to the determination of whether or not criminal proceedings should be recommended should be obtained for inclusion as exhibits to the prosecution recommendation report. Summaries may be substituted for lengthy transcripts. For a detailed discussion of prosecution recommendation reports, see IRM 9.5.8, Investigative Reports.

In criminal cases, the government bears the burden of proving all the elements of the offense "beyond a reasonable doubt."

The burden of proof remains on the government throughout the trial, although the burden of going forward with evidence may shift from one side to the other. For a more detailed discussion of the burden of proof, see IRM 9.6.4, Trial.

The term "venue" means the district or geographic area in which the trial must be held. In general, venue lies in the judicial district in which the crime was committed. See Federal Rule of Criminal Procedure 18. If the crime consists of a failure to comply with a legal requirement, venue lies where the compliance should have occurred. A defendant may move to transfer venue because of prejudice or for the sake of convenience. For a more detailed discussion of venue, see IRM 9.6.4, Trial.

The burden of proving proper venue is an essential part of the government’s case. The standard for proving venue is by a preponderance of the evidence, not proof beyond a reasonable doubt.

For purposes of proving venue, special agents should gather information relating to:

In general, evidence is the means by which an alleged fact is established or disproved. Evidence may be presented orally through witness testimony, and/or by the introduction of records or other physical objects.

Direct evidence is evidence that tends to prove a disputed fact without any inference or presumption. Evidence is direct when the principal facts in dispute are sworn to by those who have actual knowledge of them by means of their senses. Direct evidence may take the form of admissions or confessions made in or out of court.

Circumstantial evidence is evidence that tends to prove a disputed fact by inference. A jury may properly find that circumstantial evidence outweighs conflicting direct evidence if the inference is more convincing than any other explanation offered. Circumstantial evidence is the only type of evidence generally available to show those elements of a crime that exist in the mind of the perpetrator, such as intent or motive. Therefore, proof of "willfulness" in most Internal Revenue violations is based on circumstantial evidence.

In addition to proving willfulness, circumstantial evidence such as evidence of increases in net worth, expenditures, or bank deposits is also frequently used to prove unreported income. When gathering evidence regarding a subject’s expenditures, it is important to remember that the agent’s testimony alone will not be sufficient. Rather, the government must be prepared to call third-party payees as witnesses or introduce other independent testimonial or documentary evidence to establish the purpose of the payments. Failure to do so would create a so-called "Greenberg problem," named after a First Circuit case of that name.

To save time and expense, a trial judge may accept certain facts without requiring proof if the facts are commonly known or can be easily discovered. This is known as "judicial notice."

Evidence may be presented orally through witnesses, and/or by the introduction of records or other physical objects. Oral testimony consists of statements made by living witnesses while under oath or affirmation. For a detailed discussion of the use of witnesses at trial (see IRM 9.6.4, Trial). Documentary evidence includes formal writings such as judicial and official records, contracts and deeds, as well as more informal writings such as letters, memoranda, books, and records belonging to private persons and organizations. Maps, diagrams, and photographs are also classified as documentary evidence.

Generally, both oral and documentary evidence are needed to support a criminal tax case. Written records of transactions, such as purchases and sales of real and personal property, loans, etc. are not sufficient to prove that the transactions occurred. Therefore, witnesses must be produced who will testify about the transactions and attest to the authenticity of the documents. During the investigation, parties to the transactions should be questioned to determine whether the documents or entries truthfully relate all the facts and/or if there are additional facts or circumstances that should have been recorded. The following examples illustrate this principle:

See IRM 9.4.9, Search Warrants, Evidence, and Chain of Custody for procedures on preserving the chain of custody, identification of evidence, and transfer of evidence.

When conducting an investigation, special agents should be aware of the rules that determine whether the evidence gathered will be admissible at trial. The admissibility of evidence in Federal trials is governed by the Federal Rules of Evidence (FRE) and by case law. In addition, rules for the admissibility of certain forms of documentary evidence in Federal courts are provided in 28 USC 1731 – 1745.

Evidence obtained through an illegal search or seizure is inadmissible at trial.

The inadmissibility of evidence for one purpose or as to one party does not preclude its use for another purpose or party (FRE 105). For example, tax returns for years prior to those charged in an indictment may be used to corroborate the starting point for a net worth computation, even though such returns would be inadmissible as proof of the offenses charged.

Evidence must be relevant in order to be admissible. Evidence is relevant when it tends to make the existence of a fact that is of consequence to the determination of the action more or less probable than it would be without the evidence (FRE 401).

Not all relevant evidence is admissible. The rules of evidence may preclude the admission of relevant evidence on other grounds.

Special agents should report all facts obtained concerning the subject of an investigation, even if there is doubt as to the relevancy of particular facts. There are no absolute standards for relevancy, and judges have broad discretion in determining what evidence is relevant.

Evidence must be properly authenticated or identified in order to be admissible (FRE 901). In other words, when physical evidence is presented in the courtroom, other evidence must often be presented to prove that the evidence is what it is claimed to be.

Federal Rules of Evidence 901 provides a list of examples of ways in which evidence may be authenticated.

Certain public documents and records are self-authenticating (see FRE 902).

One form of evidence that is generally inadmissible, subject to certain exceptions, is hearsay. Hearsay is defined as an out-of-court statement (i.e., an oral or written assertion, or nonverbal conduct intended as an assertion) offered in evidence to prove the truth of the matter asserted. Under FRE 802, hearsay statements are inadmissible at trial unless an exception applies. Lack of opportunity for cross-examination and unreliability are the principal reasons for excluding hearsay testimony.

An example of inadmissible hearsay would be a SA’s testimony that a third party told them certain checks written by the defendant were personal in nature. The personal nature of the checks may instead be proven through the defendant's admissions, records and testimony, as well as through third party records.

Prior statements made by a witness while testifying at a trial or hearing under oath and subject to cross-examination is not hearsay (FRE 801(d)(1)(A)). This does not include testimony taken by a special agent for use in an affidavit.

A statement offered against a party (known as an “admission by party-opponent”) is not hearsay if it is one of the following:

Federal Rules of Evidence 1002, known as the best evidence rule, requires that the content of a writing, recording or photograph be proven by producing the original writing, recording or photograph, except as otherwise provided by the FRE or by statute.

The best evidence rule applies only where the proponent seeks to prove the content of the writing, recording or photograph. Facts other than content may be proven without producing the original. For example, the fact that a sales contract was entered into may be proven by testimony alone, even though testimony would not be sufficient to prove the terms of the contract.

Evidence produced in place of an original document is classified as "secondary evidence." Examples of secondary evidence include copies of documents (with certain exceptions described below) and witness testimony as to the documents’ contents.

If there is no genuine question as to the authenticity of the original writing, recording or photograph, and no other reason exists for requiring the original, a duplicate is admissible (FRE 1003). There must be satisfactory evidence that the secondary evidence correctly reflects the contents of the original.

Further, secondary evidence of the contents of a document may be admissible if:

One example of a situation in which secondary evidence was held admissible occurred in a case where the government was unable to produce the defendants’ original books and records because they were in the defendants’ possession, and the Fifth Amendment protection against self-incrimination prevented the court from ordering the defendants to produce the books and records. In that case, the Fourth Circuit held that, so long as the government demonstrated that the original books and records were in the defendant’s possession, the government could present testimony of government agents as to the contents and photostatic copies of certain pages from the books and records.

If the original document has been destroyed by the party who offers secondary evidence of its contents, that person bears the burden of proving that the destruction was accidental or was done in good faith.

If a business, institution, member of a profession or government agency keeps certain records in the regular course of business and makes copies (i.e., photographic, photostatic or microfilmed reproductions) of those records in the regular course of business, such copies are admissible as originals whether the true originals have been destroyed or not, so long as the copies are accurate reproductions and are satisfactorily identified (see 28 USC 1732). Similarly, properly authenticated copies or transcripts of government records and papers are admissible as originals (see 28 USC 1733). Together, 28 USC 1732 and 1733 are known as the "Federal Shop Book Rule."

This rule is particularly applicable to bank records, because it is common bank practice to microfilm ledger sheets, deposit tickets and checks.

The Federal Shop Book Rule does not exclude from evidence any document or copy thereof that is otherwise admissible under the FRE. Conversely, the mere fact that a copy has been made in the regular course of business is not enough to make it admissible. The rules of admissibility and relevancy must still be applied, just as for any other evidence.

A copy of a document that is not made in the regular course of business is considered secondary evidence of the contents of the original and may be admissible if the original cannot be produced and a valid reason has been given for failing to produce it. In addition, a court may permit an original document, such as a tax return, to be placed in evidence and then substituted with a copy if there is no defense objection.

Title 26 USC 7513 gives the IRS authority to have returns and other documents copied. When copies of documents are obtained during an investigation, they should be initialed on the back, after comparison with the original, by the individual who made the copy or the special agent who obtained the document that was copied. The date of the comparison should also be noted after the initials, and the source of the original document should be identified on the back of the copy or on an initialed attachment or memorandum. This procedure will ensure proper authentication at trial.

Transcriptions of documents are admissible under the same principles governing the admission of photographic or photostatic reproductions. Special agents should ensure that transcripts are properly authenticated by carefully comparing the transcript with the original and certifying that the transcript is correct. The certification must indicate when, by whom and where the transcript was made, as well as the source from which it was taken. Each page should be numbered to show that it forms part of a larger whole (e.g., "page 1 of 5," "page 2 of 5," etc.). When a partial transcript is made, it should be so indicated (e.g., "excerpt from page 5 of the cash receipts book" ).

The contents of lengthy writings, recordings or photographs which cannot conveniently be examined in court may be presented in the form of a chart, summary or calculation (see FRE 1006). The originals, or duplicates, must be made available for examination and/or copying by the other parties, and the court may order that they be produced in court.

Charts are particularly effective in net worth investigations to summarize the items and computations upon which the allegation of additional income is based. Summaries are frequently used to simplify the presentation of a series of transactions upon which a specific item investigation is based. For example, with respect to the purchase and resale of used automobiles, a schedule showing the details of the transactions may be admitted into evidence after the introduction of pertinent records and testimony. However, care should be exercised in the preparation of charts and summaries to avoid prejudicial headings or titles. For example, a chart listing a series of unreported sales should not be entitled "Fraudulently Omitted Sales."

A schedule prepared by the investigating agent from the taxpayer's books and records may be admissible as secondary evidence of the contents thereof. It should be properly certified and authenticated in a similar manner to that used for transcripts.

Although not ordinarily presented as evidence, the notes, diaries, workpapers and memoranda made by an agent during an investigation may be used to refresh the memory of a witness while testifying or before testifying, at the court’s discretion. If used in this way, the opposing party is entitled to have the writings produced at trial and to offer into evidence those portions that relate to the witness’s testimony (see FRE 612). Under certain circumstances, such writings may also be introduced by the opposing party for impeachment purposes (see FRE 613). Because an agent’s notes, diaries, workpapers and memoranda may be used in court, such documents must be carefully prepared to ensure their accuracy.

Computer records are generally admissible upon a showing that they fall within FRE 803(6), an exception to the hearsay rule for records "kept in the course of a regularly conducted business activity." The courts have indicated that computer records may generally be admitted as business records if they were kept pursuant to a routine procedure that tended to ensure their accuracy.

The standard for authenticating computer records is the same as that for authenticating other records. Thus, before a party may move for admission of a computer record, the party must produce evidence "sufficient to support a finding that the [computer record] in question is what its proponent claims" FRE 901(a).

Challenges to the authenticity of computer records often take one of the following three forms:

If a computer record offered into evidence contains only computer-generated data untouched by human hands, the record does not contain hearsay. In such cases, the government must establish the authenticity of the record but does not need to establish that a hearsay exception applies.

Under FRE 1001(d), any printout or other legible output of computer stored data, if shown to reflect the data accurately, is an "original." Thus, an accurate printout of computer data always satisfies the best evidence rule.

The admissibility of official records and copies or transcripts is governed by 28 USC 1733, which provides as follows:

The method of authenticating official records is set forth in Federal Rule of Civil Procedure 44, which is made applicable to criminal trials by Federal Rule of Criminal Procedure 27. An official record may be proven by an official publication of the record or a copy attested by the officer with legal custody of the record and accompanied by a certificate that the officer has custody. The certificate must be made under seal by a judge or any public officer in the district or political subdivision where the record is kept.

Although tax returns and other official records are usually offered into evidence through an IRS representative, authenticated copies are generally admissible without a representative.

A Certificate of Assessments, Payments, and Other Specified Matters, Form 4340 is customarily offered into evidence through a representative of the IRS as a transcript of the records to which it relates. However, this form, if properly authenticated in accordance with Federal Rule of Civil Procedure 44, are admissible without the presence of an IRS representative.

An official record may be self-authenticating under FRE 902.

It is sometimes desirable or necessary to prove that a search of official files has resulted in a finding that there is no record of a certain document. For example, in a prosecution for failure to file an income tax return, the government, in addition to introducing oral testimony, may wish to introduce documentary evidence that a search has disclosed no record of such return. Under Rule 44(b) of the Federal Rules of Civil Procedure, which is made applicable to criminal trials by Federal Rule of Criminal Procedure 27, a written statement that a diligent search of designated records did not reveal the record or entry at issue is admissible as evidence that the records contain no such record or entry, so long as the statement is properly authenticated.

Procedures and a standard form for the certification of a lack of records by the Disclosure Officer are provided in IRM 11.3.6, Disclosure of Official Information, Seals and Certifications.

A presumption is an assumption of fact that the law requires or permits the jury to make.

The Fifth Amendment of the Constitution provides that no person "shall be compelled in any criminal case to be a witness against himself." Therefore, a witness (whether or not the witness is the defendant) cannot be compelled to answer any question that may incriminate him/her.

The Fifth Amendment privilege against self-incrimination protects only evidence that is testimonial or communicative in nature from compelled disclosure. Thus, the privilege would not apply to private business records seized under a search warrant, provided the individual claiming the privilege was not asked to identify the documents.

The privilege applies only to natural persons and not to corporations or other entities. It generally cannot be asserted on behalf of another person.

Voluntary disclosure of an incriminating fact waives the privilege for that and all other relevant facts where no further incrimination would result.

Communications may be "privileged," i.e., protected from compelled disclosure in litigation or other proceedings, if they take place within certain relationships. Courts have generally held that a privilege may apply to a communication only if the following general conditions are satisfied:

There are a number of generally recognized privileges in Federal judicial proceedings, including the attorney-client privilege, spousal privileges, the clergy-communicant privilege (also known as "priest-penitent" privilege), and the government-informant privilege. By contrast, there is no Federal privilege for communications between parent and child, physician and patient (except where the physician is a psychotherapist), or journalist and confidential source.