This IRM section provides procedures for compliance employees involved in joint investigations with CI.

The IRS has the authority to conduct examinations under U.S. Code Title 26, Internal Revenue Code Subtitle F – Procedure and Administration, Chapter 78, Discovery of Liability and Enforcement of Title, Subchapter A, Examination and Inspection.

The Director, Office of Fraud Enforcement, is the executive responsible for providing fraud policy and guidance for civil compliance employees and ensuring consistent application of polices and procedures in this IRM.

The fraud enforcement advisor (FEA) serves as a resource and liaison to compliance employees in all operating divisions. The FEA is available to assist civil compliance employees during fraud investigations and offer advice on matters concerning tax fraud.

The cooperating compliance employee is responsible for the examination or collection features of the investigation, for taking actions necessary to protect the interests of the government with respect to the statutory period of assessment and/or collection, and for examination/collection actions on prior and/or subsequent years, and related returns.

The Office of Fraud Enforcement Policy staff prepares and issues the following reports to Servicewide customers:

OFE Policy staff can create reports by area, territory or group. These reports help manage fraud inventory and provide review information for managerial use:

Ad-hoc reports are produced as requested by OFE customers.

Operational reviews of the FEA group managers are completed by the OFE program manager twice a year. These reviews measure program consistency, effectiveness in case actions, and compliance with fraud policy and procedures.

FEA managers verify program and procedural compliance by conducting case consultations, case reviews, performance reviews, and security reviews with all FEAs.

FEA managers utilize reports generated from FITS to monitor and track FEA inventory assignments.

FEAs are required to monitor accepted criminal referrals each quarter to ensure that CI and the compliance employee are holding productive quarterly meetings as required under IRM 25.1.4.4.3, Required Communications.

FEAs are required to follow-up on all cases in fraud development status at least every 60 days as required by IRM 25.1.2.2(6)(e), Fraud Development Procedures.

The following table defines acronyms commonly used throughout this IRM section:

Compliance employees must be familiar with the following legal terms to understand the requirements of proof. The following table defines terms commonly used throughout this IRM section:

The Fraud Development Knowledge Base is located at the following website: https://irsgov.sharepoint.com/sites/ETD-KMT-KB019

Procedural guidance on potential fraud development cases can be found throughout IRM 25.1, Fraud Handbook.

The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see: https://www.irs.gov/taxpayer-bill-of-rights

During a criminal tax case, it is important that compliance employees exercise care and good judgment in all dealings with the person under investigation as well as with their representatives.

Alleged improper conduct on the part of the compliance employee has been used as part of the defense strategy in several criminal tax cases. This may be an attempt for the defense counsel to divert attention from the main issues involved.

Every compliance employee must exercise care so that there is no factual basis for this type of defense strategy. Examples of situations or conduct to be avoided:

Henthorn requests are requests made by the Department of Justice (DOJ) Assistant United States Attorney (AUSA) to Criminal Investigation (CI) to review the compliance Employees’ Personnel File (EPF). The file could contain any disciplinary, exculpatory or impeachable items that must be disclosed during a trial where the compliance employee could be testifying. These records are commonly referred to as "Giglio Material" or "Giglio information" .

The following eight categories of files are relevant to a Henthorn request, and must be obtained and examined:

Henthorn requests are made by DOJ (AUSA) and will be sent directly to CI.

CI will review the request and then forward it to the manager of the compliance employee listed on the request.

The compliance group manager will review the EPF for any disciplinary, exculpatory or impeachable items that must be disclosed to the defense counsel.

The Supervisory Agent in Charge (SAC) or their designee will then write a letter to the attorney for the government and include a declaration that the personnel files have been reviewed. The letter will contain one of the following statements:

The information must be sent via password protected SecureZip since the response will be sent to an outside agency. The password must be sent in a separate e-mail.

See also IRM 9.6.3.7.1.1, Henthorn Requests.

The examiner is concerned primarily with assisting the special agent while the criminal investigation is ongoing, the determination of the civil tax liability and/or applicable penalties. Any information that can be obtained to assist with determining the civil tax liability should be collected and preserved. In general, the following tasks are performed by the examiner:

The revenue officer is concerned primarily with identification of assets, asset valuation, and interpretation of collection-related records and transcripts. In general, the following tasks are performed by the revenue officer:

The criminal component is predominant in a joint investigation. The SA's main responsibility is to gather evidence to prove criminal violation(s). The SA is responsible for the following actions as they relate to the criminal case:

The compliance employee and the SA will work together in the government's best interest and consider the following additional actions:

CI-Initiated Investigations:

Quarterly Conferences:

When collection of a civil liability is threatened and a jeopardy assessment is recommended, coordination among IRS functions is necessary. Care must be taken to avoid unnecessary disclosures that may place a criminal investigation or prosecution at risk. Jeopardy assessments will not be made if they imperil a criminal investigation or prosecution.

Because of the urgency of jeopardy assessments, such cases must be given the highest priority by the coordinating functions. When fraud is an issue, additional approval is required from the SAC before assessment. The FEA will also be consulted if the civil fraud penalty applies.

Recommendations for jeopardy assessments should be made in accordance with IRM 4.15, Jeopardy/Termination Assessments, and IRM 5.1.4, Jeopardy, Termination, Quick and Prompt Assessments.

CI’s approval must be secured prior to establishing return controls on Automated Inventory Management System (AIMS). See IRM 4.4.23, AIMS Procedures and Processing Instructions, Openings, and IRM 4.4.9.2.3.1, Criminal Investigation (CI) Freeze, for additional instructions.

If there are no years currently under audit, the cooperating examiner may request AIMS controls on one or more years involved in the administrative joint investigation. AIMS controls do not have to be established on all years or subjects listed on the Form 6544, Request for Cooperating Examiner/Revenue Officer. AIMS controls should only be established on returns that were inspected and determined to have civil tax consequences. Examiners may request AIMS control using Push Code 049 (Joint Investigation) and Project Code 095 (Request for Cooperating Officer Based on Examination Referral), or Project Code 096 (Request for Cooperating Officer Not Based on Examination Referral). A TE/GE agent should check with Classification for the proper codes. The examiner is also responsible for monitoring the assessment statute expiration date (ASED) of the return(s) established on AIMS.

In a failure to file a tax return case where Master File controls were established using push code 037 (Substitute for Return), a TC 424 record will remain on the module for 26 months or until a tax return posts, whichever occurs first. After 26 months, the TC 424 will drop from the module. If the TC 424 dropped from AIMS control prior to the case being submitted to Fraud Suspense, the examiner will re-establish the control(s).

If CI inputs a TC 914 (Z) freeze before Compliance requests controls in a failure to file case where there is no TC 150 or TC 424 on the module, the examiner should request Master File controls by submitting Form 5345-B, Examination Request Non-ERCS Users, or Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users.

In cases where returns are filed and CI has a TC 914 (Z) freeze on the module, the examiner will request Master File controls using Push Code 049.

The purpose of a parallel investigation is to balance both the civil and criminal aspects of a case under criminal investigation. Consideration should be given to continuing the civil activity of any related taxpayer and/or tax that doesn't adversely impact the criminal proceedings.

Revenue officers involved in parallel investigations should follow the procedures prescribed in IRM 5.1.5, Balancing Civil and Criminal Cases.

Examiners involved in parallel investigations should follow the procedures prescribed in IRM 4.32.2.7, Parallel Investigations. The procedures in IRM 4.32.2.7, Parallel Investigations, apply to all parallel investigations, and the procedures thereunder should not be interpreted as limited solely to promoter investigations.

IRM 1.2.1.5.11, Policy Statement 4-26 (formerly P-4-84), Criminal and Civil Aspects in Enforcement, indicates civil enforcement actions, including collection activity with respect to taxable periods of the same and other types of tax not included in the criminal investigation, generally do not imperil a criminal investigation or subsequent prosecution. The Policy Statement concludes that civil enforcement actions in these cases should proceed concurrently, unless there is agreement among the responsible functions to withhold civil action, in whole or part, during the duration of the criminal investigation.

During required discussions involving the SSA, SA, compliance group manager and compliance employee, the compliance group manager may propose concurrent civil enforcement action consistent with IRM 1.2.1.6.18, Policy Statement 5-133, Delinquent returns - enforcement of filing requirements. If the proposal is unresolved among CI and the civil function, the decision to proceed will be elevated to the next management level.

During the joint investigation, all prior and subsequent period returns, and returns related to those included in the joint investigation, should be reviewed by the examiner for examination potential.

If examination potential is determined on a prior or subsequent year or related return, examiners must ensure administrative actions do not imperil a prosecution. Compliance must notify CI of any proposed action such as examining returns, soliciting consents or issuing a notice of deficiency. Form 10498-A, Joint Investigations Intent to Commence Civil Action, is used by Examination to notify CI of its intent to examine prior and subsequent years, or related returns. Notification of the proposed action to solicit a consent and/or issue a notice of deficiency is covered below in IRM 25.1.4.4.9, Statute Protection.

The TM or equivalent will forward, via Microsoft Outlook Secure Messaging, a completed Form 10498-A to the SAC indicating a request to examine the prior, subsequent or related tax returns. The form is used to document CI's concurrence or non-concurrence with the proposed action.

If an agreement to proceed cannot be reached between Compliance and CI; the area director or equivalent and the CI Director of Field Operations will make the decision, consistent with Policy Statement P-4–26. If an agreement is not reached at this level, the case is elevated to the operating division commissioner and Chief, CI for resolution.

If civil action is suspended, the suspended years will be periodically reviewed as Compliance deems appropriate, to protect the government’s interest.

The collection procedures are in IRM 25.1.8, Field Collection, and IRM 5.1.5.4.2, Case Monitoring When Civil Action Is Suspended.

Compliance employees are responsible for monitoring the civil statute of limitations (SOLs) for all periods under examination and/or collection activity during joint investigations.

The collection procedures with respect to statute protection are in IRM 25.1.8.8, Coordination with Criminal Investigation, and IRM 5.1.5.13.1, Cases with Imminent Statutes.

Examiners must check Masterfile (IMFOL/BMFOL/TXMOD/EMFOL) periodically and inquire with CI to determine if the taxpayer filed tax returns. In failure to file cases, if CI comes into possession of any document that could be considered a return, CI must notify the examiner to ensure the SOL can be properly monitored. The examiner is then responsible for determining whether the return begins the running of the 3-year SOL.

Examiners should attempt to protect the earliest SOL of each tax return. When multiple periods are involved, examiners should protect the most imminent SOL among the tax returns. The IRC 6501(a) statute (3-year statute) expires 3 years after the date the tax return was filed. Returns filed before the due date (not including extensions) are considered filed on the due date. If the 3-year SOL has expired or the taxpayer refuses to extend the period for assessment, the 6-year SOL (omission of income in excess of 25 percent of reported gross income), under IRC 6501(e), should be considered, if applicable. See IRM 25.1.4.4.9.1, IRC 6501(e), 6-Year Statute, and IRM 25.6.22.6.17.2, More Than 25% Omission of Gross Income. All efforts should be made to secure the taxpayer's consent to extend the period for assessment before the SOL expires. The fraud SOL under IRC 6501(c) should be relied upon only if the 3-year statute has expired or the taxpayer refused to extend the period for assessment, or the 6-year statute, if applicable, has also expired.

When fewer than 210 days remain on the SOL for assessment, the examiner should complete Form 10498-B, Joint Investigations Intent to Solicit Consent to Extend Statute, to request CI's permission to solicit the taxpayer's consent to extend the statutory period for assessment or issue a notice of deficiency. The completed Form 10498-B is sent by the Compliance group manager to the SSA via Microsoft Outlook Secure Messaging. CI must accept or decline the request within 10 workdays after receipt of the Form 10498-B. The SSA indicates the desired action by checking the appropriate boxes on the form. The SSA then forwards the form to the SAC via Microsoft Outlook Secure Messaging. The SAC indicates approval by entering their signature and date. The SAC forwards the completed form to the Compliance Authorizing Official, generally the TM or equivalent, via Microsoft Outlook Secure Messaging. The TM or equivalent indicates joint approval by entering a signature, title and date. The TM or equivalent forwards the approved form to the Compliance group manager via Microsoft Outlook Secure Messaging. See IRM 25.6.23-3, Instructions for Updating the Statute on AIMS, and the Form 10498-B instructions for the procedures followed to extend the period for assessment.

If CI approves the request to solicit the taxpayer's consent to extend the period for assessment, the examiner should follow the instructions found in IRM 25.6.22 , Extension of Assessment Statute of Limitation By Consent, including soliciting the consent via Letter 907, Request to Extend Assessment Statute, including, Pub 1035, Extending the Tax Assessment Period. CI should be informed of the results of the solicitation of the taxpayer's consent and this action should be documented in the case history. Any subsequent inquiries from the taxpayer should be referred to the SA assigned to the case.

If CI approves the decision to issue a notice of deficiency, the case will be forwarded to TS (Mandatory Review in TE/GE) for notice preparation. TS (or Mandatory Review) will obtain Area or Division Counsel's concurrence prior to issuing the notice of deficiency.

If a consent to extend the period for assessment is not secured, and the SAC does not approve the decision to issue a notice of deficiency, a decision must be made whether to rely on the fraud statute, IRC 6501(c)(1), and allow the 3- and 6-year periods for assessment to expire. This decision must be approved by the TM or equivalent and documented in the case file and on Form 895, Notice of Statute Expiration. Refer to IRM 25.6.23.5.7.2, Reliance on IRC Provisions Which Extend Normal Assessment Statute, and IRM 25.6.23-3, Instructions for Updating the Statute on AIMS.

The decision to allow expiration of the 3-year and/or the 6-year periods for assessment will be documented on Form 10498-B with signatures of the TM or equivalent and the SAC. The properly-executed Form 10498-B is attached to page two of the applicable return. The SOL should be updated immediately on AIMS using the appropriate alpha code and Form 895 should also be updated to reflect the correct expiration date using the procedures in IRM 25.6.23.5.2, Completion of Form 895 by Area Office Examiner or Specialist.

If agreement cannot be reached, the Compliance area director or equivalent and the CI Director of Field Operations will decide. If an agreement is still not reached, the issue will be elevated to the operating division commissioner and Chief, CI for resolution.

CI should withdraw from all investigations when it is determined the case no longer has criminal potential. The SSA will communicate the withdrawal to the cooperating employee's group manager, TS and Collection Advisory via Form 13308, Criminal Investigation Closing Report. This notification will also be sent to any applicable IRS civil function via secure electronic e-mailbox.

If Cl withdraws from the joint investigation, the SA will prepare a discontinued investigation report per IRM 9.5.14.12, Procedures For Closing Discontinued Investigations, and closing report if the investigation was tax or tax-related per IRM 9.5.14.5, Criminal Investigation Closing Report and Closing Package, stating the reason(s) for the withdrawal. These reports, original or copies of tax returns and any other relevant documents will be forwarded to Examination TS and Collection Advisory. Cooperating examiners may pursue civil resolution of the case. If the joint investigation involved a revenue officer, the case will be returned to the originator. After all collection activity and enforcement efforts are exhausted, the originating revenue officer should consider whether assertion of the civil fraud penalty will be pursued through a referral to Examination.

If the compliance employee's group manager objects to the proposed withdrawal, the field TM or equivalent will discuss the objection with the SAC. If agreement cannot be reached at the TM or equivalent level, the Compliance area director or equivalent and the CI Director of Field Operations will make the decision.

Upon the completion of the joint investigation, the examiner prepares Form 4549-A, Report of Income Tax Examination Changes, and Form 886-A, Explanation of Items, for each adjustment explaining all civil adjustments and penalties in detail. The top of the report should be labeled "Pre-Prosecution Report" . The taxpayer’s position regarding agreement or disagreement, is not necessary. Occasionally, the adjustments to the tax return requested by CI will be different than those adjustments an examiner would make during a typical civil examination. In this case, there may be a need to prepare two separate reports, one for civil adjustments and one for criminal adjustments. The Form 4549-A with criminal adjustments should be prepared and given to CI for use in preparing the Special Agent’s Report (SAR). The top of this report should be labeled "Criminal Report" .

The civil fraud penalty and/or the fraudulent failure to file penalty should be asserted for all applicable years on the "Pre-Prosecution Report" . Accuracy-related and/or delinquency penalties should be proposed as an alternative position. Determination of the civil fraud penalty and/or the fraudulent failure to file penalty is the shared responsibility of the examiner, their group manager and the FEA. For LB&I cases, FEA concurrence is mandatory. See IRM 25.1.10.7 Civil Fraud.

Innocent spouse report writing procedures should be followed when applicable.

Form 4665, Report Transmittal, should be attached to the front of the Revenue Agent’s Report (RAR). The top margin of the Report Transmittal should be labeled, "Pre-Prosecution Report" and should contain:

Procedures for Fraud Suspense - Examination

The Examination case file should contain:

Procedures for Fraud Suspense - Collection