Criminal Investigation has Operational and Investigative Strategies. Criminal Investigation’s strategies are classified in terms of:

CI’s Operational strategies consist of three distinct strategies: Business, Enforcement, and Communication, which directly link to the goals delineated in the IRS Strategic Plan. CI’s Investigative strategies consist of Compliance, International, Money Laundering, and Terrorism. The Money Laundering and Terrorism strategies are also introduced in this section.

Tax crimes are those which are in violation of the criminal statutes of Title 26, Title 18 and/or Title 31 of the Code of Federal Regulations as applicable to Title 26. Although violations of narcotics, money laundering or currency statutes usually have tax ramifications, those types of violations, will be discussed in separate sections.

See IRM 9.1.2, Authority for the delegated authority relating to 9.5.3, Criminal Investigation Strategies.

The Director, Global Financial Crimes & Policy and Director, Refund Fraud & Investigative Support are responsible for developing, maintaining, and overseeing this IRM and ensuring compliance with current policies and procedures.

The Director, Global Financial Crimes & Policy and Director, Refund Fraud & Investigative Support will:

The Director, Global Financial Crimes & Policy will review the instructions and guidelines relating to the investigation of tax returns and other IRS documents for procedural, operational, and editorial changes.

The table lists commonly used acronyms and their definitions:

IRM 1.2.2, Delegation Order 9-2 (formerly DO-158, Rev. 2).

IRM 1.2.2, Delegation Order 25-5 (formerly DO-143 Rev. 6).

IRM 4.19, Liability Determination.

IRM 9.1.3, Criminal Statutory Provisions and Common Law.

IRM 9.3.1, Disclosure.

IRM 9.4.1, Investigation Initiation.

IRM 9.4.4, Requests for Information.

IRM 9.4.9, Search Warrant, Evidence and Chain of Custody.

IRM 9.4.11, Investigative Services.

IRM 9.4.12, Arrest.

IRM 9.4.13, Financial Investigative Task Forces.

IRM 9.5.11, Other Investigations.

IRM 9.5.13, Civil Considerations.

IRM 9.5.14, Closing Procedures.

IRM 9.6.3, Pre-Trial Procedures.

IRM 9.7.13, Title 26 Seizures for Forfeitures.

IRM 9.9.4, Criminal Investigation Management Information System Data Fields.

IRM 11.3.2, Disclosure to Persons with a Material Interest.

IRM 25.1, Fraud Handbook.

IRM 25.1.3, Criminal Referrals.

LEM 9.14.1, Criminal Investigation Official Use Only Procedures.

LEM 9.14.4, ADP Controls.

The prosecution of legal source income program investigations is essential to promoting voluntary compliance with the tax laws. Criminal Investigation’s primary resource commitment is to develop and investigate legal source income investigations. Legal source income investigations involve legal industries and legal occupations, and more specifically, legally earned income. The primary motive or purpose of the illegal activity is the violation of tax statutes. Criminal Investigation is solely responsible for investigating these violations. The legal source income program includes those investigations that threaten the tax system, such as the QRP, unscrupulous RPP and frivolous filers/non-filers investigations. Excise tax and employment tax investigations are also important components of the legal source income program. The legal source income program addresses tax investigations involving:

Within the legal source income program are the following initiatives, which are all part of the overall IRS Strategic and Program Plan or an ongoing commitment by the IRS:

The CI Annual memorandum determines the investigatory emphasis on these priorities.

Fraudulent refund schemes fall within two categories:

26 USC 7302,

18 USC 981,

18 USC 982.

In refund fraud investigations, the investigation is directed towards ascertaining:

The purpose of a QRP is to detect and stop fraudulent and fictitious claims for refunds on income tax returns. These investigations often involve returns filed with fictitious or stolen identities.

The goal of the QRP is to investigate and prosecute promoters and conspirators to foster confidence in the tax system and enhance voluntary compliance. Investigative priorities are the responsibility of the SAC based upon the local prosecution standards. Emphasis should be given to investigations with the greatest potential for preventing continued loss.

Special agents, working in conjunction with RFIS personnel at the appropriate IRS Campus, should take reasonable steps to ascertain the magnitude of the scheme and the number of participants involved.

Investigative steps should include the following:

RPP involves claims on Federal income tax returns prepared by un-scrupulous return preparers who knowingly claim excessive deductions and exemptions on returns prepared for clients. The clients may or may not have knowledge of the excessive deductions and exemptions claimed.

These preparers may have one or more of the following characteristics:

Investigations in this group originate from a variety of sources, such as:

If a return preparer investigation involves attorneys, CPAs or enrolled agents, the OPR is to be notified regarding the misconduct as soon as practical without compromising the criminal investigation or prosecution (see IRM 9.5.13, Civil Considerations).

If information is developed which involves allegations of employee misconduct or an attempt to corrupt an employee, CI personnel are required to immediately report the matter to the nearest Treasury Inspector General for TIGTA office. The TIGTA office will be responsible for providing the information to OPR.

Criminal Investigation is an active participant in national projects aimed at identifying and prosecuting the most flagrant frivolous filers/non-filers. These projects include individuals who object or refuse to file returns, pay income taxes, and/or withhold employment taxes.

Criminal Investigation pursues the most egregious, high profile, high impact frivolous filers/non-filers. Areas to consider when numbering an investigation are:

Criminal Investigation is also active in the development of criteria for identifying potential fraud referrals from the Repeat Non-filers Project. This initiative examines the specific market segments of repeat non-filers and establishes a tracking system to better evaluate subsequent compliance efforts.

In every frivolous filer/non-filer investigation, it is important to determine if the subject has corresponded with the IRS and what response, if any, they received. The following actions should be taken:

If frivolous correspondence is received subsequent to the initiation of a criminal investigation and the frivolous correspondence unit of disclosure has not previously responded, it is the field office’s decision as to whether a response is appropriate. CT Counsel should be contacted when drafting responses to frivolous correspondence.

Per IRS RRA of 1998, Section 3707, officers and employees of the IRS are prohibited from utilizing designations that might stigmatize an individual.

The criminal provisions relating to bankruptcy fraud were enacted to preserve honest administration in bankruptcy proceedings and ensure the distribution to creditors of as much of the bankrupt’s estate as possible. As IRS may be a major creditor in a bankruptcy proceeding, field offices are authorized to use bankruptcy fraud statutes (18 USC 152, Concealment of Assets, and 18 USC 157, Bankruptcy Fraud) to investigate tax crimes involving bankruptcy. There are special disclosure provisions for a bankruptcy investigation (see IRM 11.3.2, Disclosure to Persons with a Material Interest).

The goals of the bankruptcy fraud program are to:

Preferably, bankruptcy fraud will be charged in conjunction with violations of the tax, money laundering, or currency statutes within CI's statutory jurisdiction. In instances where prosecution of these offenses is not practicable, prosecution can be recommended for bankruptcy fraud alone.

Bankruptcy fraud prosecutions will be considered tax-related offenses and are subject to review by CT Counsel and DOJ, Tax Division.

Criminal Investigation’s compliance effort in financial institution fraud is designed to address criminal violations involving fraud relative to banks, savings and loan associations, credit unions, and other financial institutions such as check-cashing businesses, stockbrokers, and thrifts. Criminal tax, money laundering and currency investigations make major contributions to the Federal government’s effort to combat the various fraudulent schemes being committed against financial institutions. For CI, these investigations focus on unreported income or the illegal laundering of income obtained by violators operating inside and outside the financial institution.

See IRM 1.2.2, Del Order 9-2 (formerly DO-158, Rev. 2) and IRM 1.2.2, Del Order 25-5 (formerly DO-143 Rev. 6) for authority to initiate investigations of financial institutions.

Entitlement is a legal right to benefits, income, or property, which may not be abridged without due process. In some instances, in order to establish the entitlement, citizenship is not required, only residency in the United States. Various Federal agencies manage entitlement programs, which may be administered through corresponding or related state agencies. The respective Federal agencies have been empowered through legislation to establish rules and regulations concerning the methodology and procedures for setting qualifying and/or quantifying eligibility standards in order to provide recipients economic assistance or relief with financial hardships.

The applicant bears the burden of proving his/her entitlement to a subsidy. The applicant must usually comply with any procedural restrictions or qualifications. The award of assistance is not discretionary. It is a matter of entitlement once the applicant has demonstrated his/her eligibility for economic subsidy or assistance. Accordingly, proof of entitlement to an economic benefit does not include proving the validity of the doctrines or beliefs of the applicant.

Most Federal agencies have their own OIG, which oversees and investigates civil misuse and criminal abuse of their respective entitlement programs. Criminal Investigation’s involvement in entitlement fraud is based on fraudulent undue economic enrichment from these programs. Tax and/or money laundering charges may be applicable. Criminal Investigation may investigate these economic crimes with or without the respective OIG’s assistance. The respective agency’s OIG can provide valuable information regarding their entitlement program requirements and qualifications.

A few of the larger, non-health care, entitlement programs are listed below:

The cost of health care, especially Medicare and Medicaid, has focused attention on the fraud and abuse taking place in the health care industry. Many health care insurers operate independently without compatible data processing systems. This limits cooperative efforts among insurers and contributes to the problem of health care fraud. So, a fraudulent scheme discovered in one jurisdiction may well continue to operate undetected in other jurisdictions.

While most health care fraud is investigated by the FBI, Health and Human Services, and the US Postal Service as mail fraud violations, CI frequently investigates them as income tax or money laundering violations.

Headquarters keeps apprised of changes in the health care industry and of significant investigations through participation in the National Health Care Anti- Fraud Association and various fraud working groups. At the field office level, many investigations are developed through participation in the DOJ mandated Health Care Task Forces.

Traditionally, processing health care claims and disbursing funds to health care providers is cumbersome and paper intensive. Innovative methods to process and pay claims electronically to reduce costs and increase productivity at the Federal, state, and private insurance levels have facilitated fraud, making it difficult for Federal officials to detect.

During the course of an investigation involving health care, patient records are often sought by special agents. While there is no recognized privilege in this area, the physician-patient privilege must be addressed. This also applies to patient records for psychotherapy-related matters. The privilege is determined on a case-by-case basis, depending on the judicial district and circuit involved. CT Counsel advice should be sought when patient records are to be requested.

The use of the money laundering and forfeiture statutes in health care fraud prosecutions presents unique issues, because health care fraud investigations often involve health care providers that conduct a substantial amount of legitimate business.

In such investigations, the legitimate and illegitimate funds are often deposited into the same account. While it is permissible to charge a transaction where proceeds from a specified unlawful activity have been commingled with legitimate funds (18 USC 1956 (a) (1)), special agents should consult with CT Counsel. Special agents do not need to trace the origin of all funds deposited into a bank account to determine exactly which funds were used for what transaction. However, every effort should be made to trace the flow of illegal funds in financial transactions as closely as possible.

The Asset Forfeiture Money Laundering Section of the Criminal Division, DOJ, guideline for charging an 18 USC 1956 violation is that more than 50 percent of the money in the commingled account is SUA proceeds. If less than 50 percent of the money in the account is SUA proceeds, then care should be exercised in charging an 18 USC 1956 violation. In such investigations, the special agent should make an effort to carefully trace the flow of the SUA proceeds in the proposed money laundering transactions.

The Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191, 110 Stat. 1936, contains a definition of “federal health care offense” in 18 USC 24 and provides for criminal forfeiture under 18 USC 982 for violations of (and conspiracies to commit) such health care fraud offenses. Civil recovery of health care fraud proceeds must generally be accomplished under the money laundering forfeiture statute, 18 USC 981(a) (1) (A).

Criminal Investigation’s Insurance Fraud Program addresses criminal tax and money laundering violations relative to insurance claims and other frauds perpetrated against insurance companies (exclusive of medical or health care fraud investigations.) Specifically, investigations in this program involve property or casualty insurance, staged or caused accident insurance claims, reinsurance, premium diversion (including Multiple Employer Welfare Arrangements), and worker’s compensation insurance.

The McCarran-Ferguson Act of 1945 reserves regulation of the insurance industry to the states. As a result, the Federal oversight role of the insurance industry is limited. Regulation of solvency requirements; licensing of insurance companies, agents and brokers; setting policy forms and rates; resolving consumer complaints; and imposing administrative sanctions are just some of the responsibilities of the state authority in the insurance industry. These are generally handled by a state insurance commissioner or department that may have limited resources or lack jurisdiction to effectively confront and prosecute some of the sophisticated fraudulent schemes that have multi-state or international offshore operations. There have been reports by Congress, private organizations, and industry groups that over the last few years insurance company insolvencies are a growing threat to the health of the industry and that fraud is a contributing factor.

As there are essentially no Federal agencies or laws regulating the insurance industry, CI plays a role in the investigation of tax and money laundering violations associated with insurance fraud. The primary Federal statutes available to prosecutors to combat insurance fraud are mail and wire fraud and violations of the interstate transportation, money laundering, and tax statutes.

As regulated by the states, there are requirements for reserves of assets that are actually determined to ensure that funds are available to cover the claims that occur relative to the types of policies written. Once policies are written that encumber the current level of reserves, additional policies can only be written if additional reserves are obtained through operating profits, returns on investments, or the amount of liability against current reserves is reduced.

The large amount of money involved in employee plan trust funds and tax exempt organizations provides both a temptation and an opportunity for fraud. The traditional criminal and civil provisions of Title 26 will apply to violations in these areas. The only significant difference may be that instead of a tax deficiency, the element of damage to the government may be established by showing a tax benefit, such as attempting to make taxable income non-taxable or taxable contributions tax deductible.

While the DOL is primarily responsible for the Employee Retirement Income Security Act enforcement, the IRS has significant involvement, since qualified employee plans receive favored tax treatment via the deduction of the contribution by the employer, tax exemption for the related trust, and the deferral of income by the employee. These tax advantages can be used in criminal investigations to meet the requirements that a tax be due and owing as described in 26 USC 7201 (Attempt to Evade or Defeat Tax) and that financial damage is attributed to the government as described in 26 USC 7206 (Fraud and False Statements).

The Tax Reform Act of 1969 and other tax laws subsequently enacted establish new and more stringent requirements:

Title 26 USC 6033 requires that every exempt organization, with some exceptions, file an annual return stating specifically the items of gross income, receipts and disbursements and such other information as may be prescribed by the Secretary or appropriate delegate. In addition, 26 USC 6011 requires the filing of certain taxable returns by exempt organizations. These information reports and returns are used to determine whether the submitting organization continues to qualify for favored tax treatment and to report any taxes for which it may be liable. Like the application forms, these reports and returns are subscribed under the penalty of perjury. If an organization ceases to qualify under the provisions of 26 USC 501 or 26 USC 521 for which exemption was granted, its exempt status will be revoked.

Criminal Investigation participates in numerous investigations involving individuals who have violated the public trust. The subjects of these investigations are persons from all levels of government - local, county, state, Federal, and foreign.

Public corruption investigations involve a variety of offenses including bribery, extortion, embezzlement, kickbacks, money laundering, and tax fraud. Criminal Investigation generally investigates the tax and money laundering aspects in conjunction with other law enforcement agencies.

Telemarketing fraud is one of the largest segments of consumer fraud. The development of advanced telecommunication networks expanded the abilities of telemarketers, and a corresponding increase in complaints alleging fraudulent schemes has been reported in all 50 states. Statistical data from the Federal Trade Commission and American Association of Retired Persons shows that 56 percent of telemarketing victims surveyed were age 50 or older. Criminal Investigation is combating telemarketing fraud by conducting investigations of the major schemes in conjunction with multi-agency task forces. Criminal Investigation brings a financial expertise to these investigations that are critical to their success.

Criminal Investigation has been granted access to the FTC fraudulent complaint system via Consumer Sentinel Network. Consumer Sentinel is an investigative cyber tool that provides members of the Consumer Sentinel Network with access to millions of consumer complaints. Consumer Sentinel includes complaints about: Identity Theft; Do-Not-Call Registry violations; Computers, the Internet, and Online Auctions; Telemarketing Scams; Advance-fee Loans and Credit Scams; Immigration Services; Sweepstakes, Lotteries, and Prizes; Business Opportunities and Work-at-Home Schemes; Health and Weight Loss Products; and Debt Collection, Credit Reports, and Financial Matters. IRS-CI employees may request access to FTC Consumer Sentinel through the Refund Crimes Organizational Administrator. Details’ regarding registration to the FTC Sentinel Network is located in CI’s Document Manager, which includes IRS-CI’s current organizational contact for the application, and questions surrounding access.

Sometimes, 26 USC 7211 proves to be an effective tool in plea bargain negotiations to obtain the cooperation of minor players in illegal telemarketing operations. This statute may be utilized where a prize is promised upon payment of the related tax and makes it a crime for anyone to solicit payment for the sale or lease of an article and falsely state, orally or in writing, that any part of the payment, both sale or lease, is to pay Federal tax.

Organized crime refers to self-perpetuating, structured, and disciplined associations of individuals who combine for the purpose of obtaining monetary or commercial gains or profits, either wholly or in part, by illegal means. These groups traditionally have a strong leader to whom group members and associates owe loyalty and to whom they pay a percentage of their profits. These groups generally engage in illegal enterprises such as drug trafficking, gambling, loan sharking, extortion, theft, arson, labor racketeering, pornography, prostitution, white collar crimes of all descriptions, and money laundering. They usually employ extortion, bribery corruption and violence to achieve their objectives. IRS:CI, in conjunction with other Federal, state and local law enforcement agencies, pursues tax, currency, and money laundering investigations of organized crime groups. For additional information see IRM 9.4.13, Financial Investigative Task Forces.

Transnational Organized Crime (TOC) is defined as a self-perpetuating association of individuals who operate transnationally for the purpose of obtaining power, influence, monetary and/or commercial gains, wholly or in part by illegal means. TOCs protect their activities through a pattern of corruption and/or violence, or through a transnational organizational structure and the exploitation of transnational commerce or communication mechanisms. Moreover, terrorists and insurgents increasingly are turning to TOC to generate funding and acquire logistical support to carry out their violent acts.

Transnational Criminal Organization (TCO) is defined as groups of persons that a) include one or more foreign persons; b) threaten the national security, foreign policy, or economy of the United States; and c) engage in an ongoing pattern of serious criminal activity involving the jurisdictions of at least two foreign states, or one foreign state and the United States.

Title 18 USC 1028 can be investigated in conjunction with refund fraud and money laundering investigations. Identity theft should only be utilized when it enhances the overall investigative strategy. Title 18 USC 1028 violation is not intended to stand alone.

Schemes involving the submission of sight drafts, bills of exchange and other fictitious financial instruments to the IRS and other government agencies are a continuing problem. To the extent the criminal activity involves violations relating to Title 26, CI can investigate and recommend prosecution under 18 USC 514 (Fictitious Obligations).

RFIS, in cooperation with the Frivolous Return Processing sections at the campuses and the OCC, issue fraud alerts when schemes are detected.

Fictitious obligations prosecution recommendations will be reviewed in the same manner as a traditional tax investigation to ensure appropriate application and favorable prosecution potential.

IRS:CI plays an active role in the implementation of the National Money Laundering Strategy (NMLS). The NMLS is the blueprint for the Federal government’s comprehensive effort to aggressively combat money laundering. Money laundering techniques are not only employed by criminals to divert illicit funds into legitimate enterprises but are often used to facilitate tax evasion by making possible the movement of untaxed funds through the world’s financial systems. Money laundering and currency crimes are discussed in IRM 9.5.5, Money Laundering and Currency Crimes.

IRS:CI’s mission is to identify and prosecute the most significant tax, currency, and money laundering offenders and to pursue the assets of those offenders both domestically and internationally. Investigative efforts are designed to use the broad authority of the statutes (criminal, tax, and forfeiture) within IRS:CI’s investigative jurisdiction.

Investigations may be developed and investigated through joint task force efforts (see IRM 9.4.13, Financial Investigative Task Force).

In order to accomplish its mission, IRS:CI has developed an international strategy.

International efforts include:

IRS:CI, in the effort to combat national security threats, provides financial investigative and devoted resources in support of counterintelligence task forces, Counterterrorism taskforces and other national security demands. IRS:CI utilizes all violations within its jurisdiction to combat national security threats. These violations include, tax, money laundering and currency violations.

IRS:CI also assists the Treasury Secretary in conducting a global financial war on terrorism, protecting the integrity of the financial system, fighting financial crime, enforcing economic sanctions programs, locating assets for blocking, forfeiture and/or seizure, assisting in the implementation of Executive Orders, and otherwise providing financial investigative expertise as needed by the Secretary, through Treasury’s Executive Office for Terrorist Financing and Financial Crimes.

In accordance with 18 USC 2332b (f), the Attorney General is the lead investigative authority for counterterrorism investigations. The FBI, as the Attorney General’s investigative arm, conducts terrorism investigations through JTTFs. IRS:CI special agents assigned to the JTTF utilize their unique financial investigative skills to investigate terrorist financing and combat international terrorism (see IRM 9.4.13, Financial Investigative Task Force).

IRS:CI signed a national Memorandum of Understanding (MOU) with the Federal Bureau of Investigation (FBI) to participate in the National Counterintelligence Task Force (NCITF). Under this MOU IRS:CI will coordinate with member agencies to develop disruption strategies which employ IRS:CI’s unique skills and advanced analytical tools to prosecute foreign agents, seize their illicit proceeds, and remove the economic benefits of sanctions evasion and economic piracy through forfeiture.

Every Counter Terrorism and Counterintelligence investigation must be classified under the CI Program (CIP) "Terrorism/National Security" or "Terrorism/OCDETF". In addition to the CIP, each case must be further classified under either Fraud Scheme Code (FSC) "Counterintelligence" or "Terrorism". Every JTTF investigation must contain a multi‐agency code "Joint Terrorism Task Force" in addition, to all other multi‐agency codes.

Title 18 USC 2339A (Providing Material Support to Terrorist), 18 USC 2339B (Providing Material Support or Resources to Designated Foreign Terrorist Organizations), and 18 USC 2339C (Prohibitions Against the Financing of Terrorism) can be recommended in investigations of terrorism related financial transactions. The authority to recommend prosecution for 18 USC 2339A, 18 USC 2339B, and 18 USC 2339C is intended to support not supplant CI’s primary statutory jurisdictions of tax, money laundering and bank secrecy act violations.

The USA Patriot Act: (a) amended the Right to Financial Privacy Act, allowing CI to obtain financial institution information and records relative to terrorism in certain circumstances by a “Special Procedures Request” as opposed to obtaining them via subpoena or court order, and (b) created a Patriot Act Section 314 request for obtaining account and transaction information relating to terrorism or money laundering (see IRM 9.4.4, Requests for Information).

Sentinel is the FBI’s automated system of electronic case files (see IRM 9.4.2, Sources of Information). Sentinel contains investigative information including memoranda of interviews and other records. Sentinel provides for an electronic marking tool that allows for information to be designated as protected by IRC 6103. IRS employees must mark any IRC 6103 material accordingly for proper handling.

The Cyber‐OCDETF program is a comprehensive strategy to develop Special Agents to investigate, specifically narcotics related investigations attributed to darknet vendors and administrators. Various tools and resources are available through Narcotics and National Security Section, Special Investigative Techniques, and Cyber HQ to assist in the investigative processes. The cyber‐OCDETF strategy will focus on the following threats:

In June 2021, IRS:CI signed an MOU with the FBI led Joint Criminal Opioid Darknet Enforcement (JCODE) initiative, joining our law enforcement partners focused on targeting organized crime taking place via internet marketplaces. The JCODE team brings together Investigators, Intelligence, Military, U.S.G. contractors, and prosecutors all focused on disrupting and dismantling transnational criminal enterprises operating online. Every investigation related to or coordinated by the JCODE taskforce must utilize the CIMIS Special Purpose Code entitled "JCODE (Joint Criminal Opioid Darknet Enforcement).