Mission. The mission of the Office of Fraud Enforcement (OFE) is to promote compliance through strengthening IRS’ response to fraud and mitigating emerging threats. This includes:

OFE builds strong internal and external partnerships and serves as the primary civil liaison to IRS-Criminal Investigation. By supporting cases throughout the life cycle and through full consideration of available treatments, OFE facilitates optimal disposition of cases with civil or criminal fraud potential.

Purpose. This section covers Field Collection fraud issues.

Audience. This section is for civil compliance employees who work field collection cases.

Policy Owner. Director, OFE, Small Business Self Employed (SB/SE).

Program Owner. OFE, Policy, SB/SE.

Primary Stakeholders. The primary stakeholders are SB/SE and CI.

The following sections highlight some of the fraudulent areas encountered in varying degrees by revenue officers (ROs).

A substantial part of Collection's work involves unpaid payroll taxes, under-reported payroll taxes, and delinquent Form 941, Employer's Quarterly Federal Tax Returns. Many of these cases involve prior quarters and current quarter pyramiding, multiple business entities, or a succession of similar defunct businesses. When investigating cases involving unpaid payroll taxes, ROs should look for potential indicators of fraud, such as:

When initial indicators of fraud are identified and warrant potential fraud development, ROs should consider the potential for:

IRC 7201, IRC 7202 and IRC 7206(1) are felonies. IRM Exhibit 25.1.1-1, Criminal Violations, is a listing of the elements necessary for the most common statutes under which criminal prosecution may be recommended by Criminal Investigation (CI). Many of the elements associated with establishing proof of responsibility and willfulness in fraud cases are similar to those in a trust fund recovery penalty (TFRP) investigation. Therefore, ROs should continue to conduct TFRP investigations when warranted. However, ROs should be careful not to pursue potential TFRP assessments if indicators of fraud have been identified. ROs should discuss any proposed TFRP assessment with the group manager and local Fraud Enforcement Advisor (FEA) when indicators of fraud have been established. Local SB/SE Counsel is also available to advise on the pursuit of a TFRP assessment versus a fraud referral.

The RO will document the first indicators of fraud and discuss them with the group manager. If the group manager concurs with the fraud potential, the RO should request a consultation with the FEA.

To request a consultation with the FEA, the compliance employee will submit a request through the Specialist Referral System (SRS), which is available at https://srs.web.irs.gov/default.aspx. The FEA will contact the RO within two business days.

Because criminal prosecutions require the government to establish that responsible persons knew of their tax responsibilities and willfully failed to perform them, Letter 903, Letter to Employer - You Haven't Deposited Federal Employment Taxes, should be considered in egregious cases of noncompliance and/or when levy sources have been exhausted and the repeater or pyramiding taxpayer has no assets to assist in resolving or offsetting the liability. Although Letter 903 is primarily a warning of the potential for additional enforcement actions, it also provides specific instructions and a notice of personal responsibility to the potentially responsible persons.

In cases where criminal charges are pursued based on the failure to adhere to the reporting and payment requirements, use Form 2797, Referral Report of Potential Fraud Cases. See IRM 5.7.2.4, Referrals For Criminal Enforcement. In cases where only civil sanctions (e.g., an injunction under IRC 7402(a)) are contemplated, see IRM 5.7.2.3, Referrals For Civil Enforcement.

The RO will advise the group manager and will follow guidelines for making a criminal referral (IRM 25.1.3, Criminal Referrals) or a civil referral (IRM 5.17.4.17, Civil Injunctions) under IRC 7402(a) to Restrain Pyramiding.

ROs will monitor the taxpayer's actions and keep the group manager and FEA informed while the case is in fraud development status.

If the taxpayer has previously abandoned other business ventures, leaving unpaid and uncollectible tax liabilities, it may be appropriate to seek a civil injunction to stop further pyramiding. Consult with the FEA and local SB/SE Counsel when dealing with this situation.

IRC 7201 includes two separate offenses:

In addition to the affirmative acts/indicators listed in IRM 25.1.2.2, Fraud Development Procedures, other examples of affirmative acts of evasion of payment include:

When initial indicators of fraud are identified, the RO will discuss the case with the group manager. If the group manager concurs with the fraud potential, the RO should request a consultation with the FEA using the SRS.

IRM 5.8.10.10, Indicators of Taxpayer Fraud, provides a comprehensive discussion of indicators of potential fraud warning signs most identifiable during an interview relating to Offers in Compromise. In addition to those indicators of fraud, the ROs should be alert to the potential for false statements under penalty of perjury, i.e., relating to Form 433-A and Form 433-B. Examples of these include, but are not limited to:

When indicators of potential fraud arise during an offer investigation, the offer specialist (OS) will follow guidelines outlined in IRM 5.8.4.18, Potential Fraud Referrals.

Open criminal investigations can be identified on the Integrated Data Retrieval System (IDRS) by an unreversed TC 914, TC 916, or TC 918. Cases with a TC 910 are being monitored by CI. When these transaction codes are discovered, contact must be made with the assigned special agent (SA) and procedures in IRM 5.1.5, Balancing Civil and Criminal Cases, must be followed. It may be necessary for the Collection group manager or FEA to contact the supervisory special agent (SSA) to determine the next appropriate action. A decision will need to be made on the appropriate actions to take and what may or may not be discussed with the taxpayer.

OS must follow the guidance in IRM 5.8.4.19, Criminal Investigations, when an offer may be or might have been involved in a criminal investigation.

The criminal statute of limitations must be taken into consideration when developing a potential fraud case. It is generally six years from the last affirmative act of fraud.

Issues regarding statutes of limitations should be discussed with the FEA during the initial stages of fraud development. Local SB/SE Counsel may also be consulted on statute issues.

Refer to the Department of Justice (DOJ) Criminal Tax Manual on Statute of Limitations which includes a reference table on the Limitations Periods for Common Tax Offenses. This Criminal Tax Manual can be found at the following website: http://www.justice.gov/tax/readingroom/foia/tax.htm.

A referral for summons enforcement can be an important part of the potential fraud development process. The ability to enforce a summons is dependent upon many factors.

In most instances, summons enforcement will be conducted as an IRC 7604 civil matter, through SB/SE Area Counsel, and is directed toward requiring the person summoned to comply (see IRM 25.5.10, Enforcement of Summons).

Criminal prosecution under IRC 7210 for failure to obey a summons is rarely utilized and should be considered only after review of IRM 5.17.6, Legal Reference Guide for Revenue Officers, Summonses, relating to criminal proceedings and civil enforcement, and consultation with SB/SE Area Counsel.

In addition to considering a referral for summons enforcement, cases may warrant additional third-party contacts to prove willful intent to deceive. See IRM 25.27.1, Third Party Contact Program, for guidance on third-party contact information and specifically, IRM 25.27.1.3.2, Exceptions to IRC 7602(c) Notification Requirements.

Where CI case controls (TC 914) are active in any module, ROs will contact the FEA and CI to discuss potential problems prior to initiating contact with taxpayers or their representatives (see IRM 5.1.5, Balancing Civil and Criminal Cases).

When balancing civil and criminal priorities, consider the impact and/or lost revenue potential relating to:

Refer to IRM 5.1.5, Balancing Civil and Criminal Cases, and Policy Statement 4-26 (see IRM 1.2.5.11, Policy Statement 4-26 (Formerly P-4-84)) when evaluating the need for concurrent civil and criminal investigations. IRM 5.1.5 includes detailed information on required coordination efforts between CI and Collection in parallel investigations. This information includes actions necessary to protect Collection statutes, dissipating assets and/or the accrual of additional liabilities.

Prior to the expiration of any statute, the RO should document the Integrated Collection System (ICS) history with a summary that contains the specific MFT, tax period, amount, ASED/CSED and facts to support the decision to allow the statute to expire. The RO will obtain the appropriate managerial concurrence and input any necessary transaction codes (such as an ASED-R indicator). See IRM 5.1.5.12.1, Cases with Imminent Statutes, on how to document statute agreements between CI and Collection to include as necessary Form 10498-C, Intent to Commence Civil Action - Statute Protection for Assessment of Trust Fund Recovery Penalty, and/or Form 10498-D Intent to Commence or Continue Civil Action - Collection Statute Protection.

If a cooperating RO is needed for a joint investigation, quarterly four-way meetings should be conducted to review the status of the investigation and plan activities to be accomplished by the cooperating officer and SA in the next quarter. See IRM 25.1.4.3, Administrative Joint Investigation, for joint investigation procedures.

Upon concurrence of the FEA, the RO will complete Form 11661-A, Fraud Development Recommendation - Collection.

The RO and FEA should identify any significant related entities with open modules that would relate to the development of the potential fraud case, identify them on the Form 11661-A and request assignment of all identified related entities to avoid action being taken on these cases that could harm a future criminal investigation.

After approval of Form 11661-A by the FEA, the group manager or their designee will input ICS subcode 910 FRAUD DEVELOPMENT - FEA to the case. The ICS subcode 910 will automatically trigger input of IDRS transaction code (TC) 971 with action code (AC) 281 on the entity. The TC 971 AC 281 will stop the cycle clock and prevent the taxpayer entity from being included in systemic IDRS/Entity case aging reports.

The use of TC 971 AC 281 has been expanded to include:

Procedures must be followed with the corresponding IRMs on the appropriate use of TC 971 AC 281 for ATAT and suit development.

When the case is removed from fraud development status, the manager will change the subcode 910, to the case in ICS. When changing the subcode 910, answer "yes" on ICS when asked, "Is TC 972 AC 281 required to re-start the overage clock?" This will trigger the input of TC 972 AC 281 to IDRS.

To remove the case from fraud development status, the RO must ensure that the subcode 910 has been removed on ICS and the TC 971 AC 281 has been reversed. To check for an unreversed TC 971 AC 281 on ICS, take the following steps:

If the subcode 910 is not present on the case but the TC 971 AC 281 is on the case, then select "Generate 971/972 AC 281" from the Collection Activities menu within ICS to remove the case from fraud development status. Then select "Generate TC 972 AC 281" option and submit. Next confirm that TC 972/281 will be generated by indicating "yes" .

When the RO, the Collection group manager, and the FEA agree that a firm indication of fraud has been established and criminal criteria have been met, a Form 2797 and a narrative will be completed describing the affirmative acts and potential violations. All collection activity will be discontinued until meeting with CI to discuss the referral. See IRM 25.1.3, Criminal Referrals.

In some instances, a tax loss computation is necessary to support the referral. When a complex tax loss computation is needed to support the fraud referral, the FEA will assist the RO by:

Refer to IRM 5.1.11.7.2, Referral to Criminal Investigation, for instructions relating to disposition of Delinquent Return investigations (DEL RET’s).

Careful consideration should be given to any imminent ASED or CSED that could expire during the CI investigation. Refer to IRM 25.1.8.8, Coordination with Criminal Investigation, and consider the need for parallel proceedings if necessary.

Upon acceptance of the referral, the Collection group manager will remove the ICS subcode 910 and reverse TC 971 AC 281. The RO must document the ICS history with an appropriate closing narrative that addresses any imminent statutes. If a statute will be allowed to expire during the pendency of the criminal investigation, refer to IRM 25.1.8.8, Coordination with Criminal Investigation, and secure approval for the appropriate form.

CI will initiate the input of TC 914 controls on the cases associated with accepted referrals. If TC 914 is present in some tax modules, but not in others, ROs should contact the FEA to determine whether or not collection actions should be suspended and additional TC 914s should be input by CI.

If CI agrees that some type of collection action should be taken during the criminal investigation, the RO should create an Other Investigation (OI) and follow the procedures in IRM 5.1.5.2, IRS Policy Concerning Parallel Investigations. The RO should change the ICS subcode 910 to 912 in ICS. Subcode 912 should be used when a case has been accepted by CI and additional collection actions are necessary. Subsequent actions may include joint or parallel investigations, statute control, probation/parole, or post-sentencing compliance.

If the fraud referral is declined by CI, then the RO, Collection group manager and FEA should conduct a post-declination meeting to discuss the criminal referral and possible alternative means of civil closure, such as referring the case to Examination for consideration of civil fraud penalties.

If the TC 914 has posted on all open modules and a decision has been made to suspend all collection activities on the case, the RO should transfer the case to CCP. ROs must ensure that transferred cases meet CCP monitoring requirements. See IRM 5.1.5.13.2, Procedures for Transferring Cases to CCP.

To transfer the case to CCP, ROs must follow guidance outlined in IRM 5.1.5.13, Procedures for Transferring Cases to CCP.