This IRM provides an overview of fraud, fraud contact information, fraud referral procedures, and fraud references to be used by examination employees in the performance of their duties.

TS Refundable Credits Exam Operations (RCEO) and SB/SE Campus Examination employees support the mission of the Internal Revenue Service (IRS) by maintaining an enforcement presence and encouraging the taxpayers correct reporting of income, deductions and credits, and estate, gift, employment, and certain excise taxes, so as to instill the highest degree of public confidence in the tax system's integrity, fairness, and efficiency.

The goal of the Campus Examination Fraud Program is to ensure SB/SE Examination, TS Examination and Automated Underreporter (AUR) employees independently identify indicators of fraud.

TS and SB/SE Campus Examination are both referred to as "Examination" , "Campus Examination" , or "Correspondence Examination" .

The Austin TS Campus Examination function is the designated centralized site for working TS fraud cases.

The Brookhaven SB/SE Examination function is the designated centralized site for working fraud cases.

The primary objective of the Office of Fraud Enforcement (OFE) is to foster voluntary compliance through the recommendation of a criminal investigation and civil penalties. SB/SE and TS Campus Examination Operations have a program which includes assertion of the Civil Fraud Penalty (CFP) and imposition of the Ten-Year Ban for the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), the Credit for Other Dependents (ODC), and American Opportunity Tax Credit (AOTC).

The Internal Revenue Service has the authority to conduct examinations, make assessments, and apply penalties under Title 26 of the Internal Revenue Code, Subtitle F, Procedure and Administration.

Additional information relating to conducting examinations is contained in 26 CFR 601.105, Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability.

Examiners conduct correspondence examinations for multiple programs using Internal Revenue Code, Regulations, Policy Statements, and Policies and Procedures relevant to Correspondence Exam.

The authority for the assertion of the Ten-Year Ban when there is a final determination that the taxpayer’s claim for credit is due to fraud is found in:

The Director, Refundable Credits Program Management (RCPM), provides oversight and monitors the performance of the examination operations and acts as the liaison between the RCEO campuses and other headquarters functions.

The Program Manager is responsible for developing and implementing necessary plans and schedules for the accomplishment of the organization's objectives.

The Department Manager is responsible for planning work to be accomplished by subordinates, setting/adjusting long and short-term priorities, and preparing schedules for completion of work. they assign work to subordinates based on priorities, and use frontline managers to direct, coordinate, and oversee the work.

The Frontline Manager is responsible for assigning, directing, and reviewing the work of subordinate employees. They also plan and carry out training and development of employees, evaluate employees’ work performance, and perform all other related administrative functions.

Examination employees are often first to see a tax return or document. Therefore, they have a vital role in recognizing returns, taxpayers, preparers, and others who may be attempting to avoid their responsibilities. As such, campus examination employees are responsible for:

Per IRC 7803(a)(3) all employees must understand and follow the Taxpayer Bill of Rights (TBOR).

Audits are conducted by TS RCEO and SB/SE Campus Operations employees.

Headquarters (HQ) is responsible for:

HQ uses these results to make data-based decisions to improve quality, improve case selection, and to ensure the integrity of the selection methods.

W&I Program Management (PM) is responsible for providing oversight and monitoring the performance results of the EITC and Non-EITC programs for the TS campuses.

SB/SE Examination Planning and Performance Analysis provides support and monitors the program results for the SB/SE campuses.

Managers use the Embedded Quality Review System (EQRS) to review cases for accuracy and timeliness. National quality reviewers use the National Quality Review System (NQRS) for national product reviews. Both capture the results in the online EQRS database system. The database is partitioned, and the review results are not combined.

Managers and reviewers use Data Collection Instruments (DCIs) to input case review results. The Master Attribute Job Aid (MAJA) that provides information specific to Exam Paper and Phones is located on the EQRS/NQRS Campus SharePoint Support Site (EQ Web).

EQRS/NQRS report data is available through the database as well as in the monthly Campus Operations Business Results reports. Managers use the EQRS database to generate:

Follow proper retention and disposition requirements when utilizing Form 3210, Document Transmittal, as outlined in Document 12990, Records Control Schedules.

The following is a listing of definitions for the most common acronyms used in this IRM:

The definition for more acronyms commonly used in Examination can be found in the IRS Acronyms Database.

Examination employees are responsible for researching and using information contained in all reference materials. Other IRM chapters provide information on single topics that pertain to more than one function. Links to the most commonly used reference materials are listed below:

The Functional Fraud Coordinator (FFC) is available to help with potential fraud referrals in their functions and serve as the point of contact for employees, leads, and managers.

FFCs are assigned to functions or operations within SB/SE campuses; an FFC is assigned to each of the AUR operations. The AUR function is aligned under the SB/SE Division and the referral process is handled under the SB/SE Campus Exam Fraud program. AUR FFCs will also follow the procedures in IRM 4.19.3.5.8.3, AUR Functional Fraud Coordinator Responsibilities. Campuses are aligned as indicated below:

Upon receipt of the Form 13549 Campus Fraud Lead Sheet, the FFC must accept or decline the referral within 10 business days. This includes the transfer of cases to a co-aligned campus.

The FFC will:

If the case is in status 24 and a Notice of Deficiency was issued, The FFC will contact the CFC immediately and make a prompt decision regarding the case. The issuance of a notice of deficiency does not preclude subsequent fraud development; but it does create some additional considerations. See IRM 4.19.10.3.4, Status 24 (90-Day) Referrals.

If there is less than one year remaining on the ASED, the FFC will decline the referral and return it to the SB/SE exam team. However, the FFC will continue to make a determination on the merit of the referral. If the referral has merit but fraud development is impractical, due to administrative time, the FFC will determine if the same issue(s) exist in a subsequent year(s).

If the CFC approves fraud development on the subsequent year(s), the FFC will scan the applicable case information from the declined year and forward the information to the CFC for case development on the subsequent year(s).

The FFC will review the account for:

If the referral is accepted the FFC will:

If the referral is declined the FFC will:

Refer to IRM 25.1.14, Campus Examination Fraud Procedures for additional information.

The EFC serves as the point of contact for the Correspondence Exam Technician (CET), Tax Examiner (TE), and team supervisor/lead. They are available to help with potential fraud referrals in their function.

Upon receipt of the Form 13549 the EFC will:

The EFC will review the Form 13549 and any additional supporting documents to determine if the potential for fraud is present. This review includes:

The EFC is responsible for updating the sections below in the Centralized Campus Fraud Monitoring Workbook:

In addition to the actions above, the Austin EFC will follow the procedures in IRM 4.19.10.2.3, Responsibilities of the Brookhaven CFC (BCFC) and the Austin EFC and IRM 4.19.10.3.2, Centralized Fraud Development Procedures, Brookhaven and Austin Only.

For additional information, see IRM 25.1.14, Campus Examination Fraud Procedures.

If the referral is declined the EFC will:

If the referral is accepted the EFC will contact the FEA to discuss the facts of the case and take the actions listed below:

The BCFC/Austin EFC is responsible for verifying the Form 13549 is complete and saved correctly. After reviewing the Form 13549, the BCFC/Austin EFC should make a determination to accept or decline the referral.

If the referral is declined, the BCFC/Austin EFC will return the Form 13549, notating the reason(s) for declination.

If the referral is accepted, the BCFC/Austin EFC is responsible for the actions listed below:

The BCFC and Austin EFC are responsible for maintaining the Campus Fraud Monitoring Workbook. This will be accomplished by:

The BCFC and Austin EFC will send the HQ Analyst:

The BCFC and Austin EFC are responsible for evaluating audit reconsideration requests involving a previously asserted CFP. In addition, they will coordinate and deliver fraud training for other CFCs and EFCs.

The CFC will review the Form 13549 and documentation to confirm; all sections of the form have been completed and digitally signed by the supervisor/lead and sufficient fraud indicators exist.

Update the Centralized Campus Fraud Monitoring Workbook. Follow the instructions included under separate tab in the Workbook. The referral tracking number on the Form 13549 must match the entry on the Centralized Campus Fraud Monitoring Workbook.

Update the case to status 38 unless the case is in status 24. If the case is in status 24 follow the guidance in IRM 4.19.10.3.4 ,Status 24 (90-Day) Referrals.

Update the case to the appropriate employee group code (EGC):

Conduct further research as needed and document the results on Form 13549 Section III, Fraud Indicators and Development Actions.

Accept or decline the Form 13549 within 21 business day. This includes contacting the FEA within 10 business days to discuss the case and obtaining an acceptance or declination from the Brookhaven CFC (BCFC).

If the CFC determines the referral does not warrant fraud development and the case will not be referred to the BCFC:

If the CFC and FEA determine the case should be referred to Criminal Investigation, the CFC will prepare Form 2797, Referral Report of Potential Criminal Fraud Cases, and refer the case to CI if affirmative acts of fraud are established and criminal criteria are met. The FEA will assist the CFC with completing the Form 2797, if needed.

If the CFC and FEA agree the case requires further development, but it is outside the scope of Campus Correspondence Examination, transfer the case to the SB/SE Area Office. See IRM 4.19.10.3.6.1, Transfer of Fraud Cases for Area (Field) Examination.

If the CFC and FEA determine that the referral has potential for fraud development in Brookhaven, the CFC will:

If the fraud referral is declined by the BCFC, the BCFC will return the completed form 13549 (dated, signed, and noting the reason(s) for declination) to the CFC. Since the CFC accepted the fraud referral, the CFC is responsible for working the case through examination closure. This includes consideration of the negligence penalty and appropriate ban if warranted.

If the fraud referral is accepted by the BCFC, with the concurrence of the Brookhaven FEA, the referring CFC will:

See IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures.

The CET/TE must familiarize themselves with indicators of fraud. Potential fraud may be identified during the pre-examination research and analysis and/or during the review of the taxpayer’s response to an IRS letter or notice. See IRM 4.19.10.3.1, Identifying Fraud in Correspondence Examination and IRM 25.1.2, Recognizing and Developing Fraud for more information.

Fraud may also be identified by discovering that the same issue(s) or scheme exists in another examiner’s inventory.

Documentation is critical in the referral and development of fraud. The CET/TE and other employees involved in various steps of case development will keep, when possible, simultaneous, and detailed narratives of taxpayer contact.

The CET/TE must maintain an accurate case record reflecting all:

Do not write on any of the documents provided by the taxpayer or their representative(s). If you want or need to make notes or highlight areas of interest, make a copy of the document.

Follow the existing auditing standards and preparation of workpapers as defined in IRM 4.19.13, General Case Development and Resolution.

Discuss the indicators of fraud with the team supervisor/lead. If the team supervisor/lead concurs, prepare the Form 13549, Campus Fraud Lead Sheet detailing the indicators of fraud. For instructions see Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

Secure the team supervisor/lead’s initials with the date and forward the Form 13549 to the FFC, the CFC, or the EFC, as applicable.

If the case is in ST 22 and the taxpayer’s response indicates fraud, expedite the referral process. Do not change the status code. The RGS suspense date may need to be updated to prevent automatic issuance of the notice of deficiency. You must document the actions taken.

If the case is in ST 24, only consider a referral if the taxpayer’s response includes suspected altered documents and was received after the notice of deficiency was issued. Do not change the status code. The RGS suspense date may need to be updated to prevent an assessment of the tax and penalty as a result of the automatic default of the notice of deficiency. Only egregious cases may be considered for fraud development after a notice of deficiency has been issued.

Research identity theft indicators on AIMS and IDRS and take the appropriate action. Refer to IRM 25.23, Identity Protection and Victim Assistance, and IRM 4.19.13.28, Campus Exam Identity Theft.

During an examination, information may be obtained which indicates the taxpayer has, or is attempting to, understate their tax liability through fraudulent means. Although only a small percentage of cases are fraudulent, it is necessary to detect and report any potentially fraudulent activities. The fraud may involve a promoter or return preparer.

Taxpayers who knowingly understate their tax liability often leave evidence in the form of identifying earmarks (or indicators). Indicators of fraud serve as a sign or symptom and may show that actions have been taken for the purpose of deceit, concealment, or to make things seem other than what they are. Indicators of fraud, by themselves, do not prove fraud. Fraud indicators are the starting point to complete further inquiry and analysis to determine if affirmative acts of fraud exist. See IRM 25.1.1.4, Indicators of Fraud vs. Affirmative Acts of Fraud. Some common indicators of fraud include but are not limited to the list below:

If fraud is suspected the case should be referred to the FFC, CFC or EFC based upon the structure of the fraud program within the business unit and campus.

The case will be evaluated for fraud development by the CFC/EFC, working with the FEA, to determine if affirmative acts (e.g., deceit, subterfuge, camouflage, concealment) of fraud exist. The Internal Revenue Service (IRS) must prove that the taxpayer acted deliberately and knowingly with the specific intent to violate the law. If the CFC/EFC and the FEA determine the case has the potential for fraud development, the case will be referred to Brookhaven for SB/SE or Austin for TS.

If preparer or promoter involvement is identified a referral should be made. See IRM 4.19.10.7, Potential Return Preparer Scheme Identification, for guidance.

Refer to the related IRMs below for additional information on identifying fraud:

The originating campus completes the Form 13549, Campus Fraud Lead Sheet. This includes documenting the reasons for the potential fraud and forwarding the form to the designated BCFC or Austin EFC. When approved for fraud development, the case is assigned to the CFC/EFC. The referring tax examiner is not responsible for subsequent action(s) on the case.

The Form 13549 is used to document the approval/denial of updating the case to status 17, Referral for Fraud. A case should not be placed in or removed from status 17 without consulting the FEA. If there is a disagreement about placing the case in status 17 or removing the case from status 17, the final decision rests with the CFC/EFC group manager.

The applicable fraud coordinator group manager will:

If the FEA concurs with fraud development, they will sign and date the Form 13549 and return it to the CFC/EFC and the CFC/EFC's group manager. A copy of the form is retained by the FEA and uploaded into the RGS casefile.

For cases approved for fraud development, the FEA will update the Form 15349, Section VII, FEA Plan of Action. The plan will:

The CFC/EFC will:

If affirmative acts of fraud are established the CFC/EFC will suspend the examination and immediately notify their group manager and the FEA. The FEA will generally recommend assertion of the civil fraud penalty and/or the fraudulent failure to file penalty and imposition of the Ten-Year ban. See IRM 25.1.6, Civil Fraud for more information.

If criminal criteria are met, the FEA will generally recommend a referral to CI. See IRM 25.1.3, Criminal Referrals for more information.

If it is determined that fraud is not applicable, can’t be proven or will be transferred to the field or other BOD for fraud development:

Cases accepted into the Campus Fraud Program should have at least 13 months remaining on the ASED. Any exceptions to this should be discussed with the CFC/EFC's group manager.

The CET/TE should review the account and determine the assessment statute expiration date (ASED) before submitting a fraud referral. Per IRC 6501(c) the general rule is the assessment must be made within three years after the return is filed. However, there are special assessment periods that may extend the ASED. See IRM 25.6.1.9.5, Special Assessment Periods - Related to Return or Item on Return, for a complete list of situations that may extend the ASED.

There is no period of limitations on assessment for a false or fraudulent return with intent to evade tax. Fraud is not limited to the taxpayer, the fraudulent return exception may apply. Refer to IRM 25.6.1.9.5.2, Fraudulent Return for more information.

The 25% omission rule extends the original ASED by 3 years for a total of 6 years from the received date of the original return. In general, this rule applies if the taxpayer omits more than 25% of the gross income on the original return. To determine if the return meets the 25% omission rule see IRM 25.6.1.9.5.3, 25% Omission.

The CET/TE or referring CFC/EFC should not issue a Notice of Deficiency on a case with suspected fraud. If the case is in status 24 and the Notice of Deficiency has been issued, the case should not be developed for fraud, unless the response includes suspected altered documents.

If the taxpayer submits apparently false or altered documentation after the issuance of the Notice of Deficiency, the CFC/EFC will expedite contact with the FEA and Counsel to discuss the subsequent course of action and determine whether fraud development should be pursued.

Counsel should be consulted on a case-by-case basis and IRM 4.8.9, Statutory Notices of Deficiency, guidelines must be followed to ensure that the notice accurately reflects the IRS position, should the case proceed to Tax Court. If the taxpayer’s actions are serious enough to warrant a referral to Criminal Investigation (CI), Counsel must be consulted immediately.

Counsel review and approval is not required before the issuance of the Notice of Deficiency letter unless the case falls under the criteria for mandatory review listed in IRM 4.8.9.10.2.1, Mandatory Area Counsel Review.

Per Counsel guidance, Campus “Fraud Penalty” cases for individual taxpayers are excluded from the mandatory review criteria found in IRM 4.8.9.10.2.1, Mandatory Area Counsel Review.

The BCFC/Austin EFC may still request a review and/or approval from Counsel, based on their judgement of the facts and circumstances of the case.

When the case is accepted into the campus fraud program, the BCFC/EFC will:

TS Campus Exam cases will be:

SB/SE Exam cases will be:

Use the following Organization Function Program (OFP) codes when working a fraud case:

If the case has been approved fraud development by the FEA, update the project codes as indicated below:

A case selected for field examination on the joint recommendation of the FEA and the CFC/EFC will be transferred to the respective Area PSP Office, using Form 3185 ,Transfer of Return and a cover memo. See Exhibit 4.19.10-2, TS PSP Fraud Memo and Exhibit 4.19.10-3, SB/SE PSP Fraud Memo. The case will be transferred in status 07 with an AIMS Aging Reason Code (ARC) of:

For additional information on AIMS transfer procedures you may contact your Campus AIMS Contact and refer to IRM 4.4.33, AIMS Procedures and Processing Instructions - Transfers.

If a case is accepted into the Fraud Program, the BCFC/EFC/Austin EFC or Fraud TCO is responsible for:

If the case is transferred to another campus or another exam location, the originating campus is responsible for sending the taxpayer a Letter 86-C, Referring Taxpayer Inquiry/Forms to Another Office. Guidance on issuing the Letter 86-C can be found on the SERP Job Aids, Compliance, Examining Process - Part 4, TS Transfers of Potential Fraud Cases to Austin.

If the refund is frozen on the account, the case cannot be transferred to Area Field Exam. See IRM 4.19.13.16, Transfer to Area Office for additional procedures.

Transfer notification procedures are required if there was any prior taxpayer contact or if any correspondence has been received. For TS cases, use the Transfer Checksheet located in the SERP Job Aids, Compliance, Examining Process - Part 4.

The 10-Year ban is set when the following post to Master File:

When the CTC/ACTC/ODC and/or AOTC issue is disallowed in RGS, a reason code is systemically generated by RGS on the Form 5344. To set the ban for these credits the examiner must overwrite the systemic reason code generated by RGS with the appropriate reason code:

When the case closes and the ban is imposed, Master File will mail a CP 79B, We Denied the Credits you Claimed and Applied a Ten-Year Ban to the taxpayer. This notice tells the taxpayer the 10-year ban was applied and list what actions the taxpayer will need to take in the future.

The examiner will prepare Form 13549, Campus Fraud Lead Sheet, Section III and include the details listed in the table below and then forward to the CFC/EFC, as applicable, for consideration.

The CFC/EFC will perform additional research to determine if the information provided warrants a referral. They will conduct this research by checking:

If the TS EFC determines the preparer scheme has merit for further development, they will:

If the SB/SE CFC determines the preparer scheme has merit for further development they will:

If the FEA recommends contacting the Return Preparer Coordinator (RPC), the CFC will complete Form 14719, SBSE Return Preparer Referral, and email the referral to the appropriate Area RPC. See the Return Preparer Coordinator (RPC) listing located on the

If a criminal referral appears to be warranted, the CFC/EFC should consult the FEA. If the FEA agrees, the CFC/EFC will submit Form 2797, Referral Report of Potential Criminal Fraud Cases, to CI.

The SB/SE Headquarter Analyst will review the Form 13549. If warranted, they will present the potential return preparer scheme to the Examination Case Selection group (ESC) and the Case Workload Identification (CWI) analyst.

If the preparer activities show a significant dollar loss to the government or abusive tax transactions are suspected, the analyst will complete a Form 14242, Reporting Abusive Tax Promotions and/or Preparers.

The analyst will email the completed Form 14242 to the Lead Development Center Mailbox.

Generally, Campus Examination Operation personnel do not develop or assert penalties against tax return preparers. However, there may be instances where campus employees may be directed to do so. In that event, the following information and procedures will apply.

Any person who prepares a tax return or claim for refund for compensation or who employs one or more persons to prepare for compensation, any return of tax, or claim for refund is a tax return preparer.

IRM 20.1, Penalty Handbook, is the primary source of authority for civil penalty administration by the Internal Revenue Service. IRM 20.1.6, Preparer and Promoter Penalties, provides servicewide policy for the administration of tax return preparer penalties and promoter penalties.

A penalty is asserted for understating a taxpayer's tax liability when the understatement was due to willfulness or any reckless or intentional disregard of rules and regulations. See IRM 20.1.6.4, IRC 6694 Understatement of Taxpayer’s Liability by Tax Return Preparer.

For other tax return preparer penalties, see IRM 20.1.6.5, IRC 6695 Penalties That May Apply to a Tax Return Preparer.

All documentation to support assertion of the penalty must be uploaded to the RGS case file.

SB/SE can refer penalty cases to the Return Preparer Penalty Working Group (RPPWG) for developing and proposing return preparer penalties under IRC 6694 and IRC 6695. See IRM 20.1.6.2.1, Optional Penalty Case Referral to Return Preparer Penalty Working Group (RPPWG).

The Office of Professional Responsibility (OPR) establishes, communicates, and enforces the rules of professional conduct applicable to tax professionals as defined by Treasury Department Circular 230. The OPR may propose disciplinary action against a practitioner for noncompliance issues associated with their personal or business tax returns.

IRS employees have an obligation to report apparent tax practitioner (e.g., attorney, enrolled agent, certified public accountant) misconduct to the OPR.

For more information on tax practitioner misconduct and how to make a referral to the OPR, visit the Office of Professional Responsibility SharePoint.