11.3.26  Wagering Tax Information

Manual Transmittal

September 13, 2013

Purpose

(1) This manual IRM 11.3.26, Disclosure of Official Information, Wagering Tax Information, was reviewed on August 13, 2013 and determined to be technically accurate. It is being reissued as a non-procedural update.

Material Changes

(1) Editorial changes made to update organizational references.

Effect on Other Documents

None

Audience

All Operating Divisions and Functions.

Effective Date

(09-13-2013)

Related Resources

The Governmental Liaison and Disclosure intranet home page can be found at: http://discl.web.irs.gov/GLD.asp

Gregory T. Ricketts
Acting Director, Governmental Liaison and Disclosure

11.3.26.1  (05-29-2009)
General

  1. Internal Revenue Code (IRC) § 6103(o)(2) provides that wagering tax information may be disclosed only as authorized by IRC § 4424.

  2. IRC § 4424 permits disclosures of wagering tax information only in connection with the administration of civil or criminal enforcement of a tax imposed by the Internal Revenue Code. Further, IRC § 4424 does not allow direct or indirect use of wagering tax documents, and other information derived from wagering tax documents through its exploitation, against the taxpayer in connection with any non-tax proceeding.

11.3.26.2  (05-29-2009)
Tax Information Subject to IRC § 4424

  1. Wagering tax information subject to the disclosure provisions of IRC § 4424 includes any return or return information relating to a taxpayer's liability for IRC Chapter 35 wagering taxes obtained by or provided to the IRS in connection with the administration of civil or criminal enforcement of IRC Chapter 35 taxes.

  2. Wagering tax information subject to the provisions of IRC § 4424 also includes any information derived by exploitation of IRC Chapter 35 tax returns or return information.

11.3.26.3  (05-29-2009)
Tax Information Subject to IRC § 6103

  1. Any return or return information reflecting wagering transactions subject to IRC Chapter 35 taxes but obtained by or provided to the IRS solely in connection with the administration of taxes other than IRC Chapter 35 taxes (for example, IRC Chapter 1, Income Taxes) is non-wagering tax information. IRC § 6103(o)(2) does not apply to non-wagering tax information.

11.3.26.4  (05-29-2009)
Maintaining Wagering Tax Information Separate from Non-Wagering Tax Information

  1. To comply with IRC § 4424, maintain all wagering tax information about a taxpayer (including wagering tax information that has become part of an income tax file or other IRS records relating to Form 11-C, Occupational Tax and Registration Return for Wagering,) and Form 730, Monthly Tax Return for Wages) either separately from non-wagering tax information concerning the taxpayer, or in such a fashion to identify and remove it from other non-wagering tax information.

11.3.26.4.1  (05-29-2009)
Open Wagering Tax Investigation

  1. This example will help to clarify the information discussed in the subsections above. A wagering excise tax return has not been filed and an occupational stamp has not been purchased. The following describes various documents that may have been obtained or developed during a wagering tax investigation along with the disclosure restrictions for each such document.

    1. Police arrest record of the subject of the wagering tax investigation: After obtaining the police arrest record in the course of the tax investigation, the record becomes wagering tax information and may be disclosed only in accordance with the provisions of IRC § 4424. The reason is that any information compiled during a wagering tax investigation is wagering tax information subject to IRC § 4424, unless the information could not have a bearing on the wagering tax liability of the taxpayer.

    2. Police surveillance report regarding an alleged numbers drop: As in a) above, the information is wagering tax information subject to the provisions of IRC § 4424 if obtained in a wagering tax investigation.

    3. Memorandum of interview with a witness where the witness states that the subject of the wagering tax investigation threatened to murder another person within the next 48 hours: In this situation, the information about the murder threat is not wagering tax information because it has no bearing on the wagering tax liability of the taxpayer. This information also has no bearing on the taxpayer's liability under any other chapter of the Code. As a result, such information may be disclosed to the appropriate law enforcement agency according to the provisions of IRM 11.3.34, Disclosure for Nontax Criminal Violations.

    4. A special agent's surveillance report on the subject of the wagering tax investigation: Since the IRS clearly developed this evidence in a wagering tax investigation, it is wagering tax information, disclosable only in accordance with the provisions of IRC § 4424.

    5. Reports of a criminal investigation undercover agent detailing the layout of the counting room: As in d) above, this is clearly evidence developed by the IRS pursuant to a wagering tax investigation. It is wagering tax information and may be disclosed only in accordance with the provisions of IRC§ 4424.

    6. A copy of the Schedule C of the Form 1040 of the subject of the wagering tax investigation where the subject reported wagering income: In this situation, the copy of the Schedule C becomes wagering tax information, and is associated with the wagering tax investigative file or the purpose of determining possible wagering tax liability of the subject. However, the original Schedule C is non-wagering tax information because it was filed for income tax purposes, not under IRC Chapter 35.

11.3.26.4.2  (05-29-2009)
Open Income Tax Investigation

  1. In this example, a Revenue Agent is conducting an income tax examination and one of the documents in the examination file is a Form 1040, Schedule C, that includes wagering income.

    1. Simply reporting wagering income on a Schedule C does not in and of itself make it wagering tax information.

    2. Unless the agent obtained Schedule C in connection with a Chapter 35 related investigation, it is non-wagering tax information. However, if the agent made adjustments to the Schedule C based upon a wagering tax audit, the adjustment information would constitute wagering tax information.

11.3.26.4.3  (05-29-2009)
Income Tax Investigation Opened Upon Termination of Wagering Tax Investigation

  1. In this example, an income tax investigation is begun after a wagering tax investigation on the same taxpayer has been terminated.

    1. The information gathered for wagering tax enforcement purpose is wagering tax information regardless of where it is maintained.

    2. Disclose and use the information for tax administration purposes only as provided by IRC § 4424.

11.3.26.5  (05-29-2009)
Investigative Disclosures of Wagering Tax Information

  1. IRC § 4424 permits disclosures only in connection with the administration, or civil or criminal enforcement of Title 26.

  2. IRC § 4424 is not intended to impede a special agent's legitimate tax investigation by placing insurmountable administrative obstacles in the agent's path.

  3. As a general rule, do not make a disclosure in a wagering case under the provisions of IRC § 4424 if it would not be allowed in an income tax case under the provisions of IRC § 6103.

  4. Congress did not intend, nor does IRS policy permit, to use IRC § 4424 as a vehicle for making disclosures to other law enforcement agencies beyond those necessary for Federal tax administration.

11.3.26.5.1  (05-29-2009)
Similarity of Investigative Disclosures Under IRC § 4424 and Investigative Disclosures Under IRC § 6103

  1. A similarity exists between investigative disclosures made in a wagering tax investigation pursuant to IRC § 4424 and those investigative disclosures allowed by IRC § 6103(k)(6).

  2. Although IRC 6103 is not the controlling statue for disclosures in the wagering tax area, IRS employees should look to IRC § 6103(k)(6) guidelines when making investigative disclosures of wagering tax information.

  3. Before making a wagering tax disclosure, IRS employees should be able to answer affirmatively the following four questions, just as in situations involving IRC § 6103(k)(6):

    1. Am I acting within the scope of my employment and authority?

    2. Am I acting to complete an authorized and assigned investigation, information gathering project, or other project?

    3. Am I making this disclosure only for the purpose of obtaining the desired information, and am I limiting the disclosure of information to only that which is necessary to obtain this information?

    4. Am I making this disclosure in good faith?

11.3.26.5.2  (05-29-2009)
Permissible Investigative Disclosures

  1. In this example, a Special Agent opens a wagering tax investigation of an individual and, as a logical first step, contacts the local police to examine their files for possible leads. Pursuant to IRC § 4424, the IRS may divulge sufficient wagering tax information to third parties to obtain information necessary for the administration or civil or criminal enforcement of Title 26. The following situations illustrates the practice of limiting disclosure to the extent required to elicit the information sought:

    1. The agent begins by stating, "I am a special agent of the Internal Revenue Service conducting an investigation of the tax liability of John Doe. Do you have any information in your files that I could review?" This minimal disclosure may be sufficient to obtain the desired information.

    2. The police officer then stated that there are files on three different John Does. The officer asked the special agent what file she wanted to inspect. Only then would it become necessary to reveal more specific information about the taxpayer such as address, description, or other identifying characteristics to confirm identification. Disclosure is permissible since it was limited to the extent necessary to obtain information relevant to a wagering tax investigation.

    3. If the police officer then responded that there are separate files on the identified John Doe that deal with his involvement in prostitution, bootlegging, and gambling, special agent could then state an interest in the gambling files. At this juncture, disclosing the fact of wagering tax investigation is necessary to obtain the desired information.

11.3.26.6  (05-29-2009)
Disclosure to Other Law Enforcement Officials

  1. IRC § 4424(c) prohibits the use of tax information gathered for wagering tax enforcement purposes in the prosecution of nontax offenses. The coverage is broad; it precludes:

    1. The use of the information directly, for nontax purposes; and

    2. Exploitation of that information to gather leads in nontax situations.

  2. Where possible, identify and segregate information gathered or developed in connection with a wagering tax investigation from other tax information.

  3. Associate a caveat such as the one below with all wagering tax information:

    "THIS DOCUMENT CONTAINS WAGERING INFORMATION UNDER IRC §§ 4424 AND 6103. THIS INFORMATION MAY BE DISCLOSED ONLY FOR THE ADMINISTRATION OR CIVIL OR CRIMINAL ENFORCEMENT OF THE INTERNAL REVENUE CODE. IT MAY NOT BE USED FOR INTELLIGENCE OR PROSECUTORIAL PURPOSES, FOR GAMBLING OFFENSES SET FORTH IN TITLE 18 USC, OR ANY OTHER PURPOSE. "

  4. Disclosures to local law enforcement officers may cause more harm than good in the long run. They may have to segregate the information provided by the IRS from that developed on their own to avoid tainting their independently developed case.

11.3.26.6.1  (05-29-2009)
Disclosure of Fact of Wagering Tax Investigation to a United States Attorney

  1. The Department of Justice has taken the position that wagering tax cases are not generally high priority. The Criminal Investigation Division, Special Agent in Charge, may disclose that Criminal Investigation contemplates or has begun a wagering tax investigation of a specific taxpayer to a U.S. and/or Strike Force Attorney.

  2. The Special Agent in Charge may initiate such a disclosure to determine whether the Department of Justice would prosecute that individual upon submission of sufficient evidence to make a wagering tax case.

    Note:

    IRC § 4424 permits disclosure of wagering tax information for this purpose.

  3. The Government attorney should be informed that he or she may use any information obtained from data subject to IRC § 4424 for the purpose of civil or criminal enforcement of the Internal Revenue Code, and that any such information may not be used for intelligence or prosecutorial purposes, including enforcement of gambling offenses set forth in Title 18 USC, or any other nontax administration purposes.

11.3.26.6.2  (05-29-2009)
Disclosure to Local Law Enforcement Authorities

  1. The IRS can not notify law enforcement officers or invite them to accompany its agents on a raid if the purpose of the invitation is to notify local law enforcement that the IRS expects to encounter nontax information that may fall within the jurisdiction of the local police.

  2. If, in the judgment of an agent, or his/her manager, the assistance of the local police is necessary to effectively conduct a raid or make an arrest, the agent may notify local police to request such assistance. IRC § 4424(b) permits this limited disclosure since it is made for wagering tax enforcement purposes. Typical situations requiring local police help might include crowd control and securing the premises.

  3. Local police may inform IRS special agents that they wish to accompany them on a raid to execute a search warrant where the affidavit for issuance was based on information received from the local police. The fact that the information obtained from the local police formed the basis for the warrant is not an appropriate reason to permit their participation in the raid. The specificity that is generally required of a search warrant would normally limit the scope of the search to IRC Chapter 35 tax information.

  4. Generally, IRS personnel should not actively participate in the execution of non-IRS search and arrest warrants. However, local police authorities may, of their own volition, invite IRS personnel to observe their activities regarding the possible target of a police gambling investigation. Prior to accompanying any law enforcement agency on a raid, the agent should consult with his/her group manager to obtain all required approvals. After obtaining the necessary approvals, IRS agents may observe the police activities. However, under no circumstances may IRS agents disclose wagering tax information to local police authorities.

11.3.26.6.3  (05-29-2009)
Disclosure of Nontax Criminal Violations

  1. The IRS may uncover evidence of crimes falling outside its jurisdiction during the course of a wagering tax raid.

  2. The disclosure limitations of IRC § 4424 or IRC § 6103 apply to any return information seized.

  3. Appropriate Federal, State, or local law enforcement authorities may receive any evidence that is not a tax return or return information as provided in IRM 11.3.34.

11.3.26.7  (05-29-2009)
Disclosure to Informants

  1. A special agent may disclose limited tax return or return information to informants when asking relevant questions or guiding them as necessary in relation to a wagering tax investigation.

  2. If a special agent determines that an informant is passing tax information to any other law enforcement authority, the agent should, with the advice of his/her manager, either terminate the relationship or cease disclosure.

11.3.26.8  (05-29-2009)
Use of Outside Expert

  1. If the IRS cannot decipher records obtained in a wagering tax investigation due to codes used by the bookmaker, the agent may have an expert decipher the codes.

    Example:

    The expert might be an informant, an FBI agent, State or local police officer. The agent should attach a cover sheet to the records using caveat language, such as that set forth in IRM 11.3.26.6(3) above.

11.3.26.9  (05-29-2009)
Disclosure to Taxpayers and to Designees

  1. IRC § 4424(b) provides that wagering tax information may be disclosed in connection with the administration or civil or criminal enforcement of any tax imposed by Title 26.

  2. IRC § 4424(b)(1) further provides that information so disclosed may not be "divulged or made known in any manner whatever by any officer or employee of the United States to any person" except in connection with the administration or civil or criminal enforcement of Title 26.

  3. Taxpayers and their designees may receive wagering tax information under IRC § 4424 if the disclosures are made "in connection with the administration or civil or criminal enforcement of" any tax imposed by Title 26.

    Example:

    The filer of a Form 11-C or a Form 730 (or the person on whose behalf the return was filed), his or her designee, fiduciary, or attorney-in-fact may receive copies of these returns if the IRC § 4424(b) standard is met.

  4. Although IRC § 6103 is not the controlling statue in wagering tax situations, IRS employees can look to the IRC § 6103(c) guidelines in IRM 11.3.3, Disclosure to Designees and Practitioners, to determine whether the taxpayer has authorized another person to access the wagering tax information.

  5. In the example shown in (3) above, disclosures may also be made to representatives or designees in accordance with a properly executed disclosure consent document such as Form 2848, Power of Attorney and Declaration of Representation, when practice is involved/contemplated, or a Form 8821, Tax Information Authorization, if any of the individuals meet the IRC § 4424(b) standard.

  6. The disclosure restrictions of IRC § 4424 apply only to officers and employees of the United States.

  7. If a disclosure is made under IRC § 4424(b) to any individual other than an officer or employee of the United States, the individual has no further restrictions on re-disclosure of that information.


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