The Collection Field function is an important cross-functional partner in the detection and referral of fraud issues. The very nature of collection work lends itself to numerous areas of fraudulent noncompliance. The following sections highlight some of the fraudulent areas encountered in varying degrees by Collection Field function personnel. Refer to IRM Sections 25.1.1 through 25.1.4 for detailed guidance in developing indications of fraud and completing the fraud referral process. Of particular value to Collection Field function personnel are the sections devoted to recognizing and developing fraud, criminal referrals and failure to file, 25.1.2, 25.1.3, and 25.1.7, respectively. Finally, Collection Field function personnel should also refer to the Revenue Officers' Readiness Guide, Training #2278-002, for invaluable assistance in recognizing and developing fraud in the collection arena.

A substantial part of Collection Field function's work involves unpaid payroll taxes, underreported payroll taxes, and delinquent Form 941 returns. Many of these cases involve prior quarters and current quarter pyramiding, multiple business entities, or a string of similar defunct businesses. When initial indications of fraud are identified, the Collection Field function employee will discuss the case with the group manager. If the group manager concurs with the fraud potential, the Collection Field function employee should contact the fraud technical advisor (FTA).

When a taxpayer's noncompliance exceeds the criminal criteria set in the Law Enforcement Manual (LEM), revenue officers should consider the potential for:

Since IRC 7201, IRC 7202, and IRC 7206(1) prosecutions require the government to establish that responsible persons knew of their tax responsibilities and willfully failed to perform them, Letter 903 should be issued early in the development of the case. 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 individuals.

Collection Field function employees are responsible for making recommendations involving the special deposit rules authorized under IRC 7512 and the monthly filing procedures contained in Treas. Reg. 31.6011(a)-5. Letter 903 is issued to notify taxpayers that continued failure to comply with standard deposit and filing rules may result in imposition of the special rules and warns of the potential for criminal prosecution for failure to make special deposits in accordance with IRC 7512.

Implementation of the IRC 7512 special deposit rules requires written concurrence from CI if criminal prosecution may be considered for a violation. Use Form 2674, Report of Trust Fund Tax Violations, to request necessary approvals from Collection management and CI. In cases where only civil sanctions (e.g., an injunction) are contemplated, a revenue officer group manager may approve implementation of IRC 7512 procedures. See IRM 5.7.2.2.3.

Form 2481, Notice to Make Special Deposit of Taxes, is provided for the purpose of informing taxpayers that the special deposit requirements are being invoked. The taxpayer should be afforded a reasonable opportunity to comply with Letter 903 before Form 2481 is hand delivered to the taxpayer, compelling the taxpayer to comply with IRC 7512(b).

The Collection Field function employee will advise the group manager and follow guidelines for making a criminal referral (IRM 25.1.3) or civil referral when taxpayers fail to comply with provisions of IRC 7512.

Collection Field function employees will monitor the taxpayer's actions and keep the group manager and CI informed while the case is in fraud referral status.

If the taxpayer has previously abandoned other business ventures, leaving unpaid and uncollectible tax liabilities, it may not be necessary or appropriate to place the taxpayer on monthly filing or special deposit requirements before seeking a civil injunction to stop further pyramiding. Consult with the FTA and local SBSE Counsel when dealing with this situation.

IRC 7201 includes two separate offenses:

Refer to Exhibit 25.1.1-1 for a description of the elements necessary for prosecution of an IRC 7201 violation. The affirmative acts of evasion associated with evasion of payment cases almost always involve some form of concealment of the taxpayer’s ability to pay the tax due and owing or the removal of assets from the reach of the IRS. It should be noted that obstinately refusing to pay taxes due, possession of the funds needed to pay the taxes, and even the open assignment of income, without more, do not meet the requirement of the affirmative acts necessary for this felony evasion charge.

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

See IRM 25.1.8.4 for examples of indications of fraud relating to false statements under penalty of perjury, i.e., Form 433-A and Form 433-B.

When initial indications of fraud are identified, the Collection Field function employee will discuss the case with the group manager. If the group manager concurs with the fraud potential, contact with the fraud technical advisor (FTA) should be initiated.

IRM 5.8.10.8 provides a comprehensive discussion of indications of fraud relating to Offers In Compromise. In addition to those indications of fraud, employees 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:

Open criminal investigations can be identified on IDRS by an unreversed TC 914, TC 916, or TC 918. Cases with a TC 910 are being monitored by Criminal Investigation. When these transaction codes are discovered, contact must be made with the assigned Special Agent and procedures in IRM 5.1.5 followed. It may be necessary for the group or unit managers 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.

Once a taxpayer has been advised of the open criminal investigation, if the assigned Special Agent has no objection, the taxpayer may be asked to withdraw the offer until the criminal matter is resolved. If the taxpayer declines to withdraw the offer, the OS will return the offer to the taxpayer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted." If the Special Agent objects to asking the taxpayer to withdraw the offer or contacting the taxpayer, remind the Special Agent of the 24 month mandator acceptance requirement. If the Special Agent continues to request that the taxpayer not be contacted, reassign the case on AOIC to 9999. Monitor the case and contact the Special Agent monthly to determine if and when taxpayer contact can be made. If, after 6 months from the IRS received date, CI has not made a decision about taxpayer contact, return the offer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted."

If the referral is accepted, CI will inform the taxpayer of the fraud investigation.

The criminal statute of limitations must be taken into consideration when developing a case for fraud. It is generally six years for tax offenses.

Issues regarding limitations statutes should be discussed with the FTA during the initial stages of fraud development.

Refer to the Department of Justice (Tax Division) Handbook section on Statute of Limitations which includes a reference table on the statute of limitation for tax offenses. Also included is a section on what triggers the statute of limitation. This handbook can be found at the following website: http://www.usdoj.gov/tax/readingroom/2001ctm/07ctax.pdf.

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

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, relating to criminal proceedings and civil enforcement, and consultation with SBSE Area Counsel.

Where CI case controls (TC 914) are active in any module, revenue officers will contact CI to discuss potential problems prior to initiating contact with taxpayers or their representatives (see IRM 5.1.5).

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

Refer to IRM 5.1.5 and Policy Statement P-4-26 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.

If an ASED or CSED is within one year of expiring, and there is agreement between CI and Collection to allow a statute to expire because of the ongoing criminal investigation, CI will provide a memorandum to Collection acknowledging the expiration of the statute. The memorandum should note the periods, types of tax and state that the ASED or CSED (whichever is applicable) will be allowed to expire. The memorandum must be signed by the CFf Territory Manager and the CI Group Manager.

Prior to the expiration of the statute, the RO should document the ICS history with a summarizing statement 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).

If a cooperating revenue officer 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 special agent in the next quarter. The CI SSA should initiate contact with the revenue officer group manager to schedule required quarterly four-ways (see IRM 1.4.50, Resource Guide for Managers). If the CI SSA does not make contact, initiate contact to schedule the required four-way conference if deemed necessary. See IRM 25.1.4 for joint investigation procedures.

Upon concurrence of the fraud technical advisor (FTA), the Collection Field function employee will complete Form 11661-A, Fraud Development Status.

The RO and FTA should identify any significant related entities with open modules that would relate to the development of the potential fraud case and identify them on the Form 11661-A. 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 FTA, the group manager or their designee, will input ICS sub code 910 to the case. The ICS sub code 910 will automatically trigger input of IDRS Transaction Code (TC) 971 with Action Code (AC) 281 on the entity (this is not a modular specific transaction). 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.

When the case is no longer in fraud development status or FTA involvement is withdrawn, the manager will be notified and will remove the sub code 910. When removing the sub code 910, answer "yes" on ICS when asked, "Is TC 972 AC 281 required to re-start the overage clock." This will automatically trigger the input of TC 972 AC 281 to IDRS.

In these instances, the ICS sub code will remain with the specialty assignment. With FTA approval documented on Form 11661-A, the group manager or their designee will request upload of TC 971 AC 281 through the ICS application "Fraud Technical Advisor (FTA) Involvement." When the case is no longer in fraud development status or FTA involvement is withdrawn, the group manager or their designee will request input of TC 972 AC 281 using the same ICS application.

Prior to closing any case on ICS that was in fraud development status, the RO must ensure that the sub code 910 and the TC 971 AC 281 has been reversed. To check for an unreversed TC 971 AC 281 take the following steps:

When the Collection Field function employee, group manager, and fraud technical advisor agree that a firm indication of fraud has been established, a Form 2797, Referral Report of Potential Criminal Fraud Cases, will be completed and all collection activity will be discontinued until further advice from CI is received. See IRM 25.1.3.

When a tax loss computation is needed to support the fraud referral, the FTA will assist the Collection Field function employee in pursuing a collateral referral or securing Exam assistance. Procedures for requesting a collateral referral can be found in IRM 4.1.4.3.20.

Refer to IRM 5.1.11.6.2 for instructions relating to disposition of Delinquent Return investigations (DEL RET’s). Do not use TC 596 to close BMF DEL RET modules.

Careful consideration should be given to any imminent ASED or CSED statutes that could expire during the CI investigation. Refer to IRM 25.1.8.7 and consider the need for parallel proceedings if necessary.

CI will initiate the input of TC 914 controls to control the cases accepted for criminal investigation. If TC 914 is present in some tax periods, but not in others, Collection Field function employees should contact CI to determine whether or not collection should be suspended and additional TC 914’s should be initiated by CI. It is recommended that the RO contact their local FTA for assistance with this process.

When the TC 914 is posted to all assigned tax modules, the Collection Group Manager will remove the ICS sub code 910 and/or TC 971/281. The Collection Field function employee 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, a memorandum will be secured from CI documenting the expiration. If it is determined that parallel proceedings are necessary, an OI should be created to complete Collection actions.

If a determination is made that some type of civil action should be taken while the criminal case is active and CI agrees with the proposed civil action, follow the procedures beginning at IRM 5.1.5.1 for parallel investigations.

If the TC 914 appears on all modules and a decision has been made to suspend all civil enforcement activities on the case, CCP will assume monitoring responsibilities for the case.

Cases where an ASED or CSED will expire within one year will not be transferred to CCP without first obtaining managerial approval from CCP. See IRM 5.1.8.1.5.1(4), which prohibits the transfer of an account in this situation unless managerial approval is obtained from the receiving office.

To transfer the case to CCP, first verify that all modules have a TC 914 input (for cases with delinquent return only periods, follow the procedure in IRM 5.1.11.6.2.1(3)).

Once TC 914 is on all balance due modules, notify the group manager to remove the ICS sub code 910; if there is no sub code 910, ensure that the entity 971/281 is reversed via input of a 972/281 (or use ICS options:"Collection Activities" , "FTA Involvement" , "Generate TC 972/281" .

Create an incoming OI on the ICS case; this incoming OI will be included in the case transfer to CCP and will be used by CCP for monitoring and control procedures:

Once you have created the OI, transfer the entire ICS case to CCP as follows:

Once approved, send your closed case file marked "914" with the Form 3210 to:

Upon case receipt, CCP will ensure the input of the STAUP 91 on all modules in status 26 which have a TC 914.

CCP will monitor the case, including any CSED or TFRP ASED statute issues, while the criminal investigation is pending and issue any necessary OIs to the field.

CCP will issue OIs to the field for issues requiring field assistance or investigation during the pendency of the criminal investigation in the following instances:

When the criminal investigation is completed, CI prepares a Form 13308, Criminal Investigation Closing Report (Tax and Tax related only), and forwards the form and other documents, as appropriate, to Technical Services (Exam) and Advisory (Collection). If the closing report relates to a case that has been referred to CCP for monitoring, Advisory will, within 10 business days of the receipt of the Form 13308, either (1) route a copy of the Form 13308 to CCP, or (2) make an ICS history entry noting that CI has closed the case and the method of closure. CCP will return cases to the assigned field group if further collection action is needed.