25.1.9  Tax Exempt and Government Entities (TE/GE)

Manual Transmittal

September 09, 2014

Purpose

(1) This transmits revised IRM 25.1.9, Fraud Handbook, Tax Exempt/Government Entities (TE/GE).

Material Changes

(1) The changes made to this IRM are listed in the table below.

IRM Description
25.1.9.1(2) Listed the five functions of TE/GE.
25.1.9.2(1) Expanded the definition of a TE/GE taxpayer.
25.1.9.2(2) Defined the TE/GE functional fraud coordinators (FFCs) and provided clarification on coordination and contact between the FTA and the FFCs in all cases involving TE/GE entities.
25.1.9.2(5) Expanded to include providing assistance concerning special protocols that exist for dealing with Indian Tribal entities.
25.1.9.2(6) Added procedures that apply to all segments of TE/GE for placing cases into fraud suspense.
25.1.9.2(7) Added procedures that apply to all segments of TE/GE for civil settlement of prosecution cases.
25.1.9.2(8) Added procedures that apply to all segments of TE/GE for cases with special conditions of probation.
25.1.9.3 Incorporated Interim Guidance TE/GE 25-0611-01 by adding section on time tracking for fraud and fraud related activities.
25.1.9.3 Fraud in Employee Plans (EP). The contents of this IRM section were moved to IRM 25.1.4 and added reference to new IRM 4.71.25, EP Exam Fraud Procedures.
25.1.9.4 Fraud in Exempt Organizations (EO). The contents of this IRM section were moved to IRM 25.1.5 and updated.
25.1.9.5 Fraud in Indian Tribal Governments. The contents of this IRM section were moved to IRM 25.1.9.6 and expanded.
25.1.9.6 Fraud in Tax Exempt Bonds (TEB). The contents of this IRM section were moved to IRM 25.1.7 and updated.
25.1.9.7 Fraud in Federal, State, and Local Governments (FSLG). The contents of this IRM section were moved to IRM 25.1.9.8 and added reference to new IRM section 4.90.15, FSLG Fraud Procedures.
Exhibit 25.1.9-1 Added Exhibit containing ATAT and fraud project codes compatible with activity code 155.
Exhibit 25.1.9-2 Added Exhibit containing example of WebETS screen shot for EP Examination.
Exhibit 25.1.9-3 Added Exhibit containing example of WebETS screen shot for EP Determinations.
Exhibit 25.1.9-4 Added Exhibit containing summary of fraud and fraud related time tracking.

.

Effect on Other Documents

This material supersedes IRM 25.1.9, dated September 30, 2011. The following Interim Guidance Memo, issued on June 3, 2011, has been incorporated into this IRM: TE/GE 25-0611-01.

Audience

Criminal Investigation (CI), Large Business & International (LB&I), Small Business Self-Employed (SB/SE), Tax Exempt and Government Entities (TE/GE), Wage and Investment (W&I), and Counsel

Effective Date

(09-09-2014)

William P. Marshall, Director, Fraud/BSA, SB/SE

25.1.9.1  (09-09-2014)
Overview

  1. This section outlines guidelines for Tax Exempt/Government Entities (TE/GE) determination letter applications and that apply to tax and information returns under TE/GE's jurisdiction. Specific sub-sections provide procedures that apply to each function.

  2. TE/GE consists of five functions - Exempt Organizations (EO), Employee Plans (EP), Indian Tribal Governments (ITG), Tax Exempt Bonds (TEB), and Federal, State and Local Governments (FSLG).

  3. Coordination with another division's Examination function is required, if a tax liability becomes an issue.

  4. The procedures prescribed in IRM 25.1.1 through 25.1.7 should be followed, unless otherwise specified in this section.

25.1.9.2  (09-09-2014)
Procedures that Apply to TE/GE Overall

  1. Definition of Taxpayer

    The term taxpayer, for TE/GE purposes, is anyone who:

    • participates in any manner in the filing of an application for exempt status or determination;

    • prepares required tax and information returns;

    • operates a plan, trust or organization;

    • is a Federally recognized Indian tribe or is one of its business operations or related entities;

    • is the issuer of bond debt; or

    • is a Federal, state or local government entity.

    .

  2. TE/GE Fraud Specialist (TE/GE FS)

    TE/GE designated a fraud specialist (TE/GE FS) to assist its five functions with the identification and development of fraud, and to liaison with a fraud technical advisor (FTA). In addition, each TE/GE function has its own functional fraud coordinator (FFC). For cases initiated outside of TE/GE, and involving a TE/GE entity, the FTA will promptly contact the appropriate TE/GE FFC.

  3. Criminal Provisions

    This subsection contains the Internal Revenue Code sections that apply to TE/GE cases. See also IRM 25.1.1-1 for a list of Criminal Violations and the Elements Necessary For Prosecution.

    1. IRC 7206(1). Declaration Under Penalties of Perjury, is the criminal statute most useful in EO cases, but applies to any return, statement, or other document made under the penalty of perjury, which the taxpayer knows is not true and correct as to every material fact. See United States v Holroyd, 732 F.2d 1122 (2d Cir. 1984) for a discussion of the application of IRC 7206(1) when the taxpayer filed a false statement, as opposed to a false return. Applications for qualification of employee plans and exempt organizations, and information returns and reports are subscribed under the penalties of perjury. As examples, filing a determination letter application containing false statements, submitting falsified documents in support of such an application, or submitting a falsified annual return for an employee plan or exempt organization, would give rise to a potential IRC 7206(1) prosecution if the falsifications are shown to be willful and material.

    2. IRC 7201. Attempt to evade or defeat tax includes filing a false determination letter application, annual return or registration statement. These actions can be considered as affirmative acts leading to tax evasion.

    3. Under IRC 7203. Willful failure to file any required tax or information return or statement pertaining to an employee plan, may be subject to criminal penalties and civil penalties.

    4. IRC 7206(2). Many returns and reports are prepared by third parties. Under this section, preparers of false documents (such as pension plan documents) can be prosecuted.

      Note:

      Under IRC 7206(2), it is not required that a false document must be signed under penalties of perjury to pursue prosecution.

  4. Referrals to Criminal Investigation (CI)

    1. Form 2797, Referral Report of Potential Criminal Fraud Cases, is used to refer a case to Criminal Investigation (CI) through the FTA.

    2. If a case involving a collateral examination results in criminal fraud, the TE/GE and Examination functions will prepare a joint referral identifying the affirmative acts established during their respective audits. The FTA group manager will ensure that both the TE/GE and Examination functions are properly identified and account for the referral.

  5. Joint Investigations

    The TE/GE examiner's responsibilities with respect to any civil case under joint investigation may include:

    • determining the qualification status;

    • analyzing legal documents (plan and trust agreements, enabling document, etc.);

    • examining trust or organization operations, or proposed operations;

    • assisting the CI special agent (SA) in interviews and as needed;

    • inspecting annual returns under TE/GE jurisdiction;

    • analyzing financial transactions and documents (e.g. bond transcripts, offering statements, derivative contracts, etc.);

    • protecting the statutory period for assessment of TE/GE returns;

    • providing technical advice; and

    • providing assistance concerning special protocols, e.g. interactions with Indian Tribal entities.

  6. Fraud Suspense

    1. When a joint administrative investigation is completed and CI recommends criminal prosecution, CI will send a memorandum to SB/SE Technical Services (TS) to check for and cease all civil activity. The TE/GE FFC will prepare a memorandum instructing the TE/GE Examination group to close the case to its designated fraud suspense function. The case will remain in suspense until the criminal aspects of the case are completed.

    2. See IRM 25.1.4.3.10(2) (a) through (e), Fraud Suspense, for guidance on the information required in the examination case file prior to placing the case in fraud suspense.

    3. When a grand jury investigation has been approved, CI will send a memorandum to TS to cease all civil actions and terminate examination activity. The TE/GE FFC will prepare a memorandum instructing the TE/GE Examination group to close the case to its designated fraud suspense function. The case will remain in suspense until the criminal aspects of the case are completed.

    4. See IRM 25.1.5.2(2) to (4), Grand Jury Suspense, for guidance on the information required in the examination case file prior to placing the case in grand jury suspense.

    5. See IRM 25.1.5.2(5) for guidance on Audit Information Management Systems (AIMS) controls for prior and subsequent periods.

    6. See IRM 25.1.5.2(7) for guidance on AIMS controls and statute protection if the target of the grand jury investigation is not currently under examination.

  7. Civil Settlement of Prosecution Cases

    1. When the criminal prosecution aspects have been completed (i.e., criminal prosecution has concluded or the criminal investigation is discontinued), CI will notify TS of the formal closing of the criminal case via Form 13308, Criminal Investigation Closing Report (Tax and Tax Related Only), and advise that civil actions on the case should resume.

    2. The TE/GE FFC will return the case to the originating TE/GE examination group with a memorandum explaining that civil actions may resume.

    3. Upon completion of a grand jury investigation, examiners who had access to grand jury information are "tainted" for civil case resolution and cannot be assigned to the case. Likewise, if the group manager had direct or indirect access to grand jury information, the case must be assigned to another manager for civil case resolution. See IRM 25.1.5.5, Civil Case Resolution, for additional information.

    4. If the civil fraud penalty under IRC 6663 and/or the fraudulent failure to file penalty under IRC 6651(f) is pursued, the tax years/periods under penalty consideration will return to AIMS status code 17 (Fraud Development Status), and will be documented by the FTA on Form 11661, Fraud Development Recommendation - Examination.

  8. Special Conditions of Probation

    1. The court may order probation for the taxpayer as part of the sentence imposed. The Order of Probation may contain special conditions relating to the settlement and/or payment of civil tax liabilities and penalties. The Special Agent in Charge (SAC) will notify TS via Form 13308, of the special conditions of probation.

    2. The TE/GE FFC will prepare a memorandum to the TE/GE field territory manager (TM)/equivalent to return the case to the field for civil resolution and to consider the taxpayer’s conditions of probation.

    3. The memorandum will instruct the TE/GE field TM/equivalent to provide a response to the SAC regarding the taxpayer’s compliance with the conditions of probation no later than the earlier of the closing of the case or 180 days prior to the probation expiration date.

    4. See IRM 25.1.4.5(3) to (8), Special Conditions of Probation, for additional guidance.

    5. If restitution was ordered in the Judgement and Commitment Order, SB/SE Technical Services has the responsibility of assessing the restitution. See IG SBSE-04-0214-0013, Interim Guidance on Criminal Restitution Procedures, or as incorporated into IRM 4.8, Technical Services.

  9. Identifying Penalty File Examination Cases

    To facilitate identification by campuses of closed TE/GE civil fraud cases, Form 3198, Special Handling Notice for Examination Case Processing, must be attached to the folder of each TE/GE case file for:

    1. Taxpayers who have been prosecuted where civil liabilities (tax and additions) are determined and the cases are closed by TE/GE; and

    2. Taxpayers for whom an underpayment of tax is determined and the cases are closed in TE/GE with assertion of the civil fraud penalty (IRC 6663) and/or the fraudulent failure to file penalty (IRC 6651(f)), excluding prosecution.

      Note:

      Form 3198 should be annotated, "Civil Penalty Assessment " .

25.1.9.3  (09-09-2014)
TIME TRACKING – FRAUD / FRAUD RELATED ACTIVITIES

  1. This section provides procedures for Web-Based Employee Technical Time System (WebETS) tracking of fraud cases and fraud-related activities. This guidance is provided to properly track the amount of time devoted to these issues, and for consistency among the TE/GE functions.

  2. Fraud cases, including promoter investigations, are initiated through referrals and fall into two broad categories:

    1. Administrative Cases. These are fraud cases resulting from examinations or through reviews of determination letter applications. In an administrative case, the civil returns and issues are controlled by the agent while assisting in the criminal investigation. The agent typically has the returns that gave rise to the fraud case controlled on AIMS.

    2. Non-Administrative Cases. These are fraud cases that involve non-AIMS assignments such as Cooperating Agent (CA). Typically the CA in a non-administrative assignment does not control the civil returns on AIMS. For a case to be considered a CA assignment it must be open in CI (TC 914 controls in place on non-Employee Plans Master File (EPMF) modules) and a formal request for TE/GE assistance must have been made via Form 6544, Request for Cooperating Examiner/Revenue Officer. Other examples of Non-Administrative Cases include assignments such as Grand Jury (GJ), Expert Witness (EW), or Joint Terrorism Task Force (JTTF).

  3. Regardless of whether a case is administrative or non-administrative, proper accounting for time in WebETS by each function is critical to ensuring TE/GE accurately captures the amount of time applied to fraud cases and fraud-related activities. These procedures have no effect on AIMS or the Reporting Compliance Case Management System (RCCMS).

25.1.9.3.1  (09-09-2014)
General Information

  1. Activity Code (AC) 155, Fraud/Fraud Related Activities, is used in all TE/GE functions for WebETS reporting.

    1. Project codes (PCs) compatible with AC 155 are listed in Exhibit 25.1.9-1.

    2. Taxpayer names are not used on WebETS for fraud cases. Instead, a tracking number based on a naming convention is used, consisting of the following:
      Part I - FRD
      Part II - Function specific, i.e. TEB, EPE, EOE, GEE, ITG
      Part III - Control Number (assigned by the TE/GE functional fraud coordinator (TE/GE FFC))
      Part IV - Identifier such as GJ, JTTF, CA, EW, etc.
      Part V - Identifier for ease of tracking, such as the state or location (optional)

  2. Each TE/GE FFC is trained and directly involved in administering the naming convention and issuing the tracking number for use in WebETS. This provides a consistent method for tracking both administrative and non-administrative cases without disclosing information related to GJ and other protected cases.

  3. Each FFC maintains a tracking number database, or log, of information for fraud or fraud-related cases worked within the function, and prepares reports based on the tracked information. The functional information tracked is part of an overall TE/GE Fraud Tracking System/Database.

  4. The above guidance applies to all examiners. For EO and EP Determinations, the following additional guidance should be followed:

    1. EO Determinations:
      - EO Determinations should continue to use AC 130 and 303, even when the item is Abusive Tax Avoidance Transaction (ATAT) (PC 0428).
      - When a fraud referral is made to CI or developed with the help of the TE/GE FS, the activity code should be updated to AC 155.
      - The EO Determinations fraud coordinator (EO DFC) should use AC 155, PC 1551, to reflect time charged to discussing any potential fraud-related inquiries from EO Determination specialists (EO DS). The PC should be updated if a formal fraud referral is made.

    2. EP Determinations:
      - EP Determinations should continue to use AC 301 until a formal fraud referral is made to CI, or until otherwise instructed by the EP Determinations fraud reviewer (EP DFR).
      -The EP DFR will consult with the EP fraud coordinator (EP FC) to ensure the correct activity code is used.
      -The EP DFR should use AC 155, PC 1551, to reflect time charged to discussing any potential fraud-related inquiries from EP DS. The PC should be updated if a formal fraud referral is subsequently made.

  5. Specific instructions for agents, managers, functional WebETS coordinators, FFC, TE/GE FS and TE/GE FC follow. A summary of the responsibilities is included as Exhibit 25.1.9-4.

25.1.9.3.2  (09-09-2014)
Agent Responsibilities

  1. The agent is responsible for securing or ensuring a tracking number is assigned by the FFC for all fraud cases to ensure proper time charging in WebETS. If more than one taxpayer is involved in a fraud case, all case time is charged to the tracking number assigned to the key case. That tracking number will apply to all related taxpayers.

    1. Administrative Cases. It is the agent's responsibility to contact the FFC and obtain a tracking number when a return module is placed in AIMS status 17 or status 18.

    2. Non-Administrative Cases. When an agent is assigned a non-administrative case in response to a Form 6544, the FFC will issue a tracking number. The FFC also issues a tracking number to an agent for civil examination cases when CI notifies TE/GE of an open CI investigation related to an open TE/GE civil examination case, and where no fraud referral was submitted and no Form 6544 was processed.

  2. The agent will add a new case in WebETS for each tracking number received from the FFC. All future charged time for the case is applied to the new tracking number. Instructions for WebETS input follow, and Exhibit 25.1.9-2 and Exhibit 25.1.9-3 provide examples of WebETS input screens. Although the examples are of EP cases, the WebETS input for establishing new cases by all TE/GE functions is very similar. The FFC should be contacted with any input questions.

    1. EP Examinations WebETS input for employee benefit plans:
      Case Category and Type – Operational, EP Examination case
      Case/Plan/Org Name – Tracking number based on the naming convention described in IRM 25.1.9.3.1(2)(b)
      TIN – dummy number 96-9999999
      Plan number, plan type – actual number and type
      Case grade, plan year ending – actual case grade and plan year end
      Date started – date of AIMS status 17 approval or non-administrative case assignment
      Type of return – actual return type
      Activity Code – Select 155
      Project Code – Select the appropriate PC from the drop down menu (see listing of compatible project codes on Exhibit 25.1.9-1

    2. EP Examinations WebETS input for a discrepancy adjustment, Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, or Form 990-T, Exempt Organization Business Income Tax Return case:

      Note:

      The Form 5330 and Form 990-T tracking number cases are input through the EO Exam case screen. Form 5330 and Form 990-T tracking number cases cannot be input through the default EP Examination WebETS screen since AC 155 and related PCs are unavailable on that screen.


      Case Category and Type - Operational, EO Exam case
      Case/Plan/Org Name - Tracking number based on the tracking number provided by the FFC
      Date started - date of assignment
      Transfer hours - usually 0
      Organization data - use your organization, business segment and group information
      Activity Code - Select 155
      Project Code - Select the appropriate PC from the drop down menu
      TIN - dummy number 999-99-9999 or 96-9999999
      Case grade - actual case grade of the case
      MFT - actual Master File Transaction Code (MFT)
      Tax period - actual tax period

    3. EP DS WebETS input. When instructed by the EP DFR, the specialist should input the following on WebETS to reflect the development of a potential fraud case or a formal fraud referral to CI:
      Case Type - Operational
      TIN - dummy number 96-9999999
      Case Number - dummy number 969999999
      Plan number - actual plan number
      Plan type - actual number and type
      Case grade - actual grade
      Date started, control and assigned dates - date specialist instructed to input case on WebETS
      Activity Code - Select 155
      Project Code - Select the appropriate PC from the drop down menu (see listing of compatible PCs in Exhibit 25.1.9-1)

      Note:

      Examples of how to establish EP Examination and Determinations fraud cases on WebETS are shown in Exhibit 25.1.9-2 and Exhibit 25.1.9-3.

  3. All case time related to fraud development/activities will be recorded on the new line item.

    • If the case involves controls and time charges prior to being placed in fraud status, it will be maintained in WebETS as a separate case/return(s) until the return(s) is/are closed. In other words, the original case/return should be retained on WebETS, however, no time should be charged to it. Instead, all time should be applied to the line item using the naming convention.

  4. Keep the manager and FFC apprised of:

    • Administrative case accepted for GJ

    • Expansion of examination to additional entities

    • Final outcome of cooperating examiner assignments

    • Any other status changes regarding fraud or fraud-related cases

25.1.9.3.3  (09-09-2014)
Group Manager Responsibilities

  1. Notify the FFC of any Forms 6544 accepted and assigned to ensure a tracking number is provided and tracked.

  2. Keep the FFC apprised of any status changes regarding any fraud or fraud-related cases.

  3. Notify the FFC once an assignment is concluded so that the tracking number log, TE/GE Fraud Tracking System/Database, and related reports are updated.

  4. Ensure revenue agents/tax law specialists are accurately recording their time using the proper tracking number issued by the FFC.

  5. Ensure that AC 155 with the proper PC is used when fraud or fraud-related cases are worked.

  6. Contact the Fraud Suspense Coordinator (FSC) to ensure functional procedures for placing a case into Fraud Suspense, if any, are followed.

25.1.9.3.4  (09-09-2014)
Functional WebETS Coordinator Responsibilities

  1. No later than five business days after the close of the monthly WebETS cycle, forward AC 155 information to the FFC. This allows the fraud coordinator to ensure the naming convention logs are accurate and agree with WebETS. The FFC will use this information to provide monthly reports to the TE/GE FS.

25.1.9.3.5  (09-09-2014)
Functional Fraud Coordinator Responsibilities

  1. Provide a tracking number using the naming convention to the revenue agent/tax law specialist for use in WebETS, and maintain a database, or log, of the issued tracking numbers and related information. The function's tracking system records will be maintained in accordance with Service policy.

    • The control numbers will be case specific.

    • The control number will be issued sequentially and utilize a FYXXXX-XXX format. For example, the first fraud case in FY 2011 would be 2011-001 the second would be 2011-002, etc.

    • The tracking number log will include categories for the following:
      a. Actual name of the case
      b. Actual years included in the investigation
      c. Actual type of return
      d. Type of case - GJ, JTTF, CA, EW, etc.
      e. Applicable project code
      f. Control number
      g. All elements of the naming convention
      h. Date Form 11661 or Form 6544 was received
      i. Date Form 11661 or Form 6544 removed the case from fraud status)

  2. Forward all approved Forms 11661 or accepted Forms 2797, to the TE/GE FS.

  3. Maintain all Forms 6544 for administrative and non-administrative cases and provide information regarding cooperating agent assignments to the TE/GE FS as necessary. The function's tracking system records will be maintained in accordance with Service policy.

  4. Advise the revenue agent as to the appropriate WebETS line where time should be charged, depending on the nature of the case, when it is determined that fraud will no longer be pursued.

  5. Update the tracking number log to reflect the case/return is no longer in AIMS status 17 or status 18.

  6. Obtain AC 155 information from the Functional WebETS Coordinator within five business days after the monthly WebETS cycle closes and reconcile it to the tracking number log. Provide the reconciled WebETS data and tracking number log to the TE/GE FS/Financial Investigations Unit (FIU) Staff within 10 business days after the end of the monthly WebETS cycle.

  7. Upon the receipt of a Form 11661 where potential fraud (civil or criminal) is no longer being considered, the FFC will:

    • Notate the tracking number log with the date the Form 11661 is received.

    • Notate a brief reason (if known) why potential fraud is no longer being considered.

    • Advise the revenue agent to begin using the original WebETS time entry (or to establish a new WebETS line item using regular WebETS codes, if the case was not open prior to CI involvement).

    • Provide the TE/GE FS with a copy of Form 11661 reflecting status downgraded out of AIMS status 17 or 18.

  8. Upon receipt of a Form 13308, indicating that potential fraud (civil or criminal) is no longer being considered:

    • Notate the tracking number log with the date the Form 13308 is received.

    • Notate a brief reason (if known) why the investigation was discontinued.

    • Notify the revenue agent to begin using the original WebETS time entry (or to establish a new WebETS line item using regular WebETS codes, if the case was not open prior to CI involvement).

    • Provide the TE/GE FS with a copy of Form 13308 and/or Form 11661 reflecting the new status.

  9. After receipt of the monthly WebETS data from the Functional WebETS Coordinator, the FFC will reconcile the WebETS information to the naming convention log.

  10. Provide the reconciled WebETS data and naming convention log to the TE/GE FS/FIU staff within 10 business days after the end of the monthly WebETS cycle.

25.1.9.3.6  (09-09-2014)
FIU Staff Responsibilities

  1. Maintain the consolidated TE/GE Fraud Tracking System/Database.

  2. Roll up the monthly functional fraud reports into a draft consolidated fraud report and submit it to the TE/GE FC within 15 business days after the end of the monthly WebETS cycle.

  3. Review FFC reports.

  4. Submit cumulative monthly reports to TE/GE Compliance Issue Council (CIC).

25.1.9.3.7  (09-09-2014)
TE/GE Fraud Specialist/Coordinator Responsibilities

  1. Facilitate TE/GE functional interaction with the National Fraud Program (NFP), SB/SE and LB&I fraud coordinators and FTAs, as needed.

  2. Facilitate and assist FFCs with interactions with Counsel and CI, as needed.

  3. Engage FFCs to discuss strategies and cases, when necessary.

  4. Share information with working groups, when appropriate.

25.1.9.4  (09-09-2014)
Fraud in Employee Plans (EP)

  1. The Employee Retirement Income Security Act of 1974 (ERISA) provides criminal and civil penalties for specified violations. The IRS (under Title II) and the Department of Labor (under Title I) generally share jurisdiction over ERISA.

  2. The Secretary of Labor also has authority to investigate Title 29 offenses. These offenses relate to reporting, disclosure, participation, vesting, funding and fiduciary responsibilities for employee plans. Consequently, the Secretary of Labor and the Secretary of Treasury may be seeking to prosecute the same case.

  3. Qualified employee plans receive favored tax treatment through a deduction for contributions by the employer, tax exemption for the related trust, and deferral of income by the participating employees. These tax advantages can be used to establish criminal criteria (criteria used by CI for criminal investigation consideration) by identifying a proper tax due and owing, as prescribed in IRC 7201, Attempt to Evade or Defeat Tax.

  4. IRC 6058 governs the filing of Form 5500, Annual Return/Report of Employee Benefit Plan. CI has criminal jurisdiction over Form 5500 violations.

  5. See IRM 4.71, EP Examination of Returns-Overview of Form 5500 Examinations, for general procedures regarding EP examinations. See IRM 4.71.25, EP Examination of Returns-EP Fraud Procedures, for the procedures relating to fraud development, civil and criminal fraud and cooperating agents in EP examinations.

  6. See IRM 7.11.10, Employee Plans Determination Letter Program, EP Examination and Fraud Referral Procedures, for procedures to employees reviewing EP determination letter applications.

25.1.9.5  (09-09-2014)
Fraud in Exempt Organizations (EO)

  1. The Tax Reform Act of 1969 imposed new and stringent requirements with respect to exempt organizations. Originally, restrictions were placed only on private foundations and certain trusts. Subsequent legislation imposed restrictions and reporting requirements on public charities, social welfare organizations and other exempt organizations. Penalties were established for:

    • repeated and willful violations of Chapter 42 provisions,

    • failure to file information returns, and

    • willful violation of annual reporting requirements of private foundations.

  2. IRC 6033 governs the Form 990, Return of Organization Exempt from Income Tax, information return filing requirements of EOs. IRC 6012 governs the Form 990-T unrelated business income tax return filing requirements of EOs. IRC 6011 governs the Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the IRC, excise tax return filing requirements of EOs and other persons.

  3. EOs are afforded favorable tax treatment on the premise that they are both organized and operated in accordance with their exempt purpose. Most EOs are required to be organized as nonprofit organizations. Given their tax-favored status for exemption from Federal income tax and in some cases for deductibility of charitable contributions to them, EOs are sometimes used as vehicles to conduct inappropriate schemes, scams and fraud.

  4. While fraud may be conducted directly by the EOs, it is usually perpetrated by individuals using the EO as a shield to hide their true activities. It is imperative that the EO examiner is cognizant of these types of misuse and is able to identify and consider all related individuals and entities to ascertain whether the EO is being used for tax evasion purposes.

  5. Restrictions on Church Tax Inquiries and Examinations under IRC 7611, shall not apply to:

    1. any criminal investigation;

    2. any inquiry or examination relating to the tax liability of any person, other than a church, with the exception of IRC 4958 (excess benefit transactions);

    3. any assessment under IRC 6851 (relating to termination assessments of income tax), IRC 6852 (relating to termination assessments in case of flagrant political expenditures of IRC 501(c)(3) organizations), or IRC 6861 (relating to jeopardy assessments of income taxes, etc.);

    4. any willful attempt to defeat or evade any tax imposed by Title 26; or

    5. any knowing failure to file a return of tax imposed by Title 26.

  6. CI investigations cover a wide range of fraud, many involving tax exempt entities. For example, the health care industry has been subject to fraudulent schemes such as false claims, kickbacks, bribes, schemes involving durable medical equipment, staged/caused accidents, clinic mills, drug diversion, rolling labs, and psychiatric mills. Often, these schemes involve tax exempt organizations. Many hospitals, clinics, and health care related entities are tax exempt organizations.

  7. EOs have been used to fund terrorism, which is both illegal and a fraudulent misuse of EO's exempt status.

    In the course of auditing an exempt organization, sometimes known as non-governmental organizations (NGOs) in the international context, the examiner may find evidence of involvement in terrorism, such as dealings with another NGO that is suspected of funding terrorism. NGO cases involved in potential terrorism-funding may be subject to a Joint Terrorism Task Force (JTTF) GJ investigation. As such, these sensitive cases are subject to additional security measures and may require a National Top Secret Security clearance.

    When an examiner encounters an EO that appears to be potentially involved in funding or supporting terrorism the examiner should review the Specially Designated Nationals List (SDN List), maintained by the Office of Foreign Asset Control (OFAC), to determine if the organization or any related entity or key individual is identified on that list. If there is a positive OFAC hit or if the examiner continues to have concerns as to the organization's involvement in supporting terrorism, all examination work should be suspended and contact with the (FIU) group manager should be made through the examiner's group manager.

    In discussion with the FIU, a determination should be reached as to whether the following actions are appropriate:

    • Contact with other divisions or agencies, and/or

    • Transfer of the case to the FIU.

    Members of the FIU have the appropriate training and clearance with respect to these issues and the special disclosure and coordination measures required in addressing actual terrorism cases.

25.1.9.5.1  (09-09-2014)
Fraud Development Procedures

  1. When indicators (signs or symptoms) of fraud are identified, the EO examiner will initiate a discussion with the group manager. See IRM 25.1.2.3, Indicators of Fraud, for a list of the common indicators of fraud.

  2. If the group manager agrees that the indicators of fraud have fraud potential, the EO examiner will contact the TE/GE FS for advice.

  3. If the TE/GE FS concurs with fraud potential, the EO examiner will arrange a meeting with the local FTA to discuss the issue(s). Timely and appropriate actions are very important, if potential fraud is an issue.

  4. If the EO examiner, group manager, TE/GE FS and FTA agree that the case warrants fraud development, the EO examiner will prepare Form 11661, and forward the completed form, via secure e-mail, to the group manager for approval. A case should not be placed into or out of fraud development without consulting the FTA and TE/GE FS. If a disagreement exists on whether a case should or should not be placed in fraud development, the ultimate decision rests with the EO examiner's group manager.

  5. The group manager will review Form 11661, approve it, and electronically forward the completed form via secure e-mail to the FTA, and send a copy to the TE/GE FS for consideration.

  6. The FTA will recommend placing the case in fraud development (update on AIMS to status code 17) by completing section 9a of Form 11661, and returning the completed form to the EO examiner, the group manager and the TE/GE FS.

  7. An integral part of fraud development is the development of a plan of action. The plan of action involves establishing that sufficient affirmative acts exist to confirm fraud. The plan should be a joint effort of the EO examiner, the EO group manager, the TE/GE FS and the FTA. The plan of action will help guide the case to its appropriate conclusion in a timely manner. It is important to note that the role of the FTA can be more advisory or consultative. The jointly-developed plan of action should specify any direct assistance the FTA will provide. It should be noted that some cases may not require a face-to-face meeting with the FTA. While consultations over the phone or e-mail are possible, face-to-face contact is preferable.

  8. The FTA will provide a written plan of action in the following format:

    • Form 11660, Fraud Development Checksheet;

    • Page 2 of Form 11661, Plan of Action; or

    • Memoranda

    Note:

    A copy of the initial plan of action and those containing follow up action items should be placed in the workpapers.

  9. Upon receipt of an approved Form 11661, the EO examiner will place the case in Fraud Development Status by updating AIMS to status code 17, request copies of the original tax returns (if the original returns have not been secured), and proceed with the plan of action until affirmative acts of fraud are established or a determination is made that fraud is no longer an issue. A case should be returned to AIMS status code 12, if it is determined that the potential for fraud no longer exists. If affirmative acts of fraud are identified, the EO examiner should discontinue the examination and immediately contact the FTA for advice on how to proceed. Cycle time will be excluded from the monthly aging reports to management (Month At a Glance Report) while the case is in Fraud Development Status.

    Note:

    Timely action is required on all cases that are in Fraud Development Status. The EO examiner or the group manager should never directly seek advice from CI for a specific case under examination.

  10. A case will remain in Fraud Development Status as long as there is active involvement in an ongoing audit, or a decision is made to:

    • update the case on AIMS to status code 18, if CI accepts the criminal referral;

    • return the case on AIMS to status code 12; or

    • assert the civil fraud penalty and/or the fraudulent failure to file penalty, or both.

    Footnote:

    1. If it is determined that the potential for fraud no longer exists, the reason(s) and the recommendation to return the case to AIMS status code 12 should be documented by the FTA on Form 11661.

    2. If assertion of the civil fraud and/or fraudulent failure to file penalty is pursued, the case will be returned to status code 17 and a copy of the update will be sent to the TE/GE FS after CI involvement has concluded. The EO examiner will notify TE/GE FS of the change in status code and of the assertion of applicable penalties.

25.1.9.5.2  (09-09-2014)
Civil Fraud

  1. The penalty for failure to file a tax return, if such failure is fraudulent, is 15 percent per month, or fraction thereof, up to a maximum of 75 percent of the net amount of tax due (IRC 6651(f)). This penalty may be applied in cases involving EO tax returns such as Form 990-T and Form 4720.

25.1.9.5.3  (09-09-2014)
Request For Cooperating Examiner

  1. Tax exempt organization law is complex. The involvement of an EO specialist can be useful in properly developing investigations involving tax exempt organizations, related entities and individuals.

  2. Requests for an EO specialist for cooperating agent assignments are made by CI on Form 6544, and sent to the EO Area Manager/FIU.

  3. JTTF cases requesting EO specialists for cooperating agent assignments with National Top Secret Clearances should be submitted to the EO Area Manager/FIU.

25.1.9.5.4  ≡ ≡ ≡ ≡ ≡ ≡ ≡
≡ ≡ ≡ ≡ ≡ ≡ ≡

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

        Note:

        ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    7. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    8. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    9. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

        ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

        ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

25.1.9.6  (09-09-2014)
Fraud In Indian Tribal Governments (ITG)

  1. ITG was established in 2000 by Presidential Order 13175. ITG is charged with administering Federal tax administration issues applicable to Indian Tribal Governments. ITG is a business unit in Government Entities section of TE/GE.

  2. ITG Specialists have specialized training in the administration of tax law and protocols unique to Indian Tribes. ITG has an Abuse Detection and Prevention Team (ADAPT) of ITG Specialists for fraud in Indian Country (including tribes, its members and officials, and third parties dealing with tribes).

  3. ITG’s FSC is responsible for maintaining fraud suspense files.

  4. ITG’s FFC is responsible for working with ITG Specialists, group managers and FTAs in developing potential fraud cases, making criminal referrals, asserting civil fraud penalties and other fraud-related matters.

  5. ITG’s ADAPT Case Classifier receives information from a variety of sources (informants, CI select leads, etc.) and from which work is developed for the ADAPT Program. All cases selected for examination are approved by the ITG Field Operations Manager and the group manager prior to field assignment.

  6. ITG maintains a fraud database to track its referrals and cases in fraud development status. To maintain the integrity of this database, it is critical that copies of all Forms 11661, Form 2797, Form 13308, and Form 14104, Notification of Restitution, prepared for ITG and related cases are forwarded to the TE/GE FS and ITG FFC in a timely manner.

  7. Indian Tribes are not exempt from Federal income taxes; rather they are not subject to Federal income taxes at the entity level. Indian Tribes are subject to other Federal taxes including excise, employment and backup withholding.

  8. Tribal members are subject to Federal income taxes with few statutory exceptions.

25.1.9.6.1  (09-09-2014)
Definition of Taxpayer

  1. ITG is responsible for administering the Federal tax responsibilities of:

    • Any Federally recognized tribe

    • Any political subdivision of such tribe

    • Any official or employee of such tribe

    • Any business enterprise or individual conducting business with a tribal government

    • Any wholly-owned enterprise of a Federally recognized tribe.

25.1.9.6.2  (09-09-2014)
Tribal Sovereignty

  1. U.S. v Mazurie, 419 US 544, 557 (1975), states Congress may limit the authority of Indian tribes, but within those limits the tribe retains "attributes of sovereignty over both their members and their territory" .

  2. Federally recognized tribes have the inherent right or power to govern. Tribes have the authority to choose its form of tribal government, determine tribal membership, regulate tribal and individual property, levy taxes, establish courts, maintain law and order, and provide government services.

  3. The Supremacy Clause, Article VI of the US Constitution, provides that if Federal law and tribal law conflict – Federal law supersedes tribal law. Sovereign status does not affect taxability. Miccosukee Tribe of Indians of Florida v United States of America, 730 F Supp 2d 1344 (Case No 10-21332) (2011) states "Tribal sovereign immunity does not bar suits by the United States" and cannot be invoked "to prevent the Federal government from exercising its superior sovereign powers" .

25.1.9.6.3  (09-09-2014)
Fraud Development Procedures

  1. When indicators (signs or symptoms) of fraud are identified, the ITG Specialist will initiate a discussion with his/her group manager. See IRM 25.1.2.3, Indicators of Fraud for a list of the common indicators of fraud. The ITG Specialist must not issue a report to the taxpayer or solicit a delinquent tax return if fraud is suspected. The ITG Specialist should discontinue the examination and immediately contact his/her manager for advice on how to proceed.

  2. If the group manager concurs that the indicators of fraud have fraud potential, the ITG Specialist will contact the ITG FFC for advice.

  3. If the ITG FFC concurs with fraud potential the local FTA will be contacted and a meeting arranged to discuss the issue(s). Timely and appropriate actions are very important if potential fraud is an issue.

  4. If the ITG Specialist, group manager, ITG FFC and FTA agree that the case warrants fraud development, the ITG Specialist will prepare Form 11661. The ITG FFC and FTA can assist in the preparation if necessary. The ITG Specialist will forward the completed form via Microsoft Outlook/Secure Messaging, to his/her group manager for approval.

    Note:

    A case should not be placed into or out of Fraud Development Status (status 17) without consulting the FTA. If a disagreement exists on whether a case should or should not be placed in fraud development, the ultimate decision rests with the ITG Specialist’s group manager.

  5. The ITG Specialist's group manager will review Form 11661, sign, approve and forward via Microsoft Outlook/Secure Messaging the completed form to the FTA for consideration.

  6. The FTA will recommend placing the case in fraud development (update on AIMS to status code 17) by signing the form and completing section 9a of Form 11661. The signed form will be returned to the ITG Specialist, his/her group manager and the ITG FFC.

  7. The ITG Specialist, his/her group manager, the FTA and ITG FFC will develop an agreed-upon plan of action as early as possible to develop and document the affirmative acts of fraud. An integral part of fraud development is the plan of action. The plan of action involves establishing that sufficient affirmative acts exist to confirm fraud. The plan should be a joint effort.

    Note:

    The plan of action will help guide the case to its appropriate conclusion in a timely manner. It is important to note that the role of the FTA can be more advisory or consultative. The jointly developed plan of action can and should specify any direct assistance the FTA will provide. It should be noted that some cases may not require a face to face meeting with the FTA. While consultations over the phone or e-mail are possible, face-to-face contact is preferable.

  8. The FTA will document the agreed upon plan of action in the following format:

    • Form 11660, Fraud Development Checksheet

    • Page 2 of Form 11661, Plan of Action; or

    • Memoranda

      Note:

      A copy of Forms 11661, the initial plan of action and those containing follow-up action items should be placed in the case file and indexed in the penalty work papers section.

  9. Upon receipt of an approved Form 11661, the ITG Specialist will:

    1. Forward an electronic copy of the approved Form 11661 via Microsoft Outlook/Secure Messaging to the ITG FFC.

    2. Place the case in Fraud Development Status by updating AIMS to status code 17.

    3. Request copies of the original tax returns (if the original returns have not been secured).

    4. Secure a WebETS reporting code from the ITG FFC. See IRM 25.1.9.3.2, Agent Responsibilities.

    5. Proceed with the plan of action until affirmative acts of fraud are established or a determination is made that fraud is no longer an issue.

    ITG Specialists should consider whether the fraud development of an ITG case may have an impact on other tax returns that would require a collateral referral to SB/SE, LB&I or W&I Examination functions. See IRM 4.71.4.2, Referrals to Examination Functional Units.

    Cycle time will be excluded from the monthly aging reports to management (Month at a Glance Report) while the case is in Fraud Development Status.

    Note:

    Timely action is required on all cases that are in Fraud Development Status. The ITG Specialist or the group manager should never directly seek advice from CI for a specific case under examination.

  10. At no time during an examination or the development of a fraud case will a taxpayer be told that a criminal investigation is being considered. See IRM 25.1.3.2(1), Preparation of Form 2797, for instructions concerning disclosures to the taxpayer if the ITG Specialist is questioned by the taxpayer or POA regarding the status of a case during fraud development. Contact the FTA or ITG FFC to assist if disclosure becomes an issue.

  11. A case will stay in Fraud Development Status (AIMS status code 17) as long as there is active involvement in an ongoing audit, or until a decision is made:

    • To update the case on AIMS to status code 18 if CI accepts the criminal referral;

    • To update the case on AIMS to status code 12 if the ITG Specialist, his/her group manager, FTA and ITG FFC concur that the potential for fraud no longer exists.

    • To assert the civil fraud penalty, the fraudulent failure to file penalty or both.

25.1.9.6.4  (09-09-2014)
Civil Fraud

  1. The civil fraud penalty may be based on facts and circumstances of a civil examination or result from the civil settlement of a criminal prosecution case. Civil fraud is often decided by analyzing the same evidence of intent necessary to support a criminal conviction for tax evasion.

  2. A criminal conviction for tax evasion under IRC 7201 usually establishes liability for the civil fraud penalty. However, the civil fraud penalty may be imposed even when the taxpayer is acquitted in a criminal fraud prosecution. The burden of proof shifts to the Government to prove civil fraud as well as criminal fraud.

  3. Once the FTA, ITG Specialist, his/her group manager and ITG FFC concur sufficient affirmative acts of fraud may exist to support the civil fraud penalty, the case should be forwarded to TE/GE Counsel for its concurrence and recommendation prior to proposing the civil fraud penalty in an examination report.

  4. If criminal prosecution of a taxpayer has been recommended by CI to the Department of Justice (DOJ), the civil fraud penalty or fraudulent failure to file may be removed only upon written recommendation or concurrence by Area Counsel. See IRM 25.1.6.2(5), Procedures.

  5. There is no statute of limitations in the case of civil fraud. The tax and penalty can be assessed at any time (IRC 6501(c) (1)).

  6. Collateral Estoppel: A taxpayer that has been convicted under IRC 7201 cannot dispute the fraud penalty in a civil case for the same tax year(s) involved in the conviction. The taxpayer can dispute the amount of the underpayment and civil fraud in other tax years.

25.1.9.6.5  (09-09-2014)
Criminal Fraud

  1. When the ITG Specialist establishes that an affirmative act(s) (firm indications) of fraud exist (see IRM 25.1.1.3(2), Indicators of Fraud v Affirmative Acts of Fraud, for a list of examples), he/she should suspend the examination, including any contact with the taxpayer and/or representative. As soon as possible the ITG Specialist should discuss the audit finding with his/her group manager, the FTA and the ITG FFC.

  2. If the FTA and ITG FFC agree that the case meets criminal criteria the ITG Specialist will prepare Form 2797 and forward the form via Microsoft Outlook/Secure Messaging to his/her group manager for approval. The FTA and the ITG FFC are available to assist with the preparation of Form 2797 if needed.

  3. See IRM 25.1.3.3, Referral Evaluation through 25.1.3.5, Declined Criminal Referrals, for a description of the CI evaluation process. The ITG Specialist will forward via Microsoft Outlook/Secure Messaging, a copy of the accepted or declined Form 2797 to the ITG FFC.

  4. If CI declines the referral, the civil fraud penalty and/or fraudulent failure to file penalty should be considered. Form 11661 should be resubmitted to the FTA for recommendation to assert the penalty(ies). The FTA will assist with the development and/or write up of the penalty if necessary.

    Note:

    The penalty(ies) should also be considered if the criminal investigation is discontinued or upon completion of prosecution. If the development and/or assertion of these penalties are taking place, the case will be returned to AIMS status code 17.

  5. If a criminal referral is declined for criminal investigation or if the criminal investigation is subsequently discontinued and the FTA and the ITG Specialists determine that fraud (civil or criminal) no longer exists, the FTA will recommend return of the case to AIMS status code 12 via Form 11661.

    Note:

    All AIMS status code changes (from status 12 to 17; from 17 to 18; from 18 to 17 or from 17 or 18 to 12) must be documented on Form 11661 and signed by the FTA.

25.1.9.6.6  (09-09-2014)
Discontinued Criminal Investigation

  1. If CI discontinues (or declines) a case before a GJ is approved, the referring ITG Specialist may work the case for civil settlement (including the assertion of civil fraud penalties).

  2. If CI discontinues a case after a GJ has been approved the ITG Specialist who was assigned as the GJ cooperating agent and their manager cannot be involved in the civil settlement of the case.

  3. CI will complete Form 13308 and forward a copy via Microsoft Outlook/Secure Messaging to the TE/GE FS. See IRM 25.1.9.2(7).

  4. Upon receipt of the Form 13308 from the TE/GE FS, the ITG FFC should review the form for information about the discontinuance. Important boxes to note include:

    • Box 3e and 3f – Final Disposition – will identify that CI (or DOJ Tax or Assistant United States Attorney) has discontinued the criminal investigation.

    • Box 4 – Civil Tax activity warranted – CI will complete indicating its opinion on whether civil tax activity is warranted.

    • Box 6 – Documents Attached – very helpful in locating documents that may be available for proceeding with a civil tax penalty.

  5. The ITG Specialist, his/her group manager, ITG FFC and FTA should discuss the case, the issues and the reasons CI discontinued (or declined) the case. Even if CI discontinues a criminal investigation, a civil fraud penalty case can still be pursued depending on the facts and circumstances.

25.1.9.6.7  (09-09-2014)
Post Prosecution - Criminal Investigation

  1. The ITG Specialist participating in a criminal investigation as a GJ cooperating agent cannot be involved in any civil settlement (including the assertion of civil fraud penalties) of the case. See Civil Settlement of Prosecution Cases at IRM 25.1.9.2(7).

  2. The ITG Specialist participating in a criminal investigation as an administrative (non-GJ) cooperating agent or any ITG Specialist who was not involved in the GJ criminal investigation will work the civil settlement (including the assertion of civil fraud penalties) of a post prosecution case. See Civil Settlement of Prosecution Cases at IRM 25.1.9.2(7).

  3. CI will complete and forward a copy of Form 13308 via Microsoft Outlook/Secure Messaging to the TE/GE FS who will then forward it via secure e-mail to the ITG FFC. See IRM 25.1.9.2(7).

  4. SB/SE Examination Technical Services has the responsibility of assessing the restitution. See IG SBSE-04-0214-0013.

25.1.9.6.8  (09-09-2014)
Cooperating Agent Requests

  1. ITG Specialists have specialized training specific to the administration of Federal tax laws and unique protocols applicable to Indian Tribes.

  2. CI should request an ITG Specialist as an administrative or GJ cooperating agent on cases involving taxpayers identified in IRM 25.1.9.6.1 above.

  3. CI must request an ITG Specialist for cooperating agent assignments on Form 6544.

  4. CI should notate the Form 6544, "ITG" , and forward to the TE/GE FS or ITG Field Operations Manager, or equivalent, authorized to make the assignment. If CI has any questions, the ITG FFC should be contacted for assistance in making the request.

25.1.9.6.9  (09-09-2014)
Risk Factors and Abusive Schemes

  1. Federally Recognized Indian Tribes are not exempt from, rather they are "not subject to" Federal income taxes at the entity level. Other Federal taxes, including excise, employment and backup withholding apply to Federally recognized Indian Tribes.

  2. Risk factors commonly found in ITG cases include, but are not limited to:

    • High employee turnover

    • Weak internal control environments

    • Non-segregated duties

    • Cash-intensive businesses

    • High-volume transactions

    • Sovereign status of tribes

    • Tribes' favored tax treatment

    • Frequent elections

    • Incomplete or missing records

  3. Abusive schemes commonly found in ITG cases include, but are not limited to:

    • Embezzlement from tribal enterprises

    • Use of fictitious corporate status to avoid the filing of required Federal tax returns

    • Conversion of tribal assets or property for personal use

    • Disguising enterprises to appear as tribally-owned so as to evade Federal taxation and/or various Federal or state laws

    • Improper sheltering of taxable gains by passing third party transactions through Indian tribes

    • Improper treatment of net gaming revenue, including misclassified distributions to tribal members

    • Selling memberships in tribal groups not recognized by the Federal government, and purporting such membership confers special tax benefits

    • Claiming Native American individuals are not subject to Federal taxation under any circumstances

    • Misrepresentation of Federal status of a tribe to attempt to obtain tax advantages

    • Misrepresentation of treaty provisions to claim improper tax relief

  4. The ITG FFC or any ITG Specialist are available to discuss any of the risk factors and abusive schemes shown in this section.

25.1.9.6.10  (09-09-2014)
Case File Documentation

  1. It is important that the usual badges of fraud are considered, developed, and well-documented in every fraud case. Generally, in those cases in which the Court does not sustain the fraud penalty, it is because the Court felt that the IRS did not provide enough proof that a sufficient number of the badges of fraud exist, or the Court believes the taxpayer has a plausible alternative explanation for his or her actions or underpayment of tax.

  2. Compliance employees should ask taxpayers to provide an explanation for their actions (or why they underpaid their taxes), and document these explanations verbatim and thoroughly. This documentation will assist Counsel in rebutting a taxpayer’s explanations at trial, if those explanations are inconsistent with what the taxpayer told the compliance employee. Also, if the taxpayer’s explanations do not make sense, look for documents or other evidence that tends to rebut the taxpayer’s explanations. Counsel will need this evidence to show the Tax Court that the taxpayer’s explanation for his or her actions is not credible.

  3. A properly developed case must address and document potential indicators of fraud. When indicators of fraud are present, leads should be fully developed and documented.

    • The intent of the taxpayer and/or related entities should be clarified and documented

    • Explanations of the taxpayer and/or related entities should be clarified and documented

    • Management should be appropriately involved when affirmative indications and acts of deception by the taxpayer are present

    • The compliance manager, ADAPT Specialist and ITG FFC must involve the FTA when firm indicators are present

    • Form 11661 is prepared and approved by the FTA

    • The Form 11661 is included with the penalty workpapers

    • The examiner’s report will reflect the civil fraud penalty by code section on a separate attachment, identifying the adjustments attributable to the penalty

    • For joint returns, innocent spouse must be addressed and documented

25.1.9.7  (09-09-2014)
Fraud In Tax Exempt Bonds (TEB)

  1. To foster early detection and prevention of fraud and promote consistency within the IRS, Tax Exempt Bonds (TEB) coordinates with the NFP, within SB/SE.

  2. The TEB Business Unit of TE/GE is responsible for ensuring compliance with the provisions of the Internal Revenue Code applicable to tax-advantaged bonds.

25.1.9.7.1  (09-09-2014)
Definition of Taxpayer

  1. While often bondholders might ultimately be liable for Federal taxes upon completion of an examination, for purposes of conducting the examination and to determine the tax status of a bond issuance, the issuer of the debt is deemed the taxpayer.

25.1.9.7.2  (09-09-2014)
Fraud Development

  1. The Director, TEB has designated a fraud coordinator to facilitate the development of fraud cases and serve as a liaison between the NFP and TEB. The TEB functional fraud coordinator (TEB FFC), individually or in conjunction with the FTAs, will provide advice and/or guidance to the TEB group managers and TEB examiners on the development of fraud cases.

  2. As soon as a TEB examiner discovers indicators of fraud, he/she should discuss the issue with the TEB group manager. If the TEB group manager concurs, the TEB examiner will contact the TEB FFC to discuss the indicators of fraud. The TEB FFC will contact an FTA if the case has fraud potential. If the FTA agrees, the TEB FFC will arrange a conference call or meeting with the TEB examiner, TEB group manager and FTA to discuss the case. If all parties agree that the case should be developed for fraud, the TEB examiner will complete Form 11661, and forward it via secure e-mail to the TEB FFC for signature.

  3. See IRM 25.1.2.2, Fraud Development Procedures, for additional fraud development procedures and see IRM 25.1.2.3, Indicators of Fraud, for a list of the common indicators of fraud.

25.1.9.7.3  (09-09-2014)
Civil Fraud

  1. Following the completion of any criminal proceeding or a determination that criminal fraud is not an issue, if there are no other issues and if warranted, the TEB examiner will complete the development and write up the civil fraud penalty issue. The TEB FFC and/or the FTA will assist with the write-up if needed.

25.1.9.7.4  (09-09-2014)
Criminal Fraud

  1. When the TEB examiner establishes affirmative act(s) (firm indications) of fraud exist, he/she should suspend the examination, including all contact with the taxpayer and/or representative and discuss the examination with the TEB group manager, the TEB FFC and the FTA.

  2. If the FTA agrees that the case meets criminal criteria, the TEB examiner will prepare Form 2797. The FTA and the TEB FFC are available to assist with the preparation of Form 2797, if needed.

  3. The TEB examiner will submit the completed Form 2797 via secure e-mail to the TEB group manager. The TEB group manager will review and upon approval, forward to the TEB FFC, the FTA, and the FTA group manager for their review and approval of the referral. Upon approval, the FTA group manager will forward the Form 2797 to the appropriate CI field office for consideration and send a copy of the approved Form 2797 via secure e-mail to the TEB group manager and TEB FFC.

  4. The TEB examiner must suspend any examination and/or investigation of the targeted taxpayer/transaction participant, and/or any representative, relating to the specific transaction(s) under investigation at the time of submission of the Form 2797.

  5. See IRM 25.1.3.3, Referral Evaluation, through 25.1.3.5, Declined Criminal Referrals, for a description of the CI evaluation process. The TEB examiner will forward via secure e-mail, a copy of the accepted or declined referral to the TEB FFC.

  6. Civil fraud and/or other penalties should be considered when the criminal referral is declined by CI, the criminal investigation is discontinued, or upon completion of a prosecution.

  7. TEB will use existing internal procedures for asserting civil fraud and/or other penalties. The TEB ATAT Committee is responsible for approving the initiation of penalty investigations.

  8. If CI withdraws from an investigation, CI will notify the TEB Field Operations Manager and TEB FFC of the formal closing of the criminal case by use of Form 13308 and advise that civil actions, if any, should resume. See IRM 25.1.9.2(7) for these procedures.

25.1.9.7.5  (09-09-2014)
Request for a Cooperating Examiner

  1. A request for a cooperating examiner is made by the SAC, via Form 6544. The request is made to the TEB Field Operations Manager. The TEB Field Operations Manager will provide a copy of the Form 6544 to the TEB FFC.

25.1.9.7.6  (09-09-2014)
Case File Documentation

  1. Copies of Form 11661 and Form 2797 will be maintained by the TEB FFC through the completion of all civil and criminal actions.

25.1.9.8  (09-09-2014)
Fraud in Federal, State, and Local Governments (FSLG)

  1. Federal, State and Local Governments (FSLG) section of TE/GE is responsible for Federal tax administration, information reporting and compliance issues relative to the government entities in their role as a taxpayer/employer. FSLG is also responsible for ensuring compliance with and assisting in the administration of Federal Insurance Contributions Act (FICA) coverage agreements under the provisions of Section 218 of the Social Security Act. Procedural guidance on employment tax issues can be found in IRM 4.90, Federal, State and Local Governments (FSLG) and IRM 4.23, Employment Tax.

  2. See IRM 4.90.15, FSLG Fraud Procedures, for the procedures relating to fraud development, civil fraud, and criminal fraud.

Exhibit 25.1.9-1 
ATAT & Fraud Related Project Codes Compatible with Activity Code 155

Project Code Title Description
0428 ATAT Case Related ATAT specific case development
1550 Fraud Coordination, Case Specific Fraud Coordinators, Subject Matter Experts (SMEs), Case Specific
1551 Fraud Coordination, Non-Case Specific Fraud Coordinators, SMEs, Fraud Program, Non-Case specific
1552 Fraud Development - TE/GE Revenue Agents/Tax Law Specialists - Fraud Development, AIMS status 17/18 - Approved Form 11661 (fraud development) and/or Form 2797 (CI accepted pre CA assigned)
1553 Fraud Development, Non TE/GE Revenue Agents/Tax Law Specialists, Fraud Coordinators, SMEs - Fraud development, Non-TE/GE Taxpayer
1554 CI Assistance, Grand Jury Cooperating Agent Assistance to CI - Grand Jury
1555 CI Assistance, Administrative Cases Cooperating Agent Assistance to CI – Administrative Case
1556 Trial Assistance, Witness – Fraud Non-Cooperating Agent, Witness assistance - Fraud Case
1557 Trial Assistance, Witness – Non Fraud Non-Cooperating Agent, Witness assistance - Non-fraud Case
1558 International – Fraud Fraud Coordinators & Agent - Case specific
1559 International Fraud – Trial Assistance – Witness Witness Assistance Related – International
1560 International Non Fraud Trial Assistance - Witness Witness Assistance Non-Fraud – International
1561 JTTF Cooperating Agent Assistance - Joint Terrorism Task Force
1562 Manager – Fraud Related Activities – Case Specific Managers – Case specific
1563 Managers – Fraud related activities – non case specific Managers – Non-case specific time
1564 Reserved Reserved

Exhibit 25.1.9-2 
Example of How to Establish EP Examination Fraud Cases on WebETS

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.1.9-3 
Example of How to Establish EP Determination Fraud Case on WebETS

This image is too large to be displayed in the current screen. Please click the link to view the image.

Exhibit 25.1.9-4 
Summary of Fraud and Fraud Related Time Tracking

Summary of Fraud and Fraud Related Time Tracking
When is activity code 155 used?
  • Administrative Cases - As soon as civil returns are placed in AIMS status 17 (Fraud) or status 18 (Accepted by CI)

  • Non-Administrative Cases - As soon as a case assigned in response to Form 6544, Request for Cooperating Examiner/Revenue Officer, is accepted.

Agent Responsibilities
  • Contact Functional Fraud Coordinator for tracking number

  • Create new "operational" case(s) in WebETS

  • Record applicable time in WebETS for fraud activities

  • Keep group manager and Functional Fraud Coordinator apprised of fraud related activities

Group Manager Responsibilities
  • Advise Functional Fraud Coordinator of any Forms 6544 approved and the applicable assignment

  • Keep Functional Fraud Coordinator apprised of any status changes regarding any fraud or fraud related cases

  • Ensure Revenue Agents/Tax Law Specialists are properly recording their WebETS time using Activity Code 155 and the correct tracking number

  • Follow functional fraud suspense processes as appropriate

  • Use Activity Code 155 when working fraud related case projects with the proper project code

Functional Fraud Coordinator Responsibilities
  • Provide tracking numbers using the naming convention to Revenue Agents for use in WebETS and maintain a tracking number log

  • Reconcile WebETS information to tracking number log after receipt of monthly WebETS data from Functional WebETS Coordinator

  • Provide log and WebETS data to TE/GE Fraud Specialist/FIU Staff within 10 business days after monthly WebETS cycle end

  • Forward all approved Forms 11661 or accepted Forms 2797 to the TE/GE Fraud Specialist

  • Advise the Revenue Agent as to the appropriate WebETS line for charging time (depending on the nature of the case) if it is determined that fraud will no longer be pursued

  • Update the tracking number log to reflect that a case/return is no longer in AIMS status 17 or 18.

FIU Staff Responsibilities
  • Maintain the consolidated TE/GE Fraud Tracking System/Database

  • Roll up the functional fraud reports into a draft consolidated fraud report and submit to TE/GE Fraud Coordinator within 15 business days after monthly WebETS cycle end

  • Review Functional Fraud Coordinator reports

  • Submit cumulative monthly reports to TE/GE Compliance Issue Council (CIC)

TE/GE Fraud Specialist/Coordinator Responsibilities
  • Facilitate TE/GE functional contacts with the NFP, SB/SE and LB&I Fraud Coordinators and Fraud Technical Advisors, as needed

  • Facilitate and assist Functional Fraud Coordinators with Counsel and CI, as needed

  • Engage Functional Fraud Coordinators to discuss strategies and cases, when necessary

  • Share information with working groups, when appropriate

Functional WebETS Coordinator Responsibilities
  • Forward Activity Code 155 information to the Functional Fraud Coordinators cycle. This will allow the Fraud Coordinators to ensure the tracking number logs are accurate and agree with WebETS


More Internal Revenue Manual