This section outlines guidelines which apply to LMSB.

The detection and deterrence of fraud is every compliance employee's responsibility and should be a top priority when discovered. Active involvement of the team manager is essential to the success of a fraud referral. When an examiner suspects a potentially fraudulent situation, the employee will discuss the case, at the earliest possible convenience, with his/her manager. SB/SE Compliance established groups of fraud technical advisor's (FTA's) to assist compliance personnel in all IRS operating divisions, in identifying and developing fraud. A list of the FTA's and their managers can be found on the National Fraud Program web site at http://sbse.web.irs.gov/FR/Fraud/personnel.htm .

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

(4) Any questions regarding LMSB fraud procedures should be referred to the Planning, Quality, Analysis and Support (PQAS) – National Fraud Program Analyst. Additional information is available on the LMSB – PQAS fraud web site at http://lmsb.irs.gov/hq/pqa/Post-filing/fraud_LMSB_home.asp

Refer to IRM 25.1.2 (Recognizing and Developing Fraud) when indicators of fraud are discovered during an examination. Team managers should contact the local FTA's when indicators of fraud warrant fraud development. The FTA manager will assign an FTA to assist the LMSB team.

The fraud development process is an important event in the examination and must be timely documented in the case file once the potential for fraud exists. Form 11661, Fraud Development Recommendation - Examination, must be completed in order to document the FTA involvement as well as the decision to update the case on ERCS to Status 17,Fraud Development . The team manager must also forward a copy of Form 11661, via Microsoft Outlook/Secured Messaging to the PQAS - National Fraud Program Analyst.

The examiner must request the original return(s) or proof of electronic filing when the case is updated to status 17, if the examiner is not in possession of either.

The FTA will recommend that a case be returned to ERCS status 12, via Form 11661, if it is later determined that fraud potential no longer exists.

LMSB Counsel has established a counter-fraud working group to monitor fraud issues and to ensure consistency in fraud matters. The counter-fraud working group consists of experienced Counsel in each LMSB Division Counsel Area. LMSB attorneys should coordinate all civil fraud matters and criminal fraud referrals with their appropriate Area coordinator. LMSB attorneys will work with the teams and the FTAs to review and provide assistance on all criminal fraud referrals and assertions of the civil fraud penalty and the fraudulent failure to file penalty. Except as required in IRM 25.1.10.8, the timing of advice or involvement of LMSB Counsel will be left to the discretion of the team manager; however, early intervention is recommended.

When affirmative acts (firm indications) of fraud are established and criminal criteria is met, Form 2797,Referral Report of Potential Criminal Fraud Cases,should be prepared and electronically forwarded to CI for criminal investigation consideration. IRM 25.1.3 provides information relative to completing and processing Form 2797.

Referrals of privately held entities or individuals must be signed by the examiner and team manager. Referrals related to publicly traded entities must additionally be signed by the territory manager prior to submission.

All criminal fraud referrals must be electronically routed through the FTA manager for review, concurrence and forwarding to the appropriate CI field office. The LMSB team manager must also forward a second electronic copy of the referral to the PQAS - National Fraud Program analyst.

Within 10 workdays of the receipt of the referral by the evaluating field office, CI will contact the referring (team) manager and the FTA to schedule and conduct an initial conference and to obtain additional information (see IRM 25.1.3.3 and 25.1.3.4(3) for a list of additional information. Within 30 workdays of the receipt of the referral by the evaluating field office, the parties will meet again at a disposition conference to discuss CI’s decision to accept or decline the referral. CI will provide feedback to LMSB as to their decision. If accepted, CI will follow the guidance contained in IRM 25.1.3.4. If declined, CI will follow the guidance contained in IRM 25.1.3.5.

Referred cases should remain in ERCS status 17 until CI makes a decision to accept or decline the referral. If the referral is accepted, CI will complete the Form 2797 and return it to the LMSB team manager. Typically, the request for the cooperating revenue agent to assist CI will be included at that time. The team manager must then immediately update the case to ERCS status 18. If the referral is declined and the civil fraud penalty is being pursued; the case will remain in ERCS status 17. Otherwise, the case will return to ERCS status 12, via Form 11661.

Quarterly conferences (also called Four-way conferences because the special agent (SA), supervisory special agent (SSA), examiner and team manager are required to attend) are critical to the effective management of joint investigations. These conferences are required for administrative as well as grand jury cases, unless waived by both LMSB and CI. The CI Supervisory Special Agent (SSA) should initiate contact with the LMSB team manager to schedule the required meetings.

Form 6084, Quarterly Joint Work Plan and Conference Memorandum , must be completed to document the meeting. The form should include the following:

During each conference, the LMSB team should review all of the tax returns currently being worked by CI to assure that AIMS controls have been established and the civil statutes are being monitored.

During a joint investigation involving multiple taxpayers and/or multiple taxes (e.g., individuals, employment tax, excise tax, gift tax, partnerships, corporations, estates and trusts), CI may determine that criminal aspects are not present with respect to certain taxpayers and/or tax returns. With CI concurrence, the examination team may resume civil activity on tax returns that would not adversely impact a criminal proceeding.

Refer to IRM 25.1.4.3.4 and Policy Statement 4-26 (Formerly P-4-84) for a complete discussion of this topic.

Assertion of the civil fraud penalty and/or the fraudulent failure to file penalty no longer requires a referral to CI. The determination of these penalties is a shared responsibility of both the examiner and his/her team manager. The FTA and FTA manager are available for assistance. If a SNOD is required, LMSB Counsel must approve the civil fraud penalty prior to its issuance.

Potential third party examinations that have indications of fraud should be secured for examination by the LMSB team. If the identified third party is located outside the teams geographical area, or it is determined that the examination should be assigned to another operating division, prepare Form 5346, Examination Information Report, and forward it to Attn: LMSB Info Item Classifier, Ogden Service Center – LMSB PSP – MS 4912 for review and assignment.