25.1.11  Campus Collection Fraud Procedures

Manual Transmittal

May 21, 2013

Purpose

(1) This transmits a revised IRM Section 25.1.11, Campus Collection fraud procedures, for Campus Collection Employees.

Material Changes

(1) Material changes to this IRM are listed in the table below:

IRM Description of Change
25.1.11.2 and 25.1.11.13 Fraud Website Link Updated.
25.1.11.10 Added reminder for CFFC to provide feedback to the originator.
25.1.11.16 The process clarified for sending a fraud lead to a Campus Fraud Coordinator. IRM reference updated.
25.1.11.17 Section renamed for clarity. New procedures for transferring cases to Campus Exam.

(2) Editorial changes made through out the IRM.

Effect on Other Documents

This material supersedes IRM 25.1.11, dated December 27, 2011.

Audience

Campus Collection Employees

Effective Date

(05-21-2013)

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

25.1.11.1  (05-21-2013)
Overview

  1. The primary objective of the National Fraud Program is to foster voluntary compliance through the recommendation of a criminal investigation and/or civil penalties against taxpayers who evade the reporting or payment of taxes known to be due and owing. The purpose of this IRM is to communicate fraud referral procedures to Campus Collection Employees.

  2. The efforts of Criminal Investigation are directed at the portion of American taxpayers who willfully and intentionally violate their known legal duty of voluntarily filing income tax returns and/or paying the correct amount of taxes (income, employment, excise, etc.). These individuals pose a serious threat to tax administration and the American economy.

  3. The objective of the Campus Collection Fraud Program is to:

    • identify cases with potential fraud,

    • gather evidence and other supporting investigative information,

    • discuss cases with Campus Fraud Functional Coordinators to assess fraud potential, and

    • refer potential fraud cases to Collection, Field Exam, and/or Campus Exam for further investigation.

25.1.11.2  (05-21-2013)
Responsibility of the Campus Collection Employee

  1. Fraud cases begin with Campus Collection employees and their ability to recognize the affirmative indicators and acts of fraud by taxpayers through regular case processing.

  2. The detection and deterrence of fraud is every compliance employee's responsibility and is a top priority when discovered. It is essential to identify and report any potentially fraudulent activities. Any questions regarding Campus Collection fraud procedures should be referred to your respective Collection Functional Fraud Coordinator (CFFC). A list of CFFCs is located on the Fraud website at http://sbseservicewide.web.irs.gov/Fraud/FraudCont/6.aspx.

25.1.11.3  (05-21-2013)
Role of the Collection Functional Fraud Coordinators

  1. The Collection Functional Fraud Coordinators (CFFC) will act as a resource to assist in potential fraud investigations for Campus Collection employees, review potential fraud development cases within their function, and determine whether the cases should be investigated further for potential fraud.

  2. The CFFC will also act as a liaison to ensure the completion of appropriate fraud paperwork, work with the Fraud Technical Advisors (FTAs), and when applicable cross-functional coordinators and Site Revenue Officers (Site RO), to process potential fraud development cases, and initiate the case on the Fraud Referral Tracking Report.

25.1.11.4  (05-21-2013)
Developing Potential Fraud Cases

  1. Generally, the Service must illustrate that there is (1) tax due, and (2) underpayment of tax due, to demonstrate intent to evade tax or willful and material submission of false statements or false documents in connection with an application and/or return. Review the criminal criteria set forth in IRM 25.1.3.1.1 for additional guidance.

  2. Avoidance of tax is not a criminal offense. Taxpayers have the right to reduce or avoid their taxes by legitimate methods. Tax evasion and tax avoidance are different. Tax evasion is the illegal act of not reporting income, underreporting income, or providing false information to the IRS. Tax avoidance is a legal means used to lower tax liability by arranging financial affairs to the best advantage and by claiming rightful deductions, credits, and adjustments. Avoidance does not involve concealment or misrepresentation, but works within the legal parameters to shape events to reduce tax. Fraud may exist when a taxpayer willfully attempts to illegally underreport taxes, not pay taxes, or both.

  3. Common indicators of fraud within Campus Collection involve the following issues:

    Expense/Deductions Related: Substantial personal expenditures that are more than available resources, or deducted as business expenses.

    Example:

    No apparent explanation is available for how the taxpayer is living each month with a high negative income.

    Income Related: Either bank deposits from unexplained sources substantially exceed reported income, or concealment of bank accounts, brokerage accounts, and other property.

    Example:

    Either the income or other revenue reported by payers to the IRS do not account for the amount of bank deposits, or there are no bank accounts or investments reported by the taxpayer, although payers report interest to the taxpayer.

    Conduct of the Taxpayer: Patterns of consistent failure to file or to report income, although substantial amounts of taxable income were received.

    Example:

    Payers report substantial income to the IRS for the taxpayer, however, no returns are filed for those years.

    Methods of Concealment: Assets are placed in another's name or there is a close relationship between parties to a transfer, rendering a tax not due, not payable, or substantially reduced.

    Example:

    No real property reported, but lenders report mortgage interest paid by the taxpayer to the IRS, or taxpayer maintains control of assets or income but claims not to be the owner.

  4. Refer to IRM 25.1.2.3, Indicators of Fraud, for additional information on fraud indicators.

  5. When a potential fraud indicator is found, fraud development must be considered, even though further consideration may find that a referral or transfer of the case is not warranted. The CFFC should assist with assessing the fraud development potential and determine an appropriate plan of action.

  6. Further development of the fraud indicators is necessary to document firm indications (affirmative acts) for successful fraud cases.

25.1.11.5  (05-21-2013)
Interviewing the Taxpayer

  1. Campus Collection employees should interview the taxpayer similar to normal case processing to gather information on his/her ability to pay and on the filing of delinquent returns.

    1. DO NOT SOLICIT TAX RETURNS. If returns are submitted, they should be accepted. Ask questions that could help determine the potential liability. For example, marital status, dependents, estimated income and expenses, etc. are all types of information used to determine the actual tax loss to the government;

    2. DO NOT VOLUNTEER ADVICE to the taxpayer concerning any course of action he/she should follow, and

    3. DO NOT DISCUSS tax liabilities, penalties, fraud, or referral possibilities with the taxpayer.

  2. When interviewing the taxpayer with potential fraud indicators, it is critical for the employee to secure the taxpayer's explanations for any discrepancies. If possible, review the taxpayers explanations with him or her and get a written signature that the summary is fair and accurate.

  3. Suspend any attempts to resolve the case. If the taxpayer initiates an installment agreement on a potential fraud case, advise the taxpayer the case is subject to review and to make voluntary payments in the interim. Convey to the taxpayer that the acceptance of these interim payments by the IRS should not be construed as acceptance of the proposed installment agreement. The IRS will send written notification regarding the acceptance or rejection of the request for installment agreement.

25.1.11.6  (05-21-2013)
Case Documentation

  1. Documentation is critical for the development of fraud referrals. Maintain complete and accurate case notes that include each of the following:

    1. All case actions taken;

    2. All documents received, if any;

    3. All contacts adequately documented (e.g., changes to entity information were recognized/updated); and

    4. All conversations with the taxpayer, representative, return preparer, and/or third parties recorded (e.g., specify the discussions and responses). Review the responses with the taxpayer, if possible.

  2. Date stamp copies of documents received from taxpayers but do not otherwise write on the documents. If any documents are obtained from third parties, the source of the documents should be identified. For example, attach the envelope to the document or make a notation on the back of the document.

  3. Do not indicate that the taxpayer has committed fraud, just documents the facts uncovered during the investigation.

25.1.11.7  (05-21-2013)
Discussion with the Collection Functional Fraud Coordinator

  1. When initial indications of fraud are discovered, the Campus Collection employee should initiate a discussion with their Collection Functional Fraud Coordinator (CFFC).

  2. The CFFC will review the case and determine whether the case should be investigated further for potential fraud. The specific fraud indicators will be checked on the Fraud Indicator Check Sheet (see Exhibit 25.1.11-1).

  3. Upon concurrence of the potential fraud, the Campus Collection employee should suspend case resolution and proceed with their potential fraud investigation.

    Note:

    SB/SE cases should also be discussed with the Collection Campus Fraud Coordinator (Site RO) to review the fraud potential. See IRM 5.19 for specific assignment controls.

  4. The CFFC will document the Fraud Referral Summary Check Sheet (see Exhibit 25.1.11-2) to approve the potential fraud investigation.

25.1.11.8  (05-21-2013)
Potential Fraud Investigation

  1. After the concurrence of the CFFC, the Campus Collection employee can begin the potential fraud investigation within the normal scope of their duties. Note: Site ROcompletes the development of the Compliance Services Collection Operations (CSCO) cases.

  2. The Campus Collection employee will secure IDRS research prints including SUMRY, TXMOD, ENMOD, BMFOLI, IMFOLI, AMDIS, and IRP documents.

    Note:

    Only IRP Summary is required if more than 20 documents exist.

  3. Campus Collection employees will retain copies of original or amended returns secured.

  4. Asset/locator research should be obtained if it is within the normal process and authority of the workgroup.

  5. A minimum of three phone contacts should be attempted, if no contact is made with the taxpayer. The taxpayer interview is especially important if records are inadequate, nonexistent or false.

  6. For cases with only unfiled return modules, Form 3449Referral Reportis also required, noting in block 7 that fraud indications are present.

25.1.11.9  (05-21-2013)
Case Evidence

  1. Original documents are the best evidence. Always strive to view or obtain original documents. If you have any doubts about the authenticity of a document, you should firmly request that the original be produced.

  2. Never write on or alter original documents in any way. Work papers are secondary evidence. Make a copy to use if you want to make notes on the face of the document.

  3. Documents and correspondence obtained from the taxpayer or other third parties should be retained as potential evidence.

  4. The following is a listing of some examples of possible fraud indicators; however, this list is not to be considered all inclusive:

    Suspicious or unusual patterns on tax returns:

    • Identical names on different returns

    • Numerous or similar post office box addresses

    • Suspicious looking or similar hand written documents

    • Similarities on multiple returns, e.g., refund amount, withholding amount, credits, losses, dependents, etc.

    • Often mail includes several returns in the same envelope

    False W-2s:

    • Excessive withholding in comparison to wages

    • Typewritten

    • Inconsistent typing format

    • "Applied for" annotated in lieu of EIN

    • EIN/company name mismatch

    • Computerized W-2s in different format

    • Erasures or white outs

    • Substitute W-2

    • Sloppy typing

    • Upper and lower case typing

    • Missing information such as EIN, SSN, FICA, address, State EIN, etc.

    Inconsistent 1040 Income and Deductions:

    • Questionable dependent information, e.g., relationship, dates of birth, dates of death

    • Occupation in relation to income

    • Refund amounts

    • Age and income inconsistencies

    • Excessive itemized deductions (50% or more) in comparison to AGI

    • Unusual deductions for the taxpayer's occupation

    • Multiple returns with similar deductions

      Schedule C Discrepancies:

    • Business income with little or no expenses

    • Unreported self-employment tax

    • EITC claimed

    • Multiple returns with similar characteristics

    • Unrealistic occupation

    Questionable Amended Returns:

    • Analyze these forms using the same techniques recommended for W-2s, W-2Gs, 1099s, and 1040 returns

    Unscrupulous Return Preparer Patterns:

    • Same/similar deductions, credits, expenses, etc., on multiple returns causing refunds, including the following:

    • Same filing status (IMF)

    • Same occupation (IMF)

    • Same child care provider (IMF)

    • Excessive deductions/losses

    • Different businesses at the same address

      Note:

      the above indicators should be seen on a number of returns prepared by the same representative in order to effectively establish a pattern

25.1.11.10  (05-21-2013)
Preparation of Case for Potential Fraud Evaluation

  1. Once the Campus Collection employee (or Site RO for CSCO cases) has completed their investigation and gathered the evidence, the employee will complete the Fraud Referral Summary Check Sheet (see Exhibit 25.1.11-2).

  2. The referring employee will meet with the Collection Functional Fraud Coordinator (CFFC) to review the case.

  3. For W&I, the CFFC will contact the FTA directly, if the CFFC agrees that the case has fraud potential. For SB/SE (except for CSCO), the CFFC will send the case file and supporting documents to the Collection Campus Fraud Coordinator (Site RO). If the Site RO determines that the case has fraud potential, the Site RO will contact the FTA. The FTA will evaluate whether the case has sufficient information to refer directly to CI.

  4. If the case has fraud potential but needs further development, the FTA will recommend that the case be transferred to Field Collection or Exam to continue the investigation. If the case does not have criminal fraud potential, the FTA will consider whether civil fraud should be pursued through Campus or Field Exam.

25.1.11.11  (05-21-2013)
Referrals to Criminal Investigation

  1. When firm indicators of fraud are present, a referral to CI will be completed with the concurrence of the FTA.

  2. All criminal referrals must be routed through the FTA Group Manager for review, concurrence, and forwarding to CI. Refer to your functional chapter of IRM 5.19 for referral procedures.

25.1.11.12  (05-21-2013)
CI Referral Evaluation

  1. CI will screen incoming referrals to determine if they meet established criminal criteria and identify any barriers to prosecution. If the referral does not meet the criminal criteria, or if CI has identified barriers to prosecution, the referral will be returned to Campus Collection via the FTA Group Manager. If the referral meets the criminal criteria and supports CI's workplan, and if there are no identified barriers to it, the referral will be forwarded to the appropriate CI Field Office for evaluation.

  2. Within 10 work days of the receipt of the referral by the evaluating Field Office, CI will contact the Campus Functional Fraud Coordinator (CFFC) to schedule and conduct an initial conference. Within 30 work days 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 Campus Collection regarding the decision. If the referral is accepted, follow the guidance in your functional chapters of IRM 5.19 to close the case. If declined, the FTA may recommend pursuing civil fraud penalties in some cases. Otherwise, Campus Collection will resume normal case processing to include alternative enforcement actions such as routing frivolous returns or adjusting collection determinations based on available information. Feedback to the employee should be included with the returned evaluation.

25.1.11.13  (05-21-2013)
Transfers to Field Collection

  1. Once the FTA agrees that the case has criminal fraud potential, Form 11661-C, Fraud Development Recommendation - Campus Collection, must be approved.

  2. Upon approval of Form 11661-C, the Collection Functional Fraud Coordinator (CFFC) in W&I or the Collection Campus Fraud Coordinator (Site RO) in SB/SE should contact the Collection Fraud Policy Analyst for potential transfer to Field Collection. See the http://sbseservicewide.web.irs.gov/Fraud/FraudCont/28.aspx , for the current Collection Fraud Analyst contact.

  3. The assembled case file including the Fraud Indicator Check Sheet (see Exhibit 25.1.11-1), Fraud Referral Summary Check Sheet (see Exhibit 25.1.11-2), and all other supporting documentation (all available items listed on the Fraud Referral Summary Check Sheet must be included in the file) should be sent to the Collection Fraud Analyst using Form 3210, Document Transmittal. You must send the file by express mail, certified mail, or traceable courier.

  4. The case should be suspended according to procedures in your functional chapter of IRM 5.19 with a 60-day follow up.

  5. Upon approval of the transfer to Field Collection, the CFFC will TSIGN the case to the appropriate Field Collection group as indicated by the Collection Fraud Analyst. The eight-digit RO assignment number would include the appropriate Area Office/Territory Office designation followed by one of the following:

    • 6401 - CSCO, TP Request Contact - no correspondence

    • 6501 - ACS, TP Request Contact - no correspondence

    • 6466 - CSCO, TP Request Contact - correspondence

    • 6566 - ACS, TP Request Contact - correspondence

  6. ICS will assign the sub code 601 for IMF, 602 for BMF, and 603 for NMF cases. These temporary sub codes will enable Field Collection to assign the cases for further development.

  7. The Collection Fraud Policy Analyst will send the approved case file to the Field Group Manager for assignment. Field Collection will work the case as a potential fraud development case in accordance with IRM 25.1.8.

25.1.11.14  (05-21-2013)
OIC Fraud Investigation to Field Collection

  1. Upon concurrence of the Campus Functional Fraud Coordinator (CFFC) in W&I or the Collection Campus Fraud Coordinator (Site RO) in SB/SE, and the FTA, potentially fraudulent Centralize Offer In Compromise (COIC) cases should be prepared and sent to Field Collection groups for further investigation.

  2. The CFFC or the Site RO and Collection FTA will complete the Form 11661-C. When firm indications of fraud are present, a referral to CI will be completed with the concurrence of the FTA (see IRM 25.1.11.12 on CI Referral Evaluation).

  3. After approval of the Form 11661-C, the COIC case referral will be transferred to the Field Collection group nearest the taxpayers, issued as an outgoing OI on ICS (sub code 106) to be assigned to the Field Collection Group per the ICS parameter tables. Assign the case on AOIC to xxxx9998.

  4. Retain the OIC case file within COIC. Send copies of the Form 656, however all other documents sent with the OI can be originals. DO NOT WRITE ON ORIGINAL DOCUMENTS. Retain a copy of all documents sent for the offer file.

  5. The Field RO should contact their local FTA to determine a plan of action.

  6. If the local FTA of the RO assigned the courtesy investigation (OI) denotes concurrence on Form 11661-C, the CFFC will return the offer following the procedures in IRM 5.8.4.

  7. If the local FTA of the RO does not concur, the CFFC will assign the offer investigation on AOIC to the group manager of the originating Offer Examiner.

25.1.11.15  (05-21-2013)
Potential Civil Fraud Development Cases

  1. Recommendations for asserting the civil fraud penalty should be carefully reviewed to establish that the evidence supports the assertion.

  2. Fraud must be proven by clear and convincing evidence, and the statutory notice asserting the fraud penalty must be reviewed by Area Counsel.

25.1.11.16  (05-21-2013)
Transfers to SB/SE Campus Exam

  1. When cases have criminal fraud potential relating only to unfiled returns or have civil fraud potential, the cases will be directed to Campus Examination for transfer to Field Examination for further development or sent to Campus Examination for the assertion of the civil fraud penalty.

  2. Upon concurrence of the Campus Collection Functional Fraud Coordinator (CFFC) and if applicable, Collection Campus Fraud Coordinator (Site RO), send the fraud lead using the Form 13549 and the corresponding documentation to your local Exam Campus Fraud Coordinator.

  3. The case should be suspended according to procedures in your functional chapters of IRM 5.19 for follow up in 60 days.

  4. Campus Exam will make a determination to accept or decline a fraud lead within 21 days of receipt in accordance with IRM 4.19.10.4.5Responsibilities of the Campus Fraud Coordinator (CFC).

  5. If the lead is declined, the reason for the declination will be provided to the employee and returned to the initiator through the initiator's manager. Campus manager and then Campus Collection will resume normal case processing. If the Campus Exam Fraud Coordinator accepts the fraud lead for further development of the fraud issue, case resolution will be suspended awaiting the assertion of the penalty. Refer to your respective functional chapter of IRM 5.19 for procedures.

25.1.11.17  (05-21-2013)
Transfers for W&I Campus Exam

  1. When Collection Campus cases have criminal fraud potential relating only to unfiled returns with high income or have civil fraud potential within W&I, the Collection FTA will discuss the case with the corresponding Campus Exam FTA for possible transfer to Field Examination for further development or to Campus Examination for the assertion of the civil fraud penalty. If appropriate, the case information will be provided to the Exam FC for consideration.

  2. The case should be suspended by Campus Collection according to procedures in your functional chapters of IRM 5.19 for follow up in 60 days.

  3. The Exam FC will follow IRM 4.19.10.4Responsibilities of the Exam Fraud Coordinator (EFC) W&I onlyto determine if the case can be accepted/transferred

  4. If the case is declined by Campus Exam FTA for further development, the reason for the declination will be provided to the employee and returned to the initiator through the initiator's manager. Campus Collection will resume normal case processing. In some instances, the initiator and initiator's manager will be notified about a decision to assign the case for field investigation for strictly the audit potential. Refer to your respective functional chapter of IRM 5.19 for procedures.

Exhibit 25.1.11-1 
Fraud Indicator Check Sheet

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Exhibit 25.1.11-2 
Fraud Referral Summary Check Sheet

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