25.1.14  Campus Examination Fraud Procedures

Manual Transmittal

June 19, 2013

Purpose

(1) This transmits revised IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures

Material Changes

(1) IRM 25.1.14.1(1) - Clarified that the FTA will assist with the development of potential fraud cases in the Campus Examination environment.

(2) IRM 25.1.14.1(2) - Clarified that the FTA will assist with the development of potential fraud cases and removed reference to the first phase of fraud development.

(3) IRM 25.1.14.1(3) - Updated the FTAs responsibilities to the campuses.

(4) IRM 25.1.14.2(2) - Clarified the second bullet.

(5) IRM 25.1.14.2(3) - Deleted reference to Austin Campus Examination function as the only designated site for referring cases to CI for criminal investigation consideration.

(6) IRM 25.1.14.2(4) - Added clarification that all campuses can refer cases to CI for criminal investigation consideration.

(7) IRM 25.1.14.3(1) - Clarified the role of the FFC.

(8) IRM 25.1.14.3(3) - Updated the role of the EFC.

(9) IRM 25.1.14.3(4) - Clarified that the CFC/EFC works with the FTA in developing potential fraud cases.

(10) IRM 25.1.14.4(1) - Clarified the process of preparing and submitting Form 13549.

(11) IRM 25.1.14.4(2)

  1. Added clarification if the FFC accepts a case as having fraud potential.

  2. Added clarification if the FFC declines a case as not having fraud potential.

(12) IRM 25.1.14.4(3) - Clarified the number of work days the CFC/EFC has to accept or decline a fraud referral.

  1. Added clarification if the CFC/EFC determines fraud development is warranted.

  2. Added clarification if the CFC/EFC declines a case for fraud development.

(13) IRM 25.1.14.4(4) - Clarified initial discussion between a CFC/EFC and the FTA when a CFC/EFC accepts a case for potential fraud development.

(14) IRM 25.1.14.4(5) - Added guidance for preparation of Form 11661 when the FTA concurs with the CFC/EFC that the indicators of fraud warrant development.

  1. Clarified guidance regarding follow up contact between the CFC/EFC and the FTA following the initial discussion and a determination to pursue development of fraud.

  2. Clarified the guidance that FTAs will provide to CFCs/EFCs for cases in "fraud development status" . Added note to clarify procedures when no activity on a lead occurs for a three month period.

(15) IRM 25.1.14.4(6) - Clarified procedures for SB/SE and W&I Campus fraud development actions.

(16) IRM 25.1.14.4(7) - Clarified procedures if firm indications of fraud are established within the campus environment and criminal criteria have been met.

(17) IRM 25.1.14.4(8) - Clarified procedures if firm indications of fraud cannot be established.

(18) IRM 25.1.14.4(9) - Clarified procedures where indicators of fraud do not meet criminal criteria.

(19) IRM 25.1.14.4(10) - Added note to clarify procedures if Area Counsel declines the civil fraud penalty, the fraudulent failure to file penalty and/or the 10-year EITC ban.

(20) IRM 25.1.14.5(1) - Updated guidance on the 10-year EITC ban consideration.

(21) IRM 25.1.14.5(2) - Added to provide recent guidance from the Office of Chief Counsel pertaining to the definition of an "underpayment" .

(22) IRM 25.1.14.6 - Updated title from "Administrative Responsibilities" to "FTA Administrative Support to Campus Fraud Program" .

(23) IRM 25.1.14.6(1) - Clarified FTA support in assisting with Campus fraud training.

(24) IRM 25.1.14.7(2) - Deleted reference to Retention Standards.

Effect on Other Documents

This material supersedes IRM 25.1.14, dated September 7, 2010.

Audience

Criminal Investigation (CI), Small Business/Self-Employed (SB/SE) and Wage and Investment (W&I)

Effective Date

(06-19-2013)

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

25.1.14.1  (06-19-2013)
Overview

  1. The purpose of this chapter is to provide an overview of the roles and responsibilities of the Fraud Technical Advisor (FTA) in assisting with the development of potential fraud cases in the Campus Examination environment. There are ten IRS Campuses - five SB/SE campuses are located in Brookhaven, Cincinnati, Memphis, Ogden and Philadelphia; and five W&I campuses are located in Andover, Atlanta, Austin, Fresno and Kansas City.

  2. The goal of the Campus Examination Fraud Program is to ensure SB/SE and W&I Examination and Automated Underreporter (AUR) employees independently identify indicators of fraud. FTAs act as technical resources to Campus Examination Operations in the identification and development of potential fraud cases; and as liaisons with Collection and Examination Field Operations, and Criminal Investigation (CI).

  3. The FTAs' responsibilities to the campuses are defined, in part, by the needs of each campus and their respective functions and program assignments. Further, the FTA must adapt to the functional procedures, which may vary between the campuses.

  4. The procedures prescribed in IRM 4.19.10.4, Fraud Referrals, and those contained in IRM 25.1.1 through 25.1.7, Fraud Handbook, should be followed unless otherwise specified in this section.

  5. In this section, the following specific topics will be addressed:

    • Background

    • Campus Examination Contacts

    • Campus Examination Procedures and Fraud Development

    • The 10-Year Earned Income Tax Credit (EITC) Ban Consideration

    • Administrative Support to Campus Fraud Program

    • Records Retention

25.1.14.2  (06-19-2013)
Background

  1. In FY 2006, the SB/SE Brookhaven Campus was designated as the centralized site for developing fraud, asserting the civil fraud penalty/fraudulent failure to file (FFTF) penalty, imposing the 10-year EITC ban and coordinating with the Payment Compliance Program on receiving referrals of Examination issues. Additionally, returns classified as "frivolous" were consolidated in the Frivolous Return Program at the Ogden Campus. When appropriate, cases are developed for fraud and penalties are asserted at that campus, or referred to Field Operations.

  2. In FY 2007, the SB/SE Campus Fraud Program achieved end-to-end accountability in all its campuses for:

    • Identification of fraud indicators

    • Development of potential fraud cases

    • Assertion of the civil fraud/FFTF penalties

    • Imposition of the 10-year EITC ban

    • Consideration for criminal fraud referral

  3. In FY 2009, the W&I Austin Campus Examination function was designated as the centralized site for developing fraud, asserting the civil fraud penalty and imposing the 10-year EITC ban.

  4. All campuses refer cases to CI for criminal investigation consideration with FTA approval. Fraud referrals accepted in the Austin Examination function, however, are limited to those originating from the Examination and AUR functions. Cases with complex issues, inappropriate for development within the W&I campuses, are transferred to the SB/SE Area offices or SB/SE campuses for development.

25.1.14.3  (06-19-2013)
Campus Examination Contacts

  1. Functional Fraud Coordinator (FFC)

    The FFC is a fraud specialist assigned to a function or operation within a campus. The FFC is responsible for reviewing Forms 13549, Campus Fraud Lead Sheet, for potential fraud issues, conducting research to establish a pattern of non-compliance and, when appropriate, referring cases to the Campus Fraud Coordinator or Examination Fraud Coordinator (CFC/EFC). See IRM 4.19.10.4.3, Responsibilities of the Functional Fraud Coordinator. Several FFCs are assigned to functions or operations within SB/SE campuses; an FFC is assigned to the AUR operation in four of the five W&I campuses.

  2. Campus Fraud Coordinator (CFC)

    The CFC is a fraud liaison assigned to each SB/SE campus and is the primary point of contact with the FTA assigned to that campus.

  3. Examination Fraud Coordinator (EFC)

    The EFC is a fraud liaison assigned to each W&I Examination function and is the primary point of contact with the FTA assigned to the campus. The FFC is included by the FTA in reviews with the EFC of the potential AUR fraud referrals. The EFC's role is to provide insights and feedback.

  4. The CFC/EFC collaborates with the FTA in developing potential fraud cases. The CFC/EFC meets with the FTA during quarterly campus visits by the FTA to discuss procedural changes; identify potential issues/trends; deliver training; present topics at meetings; etc. When needed, the FTA schedules visits to discuss specific cases.

25.1.14.4  (06-19-2013)
Campus Examination Procedures and Fraud Development

  1. When a Campus Examiner identifies indicators of fraud, those indicators will be discussed with the Team Leader/Manager. If the Team Leader/Manager agrees that indicators of fraud are present, the Examiner will prepare Form 13549 and submit the case to the Team Leader/Manager for approval. When Form 13549 is approved, it is sent via secure e-mail to the FFC, or directly to the CFC/EFC (where an FFC position is not present).

  2. The FFC has 10 work days to review the case for fraud potential and either accept it (forward it to the CFC/EFC for fraud development consideration) or decline it (return the case to the Examiner through the Team Leader/Manager). The FFC will conduct a preliminary screening of the case, including a review of the prior and subsequent years' tax returns for pattern consideration. All actions taken by the FFC will be noted on the Form 13549.

    1. If the FFC accepts a case as having fraud potential, the case is forwarded, via secure e-mail, to the CFC/EFC for consideration of fraud development.

    2. If the FFC declines a case as not having fraud potential, the FFC must explain in writing the decision in Section VI of Form 13549, Explanation for Declination, and return a copy of the completed form to the Campus Examiner through the Team Leader/Manager.

  3. The CFC/EFC has 21 work days from receipt of a case from the FFC to accept or decline it for potential fraud development. The CFC/EFC reviews the case and completes additional research including a review of the prior and subsequent year returns for pattern consideration, if that research was not conducted by the FFC.

    1. If the CFC/EFC determines fraud development is warranted, the FTA is contacted for review of the case file and to discuss the indicators of fraud.

    2. If the case is declined for fraud development, the CFC/EFC must provide a written explanation for the declination in Section VI of Form 13549.

  4. When a CFC/EFC accepts a case for potential fraud development, the first discussion with the FTA is conducted face-to-face, when possible. During the initial analysis, the case information and evidence; internal and external research; and Form 13549 are reviewed by the FTA with the CFC/EFC for the FTA's determination regarding whether the indicators of fraud warrant development.

  5. If the FTA concurs that the indicators of fraud warrant development, the CFC/EFC prepares Form 11661, Fraud Development Recommendation – Examination, and forwards, via secure e-mail, the form to the CFC/EFC Group Manager (GM) for approval. Upon approval, the CFC/EFC GM forwards, via secure e-mail, the form to the FTA for concurrence. All CFC/EFC actions must be noted on Form 13549 and a copy of the completed form must be returned, via secure e-mail, to the Campus Examiner through the Team Leader/Manager.

    1. Following the initial discussion and a determination to pursue development of the fraud indicators, phone or e-mail contact between the CFC/EFC and the FTA occurs at least every 10 work days to ensure progress on the lead. When needed, the FTA can schedule additional face-to-face meetings.

    2. CFCs/EFCs receive guidance from the FTA who reviews cases in "fraud development status" to determine if additional audit steps and follow-up actions are necessary.

    Note:

    When no activity on a lead occurs for a three-month period, the FTA schedules a meeting with the FTA Group Manager (GM) and the campus management counterpart to discuss the reason(s) for the lack of activity and remedial actions.

  6. All cases require the CFC/EFC to discuss with the FTA whether the fraud development actions will occur at the campus or, when the case cannot be fully developed in the campus environment, it should be transferred to the Field Operations.

    SB/SE Campuses

    1. If fraud indicators will be developed within the SB/SE campus, the FTA recommends placing the case in "fraud development status" (Status 17) by signing the appropriate line on Form 11661. The FTA will return, via secure e-mail, the signed Form 11661 to the CFC and CFC GM with an agreed Plan of Action, identifying the audit steps needed to establish affirmative acts (firm indications) of fraud. The Plan of Action will be provided in writing using the preferred method (i.e., page 2 of Form 11661,Plan of Action ; Form 11660-SC,Campus Fraud Development – Plan of Action; Form 11660, Fraud Development Checksheet; or a memorandum). A copy of the Form 11661 is also forwarded, via secure e-mail, to the FTA GM.

    2. If fraud indicators will be transferred to Field Operations for development, the FTA will facilitate by:

    1. Consulting with the FTA located in the receiving Area office to determine if local factors impact the case determination.

    2. Documenting the recommendation by signing the appropriate line on Form 11661 indicating "Transfer for initial fraud development" , and check the "Field" box.

    3. Returning, via secure e-mail, the completed Form 11661 to the CFC/EFC and CFC/EFC GM; copying the receiving FTA and FTA GM.

    Upon receipt of the signed recommendation to transfer a case to Field Operations for fraud development, the CFC and CFC GM will ensure appropriate actions are taken. The return module(s), however, should not be updated to AIMS Status Code 17.

    W&I Campuses

    When a case originates from the Austin Examination or AUR function, the case is developed within the Austin Campus. If a W&I Examination or the AUR case originates from outside the Austin Campus, the FTA will sign Form 11661 indicating "Transfer for initial fraud development" , check the "Austin Campus " box and return it, via secure e-mail, to the originating EFC and EFC GM so action to transfer the case on AIMS to Austin Examination can be taken.

    The Austin EFC and EFC GM will receive, by secure e-mail, the FTA's recommendation for placing a case in "fraud development status" with the appropriate line on Form 11661 signed. The Austin EFC and EFC GM will also receive from the FTA an agreed Plan of Action, identifying the audit steps needed to establish affirmative acts (firm indications) of fraud. The Plan of Action will be in writing using the preferred method (see IRM 25.1.14.4(6)(a)). A copy of the Form 11661 and Plan of Action will be sent via secure e-mail, by the FTA to the FTA GM.

    If the W&I case requires transfer to the Field Operations for fraud development, see IRM 25.1.14.4(6)(b) for FTA, CFC and CFC GM actions.

  7. If firm indications of fraud are established within the campus and criminal criteria have been met, the FTA considers a referral to CI for criminal investigation consideration. The CFC/EFC may request the FTA's assistance with preparing Form 2797, Referral Report of Potential Criminal Fraud Cases. See IRM 25.1.3, Criminal Referrals, for procedures on processing Form 2797.

  8. If firm indications of fraud cannot be established, the CFC/EFC and FTA will discuss the reason(s) why firm indicators of fraud weren't established. The FTA will also discuss other penalties to consider, including the 2-year EITC ban (if applicable) for reckless or intentional disregard of the EITC rules. The FTA will confirm the recommendation by signing Form 11661 indicating "Return to status 12 or other prior status code" and will return, via secure e-mail, the form to the CFC/EFC and the CFC/EFC GM. A copy of the form must also be sent to the FTA GM. For W&I Examination and AUR cases transferred to Austin Examination from another campus, the Austin FTA will notify the referring FTA of the case declination with a written explanation via Form 11661, prior to requesting the Austin EFC to assign the case to Correspondence (Corr) Examination.

  9. Where indicators of fraud do not meet criminal criteria, the CFC/EFC may receive a recommendation by the FTA to assert the civil fraud penalty, the FFTF penalty and/or impose the 10-year EITC ban. The FTA will have signed Form 11661 indicating "Assert CFP/FFTFP, impose 10-year EITC ban" and will return, via secure e-mail, the form to the CFC/EFC and the CFC/EFC GM. A copy of the form must also be sent to the FTA GM. The CFC/EFC may request the FTA to:

    • Assist with computing the penalty; and in writing the penalty; and/or the 10-year EITC ban recommendation.

    • Review the penalty section of the SB/SE case file and the penalty / 10-year ban portion of the 30-day letter and 90-day notice language for accuracy and adequate support.

    • For W&I recommendations, assist in drafting the recommendation, checking accuracy, and coordinating with Counsel in preparing the 30-day letter and 90-day notice language.

  10. The FTA's case involvement concludes when one of the following recommendations is made:

    • Transfer the case to the Field for initial fraud development

    • Return the case to its prior status code, or send the case to Corr Examination

    • Transfer to the Field for additional fraud development

    • Final review of the civil fraud penalty, the FFTF penalty and/or the 10-year EITC ban recommendation is completed

    Note:

    If Area Counsel declines the civil fraud penalty, the FFTF penalty and/or the 10-year EITC ban, the FTA will discuss the case and Counsel declination with the CFC/EFC to determine if further fraud development is warranted.

25.1.14.5  (06-19-2013)
10-Year Earned Income Tax Credit (EITC) Ban Consideration

  1. Internal Revenue Code (IRC) section 32(k) provides that no EITC shall be allowed for a period of 10 years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit was due to fraud. The 10-year ban on EITC will be imposed if the established affirmative acts of fraud are directly related to the claimed EITC. A determination that the EITC adjustment was due to fraud must be made in the Notice of Deficiency in order to impose the 10-year ban.

  2. The recommendation to impose the 10-year EITC ban is independent of whether the taxpayer's reporting results in an "underpayment" , per Code section 6664, on which the civil fraud penalty is based. For a discussion of the civil fraud (and accuracy-related) penalties, see IRM 20.1.5.2, Common Features of Accuracy-Related and Civil Fraud Penalties; and IRM 20.1.5.14, IRC 6663, Civil Fraud Penalty. The Office of Chief Counsel issued written guidance (2012) interpreting the "underpayment" definition to mean:

    When a taxpayer claims a refundable credit, such as the EITC, for which he is ineligible and the Service does not pay the taxpayer a refund (or approve a carryforward credit) of such tax credit, this is not a section 6664 "underpayment" . Thus, no civil fraud penalty is appropriate in this situation. The 10-year EITC ban falls under a different Internal Revenue Code section and should, nonetheless, be considered for assertion.

    On behalf of the CFC/EFC, the FTA will contact the servicing Area Counsel office for further information and guidance on this issue.

25.1.14.6  (06-19-2013)
FTA Administrative Support to Campus Fraud Program

  1. The FTAs provide administrative support to the Campus Fraud Program by:

    • Participating in Campus Examination teleconferences

    • Assisting with Campus reports

    • Assisting with Campus fraud training

    • Recommending fraud recognition

  2. Campus Examination teleconferences maintain the health of the Campus Examination Fraud Program by identifying barriers and resolving emerging issues. The teleconferences are attended by the CFCs, EFCs, FFCs, FTAs, and Headquarters Analysts. The teleconferences are scheduled by the Examination Fraud Headquarters Analyst. As part of their participation in the teleconferences, FTAs identify procedural changes, potential issues/trends, and training needs.

  3. Campus Examination may identify the need for special reports. While the FTA must follow the reporting requirements for the fraud database, the FTA will respond to the expressed need.

  4. The CFC/EFC and/or FTA may identify a need to increase fraud awareness. The FTA is available to assist with developing and delivering training to Campus Examination and AUR employees. The FTA should be available to assist the CFC/EFC with training.

  5. The CFC/EFC may recommend to the FTA recognition of employees' achievements that contribute to and promote the Fraud Program. The FTA is also responsible for recognizing noteworthy accomplishments. All recommendations for recognition are forwarded to the FTA GM.

  6. Periodically, campuses will hold Compliance Council and other meetings, both formal and informal. FTAs attend these meetings to contribute to enhancing the Campus Examination Fraud Program.

25.1.14.7  (06-19-2013)
Records Retention

  1. This sub-section applies to the records retention requirements for all National Fraud Program (NFP) personnel (RA FTAs, RO FTAs, FTA Group Managers and program analysts, etc.). The requirements for individuals other than those associated with Campus Examination Reporting Compliance are for reference only.

  2. FTA Case Files and Reports (See Document 12990, Records and Information Management Control Schedules, Schedule 1.15.28, Item 6(a) National Fraud Program Case Files ):http://publish.no.irs.gov/cat12.cgi?request=CAT2&itemtyp=D&itemb=12990&items=

    1. There are numerous records created, obtained and maintained by FTAs during the course of case development. FTAs are allowed to maintain these records while they are providing assistance on a case. Prior to the compliance employee’s case closing from the group, the FTA must provide original FTA case file records, such as Form 11661, Form 11661-A, Form 2797, written plans of action, e-mails, notes from the FTA and miscellaneous other documents directly related to such case to the compliance employee to be included in the original case file. Once the FTA’s involvement is concluded with a case, the FTA must immediately forward his/her case file, which will only include copies, to the FTA Group Manager for archiving. The file forwarded to the FTA Group Manager must be in paper format (e.g. no electronic files).

        •The FTA Group Manager is required to maintain the FTA case files (in paper format) for a period of three years after closure. A closed case for this purpose consists of the later of 1) the conclusion of FTA involvement, 2) the conclusion of the related criminal case, or 3) the conclusion of any civil litigation related to the fraud issues.

    2. Other records maintained, including those maintained by the FTA Group Manager and program analysts, including copies of reports and analysis of various program data, are required to be destroyed at the later of 1) within 180 days of receipt, or 2) when no longer needed for current operations.

    3. The FTA Group Manager must establish a system to monitor and maintain the archived records. To meet the retention requirements, the FTA Group Manager may need to access ERCS or ICS to determine the conclusion date of the case. Maintaining these files may be a good task to delegate to the group secretary.

    4. When the retention period has been met for Form 4502, Form 3081, travel documentation, FTA case files and reports, etc., the FTA Group Manager must complete the Form 11671, Certificate of Records Disposal. Form 11671 is completed after the files are eligible for destruction and should be sent by the FTA Group Manager to the Area Record Manager for Retention for approval. Once approval is received, the FTA Group Manager may destroy the records using the normal shred process within the FTA Group Manager’s office. Additional information may be found on the Records Management website athttp://mysbse.web.irs.gov/mngmywkpl/operationssupport/recordsmgmt/default.aspx.


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