Part 25. Special Topics

Chapter 1. Fraud Handbook

Section 14. Campus Examination Fraud Procedures

25.1.14  Campus Examination Fraud Procedures

25.1.14.1  (09-07-2010)
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 fraud in the Campus Examination environment. There are ten IRS Campuses across the country, five are SB/SE Campuses and five are W&I Campuses. The SB/SE Campuses are located in Brookhaven, Cincinnati, Memphis, Ogden and Philadelphia. The W&I Campuses are located in Andover, Atlanta, Austin, Fresno and Kansas City.

  2. The goal of the Campus Examination Fraud Program is for all SB/SE and W&I Exam and Automated Under Reporter (AUR) employees to independently identify and assist in the development of potential fraud cases. The first phase of fraud development is the identification of potential fraud with supportive research. The FTAs act as technical resources for Campus Examination Operations and serve as liaisons between Campus and Field Operations in Collection and Examination, as well as Criminal Investigation (CI), to assist in the identification and development of potential fraud.

  3. The responsibilities for the FTAs are not all inclusive with respect to each of the ten campuses and functions within each campus. In other words, procedures may vary in regard to some of the functions in one or more campuses.

  4. The procedures prescribed in IRM 4.19.10.4, Fraud Referrals, and IRM 25.1.1 through 25.1.7 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 Exam Procedures and Fraud Development,

    • Ten-Year Earned Income Tax Credit (EITC) Ban Consideration,

    • Administrative Responsibilities, and

    • Records Retention.

25.1.14.2  (09-07-2010)
Background

  1. In FY 2006, the Brookhaven Campus was designated as the centralized SB/SE Campus site to develop fraud, assert the civil fraud penalty/fraudulent failure to file (FFTF) penalty, impose the 10-year EITC ban and coordinate with Payment Compliance in order to receive referrals of examination issues. Additionally, returns classified as "frivolous" were placed in the Frivolous Return Program at the Ogden Campus. The cases were then developed for fraud and penalties were asserted at that Campus.

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

    • Identification of fraud indicators

    • Development of fraud

    • Assertion of the civil fraud/fraudulent failure to file penalties

    • Imposition of the 10-year EITC ban

    • Criminal fraud referral consideration

  3. In FY 2009, the Exam function in the Austin Campus was designated as the centralized W&I site to develop fraud, assert the civil fraud penalty, impose the 10-year EITC ban and refer cases to CI for criminal investigation consideration. Fraud referrals accepted in the Austin Exam function are limited to those identified within the Exam and AUR functions. Cases deemed too complex for the W&I campus environment are transferred to the SB/SE Area offices or SB/SE Campuses for development.

25.1.14.3  (09-07-2010)
Campus Examination Contacts

  1. Functional Fraud Coordinator (FFC)

    The Functional Fraud Coordinator (FFC) is a fraud liaison assigned to a specific function or operation within the Campus. The FFC is responsible for reviewing the Forms 13549, Campus Fraud Lead Sheet, and conducting research used to establish a pattern of non-compliance. W&I has an AUR FFC in four of the five W&I Campuses. SB/SE has several FFCs within each SB/SE Campus.

  2. Campus Fraud Coordinator (CFC)

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

  3. Exam Fraud Coordinator (EFC)

    The EFC is a fraud liaison assigned to each W&I Exam function. The EFC is the main point of contact with the FTA assigned to that campus.

  4. The CFC/EFC works with the FTA in developing fraud. The CFC/EFC has 21 days to accept or decline, a fraud lead (Form 13549). Therefore, the FTA should contact the CFC/EFC, via phone or E-mail, every 10 workdays, at a minimum, to determine the need (if any) for a campus visit. The FTA must visit the campus when the need arises. Whenever possible, the first contact to discuss and review cases with the CFC/EFC should be face-to-face. The FTAs will need to determine how often subsequent visits to the campus are necessary. At a minimum, the FTAs should plan a face-to-face meeting quarterly. If there has been no fraud development activity within the past three months, the meeting should include the FTA GM and the campus management counterpart to discuss the reason(s) for lack of fraud activity and solution(s) for same. In addition to reviewing cases, the FTAs will review with the CFC/EFC any changes in procedures, identify potential issues/trends, assist with training, attend meetings, etc.

25.1.14.4  (09-07-2010)
Campus Exam Procedures and Fraud Development

  1. When a campus examiner identifies indicators of fraud he/she will discuss the indicators with the team leader/manager. If the team leader/manager concurs, the examiner will prepare Form 13549, Campus Fraud Lead Sheet , and submit the case to the FFC, or directly to the CFC/EFC if an FFC does not exist.

  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 complete a preliminary screening of the case, including a review of the prior and subsequent year returns for pattern consideration. If the FFC determines there is fraud potential he/she will send the case to the CFC/EFC for consideration. All actions taken by the FFC will be notated on Form 13549.

    Note:

    If the case is declined for fraud development, the FFC must provide a written explanation for the declination in Section VI, Explanation for Declination, of Form 13549 and return a copy of the completed form to the campus examiner through the team leader/manager.

  3. Upon receiving the case, the CFC/EFC has 21 days to accept or decline a fraud lead. The CFC/EFC will review the case and complete any additional research, including a review of the prior and subsequent year returns for pattern consideration, if the research was not conducted by an FFC. If the CFC/EFC determines fraud development is warranted, he/she will contact the FTA to review the case file and discuss the indicators of fraud. If the FTA concurs that the indicators of fraud warrant fraud development, the CFC/EFC will prepare Form 11661, Fraud Development Recommendation – Examination, and forward the form, via Microsoft Outlook/Secured Messaging (electronically) to the FTA for concurrence. All actions taken by the CFC/EFC will be notated on Form 13549 and a copy of the completed form must be returned to the campus examiner through the team leader/manager.

    Note:

    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. During the case analysis, the FTAs will review the information gathered and prepared by the Campus employees; including Form 13549, case evidence and additional internal and external research to determine if the indicators of fraud warrant fraud development. When reviewing these cases, the FTA should consider the same factors of potential fraud development as in Field Examination. If the case will be transferred to the field for fraud development, the FTA may need to consult with the FTA located in the area receiving the fraud development referral to determine if local factors would impact the case determination.

  5. If the FTA concurs that fraud development is warranted, the FTA should discuss with the CFC/EFC whether the fraud development should be conducted at the Campus or if the case will need to be transferred to the Field.

    SB/SE Campuses:

    • If fraud will be developed at the campus, the FTA will recommend that the case be placed in "fraud development status" (status 17) by completing Form 11661 and electronically return it to the CFC with an agreed upon Plan of Action that identifies the audit steps needed to establish affirmative acts (firm indications) of fraud. The Plan of Action must be 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 should also be electronically forwarded to the FTA Group Manager (FTA GM) via secure E-mail.

    • If the case needs to be transferred to the Field for fraud development, the FTA will complete Form 11661 indicating "Transfer for initial fraud development" , check the "field" box and electronically return it to the CFC so action can be taken to transfer the case to the field. A copy of the Form 11661 should also be forwarded to the FTA GM. The returns should not be updated to AIMS Status Code 17. When the FTA recommends a case be transferred to the field, the FTA should notify the local FTA in the receiving area that a potential fraud case is being transferred to his/her area. This can be accomplished by forwarding a copy of the completed Form 11661 via secured E-mail to the local FTA or FTA’s GM.

    W&I Campuses:

    • If the case originated in the Austin Exam or AUR function, the case will be developed at the Austin Campus. The FTA will recommend that the case be placed in "fraud development status" (status by completing Form 11661 and electronically return it to the EFC in Austin with an agreed upon Plan of Action that identifies the audit steps needed to establish affirmative acts (firm indications) of fraud. The Plan of Action must be in writing using the preferred method (i.e., page 2 of Form 11661, Form 11660-SC, Form 11660, or a memorandum). A copy of the Form 11661 should also be forwarded to the FTA GM via secure E-mail.

    • If the case originated in the W&I Exam or AUR function other than the Austin Campus, the case will be developed at the Austin campus. The FTA will complete Form 11661 indicating "Transfer for initial fraud development" , check the "Austin Campus " box and electronically return it to the originating EFC so action can be taken to transfer the case on the Audit Information Management System (AIMS) to Austin Exam for fraud development consideration.

    • If the case needs to be transferred to the Field for fraud development, the FTA will complete Form 11661 indicating "Transfer for initial fraud development" , check the "field" box and electronically return it to the CFC so action can be taken to transfer the case to the field. A copy of the Form 11661 should also be forwarded to the FTA Group Manager. The returns should not be updated to AIMS Status Code 17.

      Note:

      When the FTA recommends a case be transferred to the field, the FTA should notify the local FTA in the receiving area that a potential fraud case is being transferred to his/her area. This can be accomplished by forwarding a copy of the Form 11661 via secured E-mail to the local FTA or FTA’s GM.

    If fraud development is not warranted, the FTA will discuss the reason(s) why fraud development is not warranted and other penalties to consider with the CFC/EFC. The FTA may suggest additional audit steps, if any, that may identify potential indicators of fraud.

  6. Follow-up Review

    The FTA will conduct a follow-up review of cases in "fraud development status" to determine if:

    1. Additional audit steps are necessary. The FTA will document the audit steps and provide them to the CFC/EFC for follow-up action. If it is determined the case cannot be fully developed in the Campus environment, the FTA will recommend the case be transferred to the field for further fraud development by completing Form 11661 indicating " Transfer to the field for further fraud development" and electronically return the form to the CFC/EFC and send a copy to the FTA GM.

    2. Firm indications of fraud have been established. The FTA will consider:

      • Referring the case to CI for criminal investigation consideration, if criminal criteria have been met. The FTA may be asked to assist with the preparation of Form 2797, Referral Report of Potential Criminal Fraud Cases . See IRM 25.1.3, Criminal Referrals, for procedures on processing Form 2797.

      • Assertion of the civil fraud penalty and/or the FFTF penalty and imposition of the 10-year Earned Income Tax Credit (EITC) ban (if applicable). If the FTA determines the penalties/ban apply, he/she will complete Form 11661 indicating "Assert CFP/FFTFP, impose 10-year EITC ban" , electronically return the form to the CFC/EFC and send a copy to the FTA group manager. If the penalties are asserted and/or the 10-year ban is proposed, the FTA may be asked to assist with computation and write-up of the penalty and/or the 10-year ban. The FTA will review the penalty section of the case file and the penalty/10-year ban portion of the 30- day letter for accuracy and adequate support. The FTA may also be asked to review the 90-day notice language, if applicable. For W&I, the FTA will also assist/coordinate with Counsel in preparing the 30-day and 90-day language, if applicable, to the taxpayer.

    3. Firm indications of fraud cannot be established. The FTA will discuss the reason(s) with the CFC/EFC and other penalties to consider. The FTA will recommend the case be returned to the prior status code by completing Form 11661 indicating "Return to status 12 or other prior status code" and electronically return the form to the CFC/EFC and send a copy to the FTA Group Manager. In W&I, if the case was transferred to Austin Exam from another Campus Exam function, the FTA in Austin will notify the referring FTA with a written explanation for the declination of the fraud case via Form 11661, prior to requesting the EFC in Austin to place the case in Correspondence (Corr) Exam .

    The FTA involvement in a case is concluded when one of the following case action recommendations occur:

    • Transfer to the field for initial fraud development,

    • Return to the prior status code,

    • Transfer to the field for additional fraud development, or

    • Final review of the civil fraud penalty, the fraudulent failure to file penalty and/or the 10-year EITC ban is complete.

25.1.14.5  (09-07-2010)
Ten-Year Earned Income Tax Credit (EITC) Ban Consideration

  1. Internal Revenue Code section 32(k) provides that no EITC shall be allowed for a period of ten 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 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 FTA will recommend imposition of the 10-year EITC ban by completing Form 11661 indicating "Assert CFP/FFTFP, impose 10-year EITC Ban" and electronically return the form to the CFC/EFC and send a copy to the FTA group manager. If the 10-year EITC ban is recommended, the FTA will assist with the determination of fraud and write-up as needed. The FTA should also assist with the write-up and/or review of the 30-day letter and Notice of Deficiency language that pertains to the 10-year ban.

25.1.14.6  (09-07-2010)
Administrative Responsibilities

  1. The FTAs have administrative responsibilities pertaining to Campus Examination including, but not limited to:

    • Participation in Campus Examination teleconferences,

    • Assisting with Campus reports,

    • Assisting with Campus Examination and AUR training, and

    • Recommending fraud recognition.

  2. The FTAs are expected to participate in periodic campus examination teleconferences scheduled by the responsible examination fraud headquarter analyst. The purpose of these calls is to maintain the health of the Campus Examination Fraud Program, to identify barriers and to resolve emerging issues. The teleconferences are attended by the CFCs, EFCs, FFCs, FTAs, and impacted headquarter program analysts responsible for the Campus Examination Fraud Program. As part of their participation in the teleconferences, FTAs should elevate any changes in procedures, identify potential issues/trends, determine training needs, etc. to the fraud headquarters program analysts.

  3. The FTA should follow the reporting requirements for the fraud database. Furthermore, the FTA may be requested to respond to special reporting needs for Campus Examination.

  4. To increase fraud awareness, the FTA may be expected to develop and deliver training to Campus Examination and AUR employees. The FTA should make himself/herself available to assist the CFC/EFC with training. Likewise, to recognize achievements or accomplishments and promote the Fraud Program, FTAs are encouraged to make recommendations for employee recognition to their FTA Group Manager.

  5. At times, Campuses will have Compliance Council meetings and other meetings that are both formal and informal. It is recommended the FTAs attend these meetings in order to further enhance the Campus Examination Fraud Program.

25.1.14.7  (09-07-2010)
Records Retention

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

  2. Retention Standards are in IRM 1.15, Records and Information Management. Some of the more common retention standards that the FTA GM will encounter:

    1. Retention Period of Four Years :

        •Form 6850, Performance Appraisal and Retention Standard Rating;
        •Form 6774, Receipt for Critical Job Elements and Fair and Equitable treatment of Taxpayers Retention Standard ;
        •Critical Job Elements and Standards;
        •Performance Documentation; and
        •Workload review, case file reviews, job visitations, progress reviews, performance reviews.

      Note:

      Items removed from an employee’s Employee Personnel File (EPF) due to the retention period being met should be returned to the employee for disposition.

    2. Retention Period of Two Years:

        • Form 4502, Examination Technical Time Report ,and
        • Form 3081, Employee Time Report

    3. Retention Period of Six Years: :

        • Travel Vouchers and supporting documentation (statements, receipts and other reports).

  3. FTA Case Files and Reports (IRM 1.15.28, item 6a, Case Files):

    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 all original records 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 GM for archiving. The file forwarded to the FTA GM must be in paper format (e.g. no electronic files).

        •The FTA GM 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 by the FTA GM and Analysts, including copies of reports and analysis of various program Form 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 GM should establish a system to monitor and maintain the archived records. To meet the retention requirements, the FTA GM 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 GM should 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 GM to the Area Record Manager for Retention for approval. Once approval is received, the FTA GM may destroy the records using the normal shred process within the FTA GM’s office. Additional information may be found on the Records Management website.


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