5.20.7  Monitoring of IRC 7407 and 7408 Injunctions

Manual Transmittal

September 03, 2014

Purpose

(1) This transmits revised IRM 5.20.7, Abusive Tax Avoidance Transactions, Monitoring of IRC 7407 and 7408 Injunctions.

Material Changes

(1) IRM 5.20.7.1 added Introduction.

(2) IRM 5.20.7.2(1) updated IRM cite.

(3) IRM 5.20.7.2(4) updated link and IRM cite.

(4) IRM 5.20.7.3(2) updated link to Department of Justice website and provided additional guidance on obtaining injunction orders.

(5) IRM 5.20.7.3(7) added additional guidance to contact the Fraud Technical Advisor in egregious cases where the promoter/preparer is causing significant intentional harm to the tax system.

(6) IRM 5.20.7.3(3) added to provide guidance on obtaining the promoter/preparer penalty case file.

(7) IRM 5.20.7.4(1) updated from LMSB to LB&I.

(8) IRM 5.20.7.4(3) updated link.

(9) This revision will make minor grammatical corrections, update organization terms and/or titles, and correct cross references.

Effect on Other Documents

This material supersedes IRM 5.20.7, Monitoring of IRC 7407 & 7408 Injunctions, dated 7-23-2010.

Audience

The target audience is SB/SE Collection employees.

Effective Date

(09-03-2014)

Rocco A. Steco
Acting Director, Collection Policy
Small Business/Self-Employed

5.20.7.1  (09-03-2014)
Introduction

  1. This section provides guidance to field Collection employees on all aspects of working injunction cases from referral to monitoring.

5.20.7.2  (09-03-2014)
Collection Involvement and Monitoring of IRC 7407 and 7408 Injunctions

  1. IRC 7407, Action to Enjoin Tax Return Preparers, allows the government to seek an injunction against a preparer to prevent the preparer from engaging in certain practices. IRC 7408, Actions to Enjoin Specified Conduct Related to Tax Shelters and Reportable Transactions, allows the government to seek an injunction against a promoter of an abusive tax avoidance transaction to prevent the promoter from furthering a tax scheme promotion. (See IRM 20.1.6.3, Overview - Preparer, Promoter, Material Advisor, and Failure to Disclose Reportable Transaction Penalties). These Code sections allow the Service to bring civil action in district court against the promoters and preparers of an abusive tax avoidance transaction to enjoin them from further engaging in this conduct or behavior. Examiners must submit a statement of the facts and circumstances to the SB/SE Lead Development Center (LDC) requesting a review of the case and a determination whether an injunction investigation under IRC 7407 or 7408 is appropriate.

  2. Although no assessments are made for collection enforcement, revenue officers should be aware that these types of injunctions may also be referred in conjunction with an IRC 6700, Promoting Abusive Tax Shelters, etc., promoter penalty, or an IRC 6701, Penalties for Aiding and Abetting Understatement of Tax Liability, preparer penalty. (See IRM 5.20.8, Promoter/Preparer Investigations).

  3. Any IRC 6700 or IRC 6701 penalty assessment received in collection will be treated as a priority risk level 100 case and worked expeditiously. (See IRM 5.20.1.10 , Prioritization of ATAT Work).

  4. If during the course of a revenue officer’s investigation, it is discovered that the balance due or delinquent return investigation assigned may be subject to IRC 7407/7408 injunction procedures, a referral to the SB/SE LDC is warranted. See IRM 4.32.2.3.2, SB/SE Lead Development Center (SB/SE LDC); or submit a referral online. Procedures for making a promoter/preparer referral can be found on the Abusive Transactions and Technical Issues website at http://mysbse.web.irs.gov/AboutSBSE/Exam/at/ldc/default.aspx.

5.20.7.3  (09-03-2014)
Working an Enjoined Promoter/Preparer Case

  1. Any time a revenue officer is assigned a case where the promoter/preparer has been enjoined, the revenue officer should be alert to violations of the injunction order.

  2. In all cases, the revenue officer should secure a copy of the injunction order. The order will list specific actions the promoter/preparer is prohibited from doing. Most injunction orders and related press releases can be found at the Department of Justice (DOJ) Tax Division's website at http://www.justice.gov/tax/injunctions.htm, or on PACER. For injunctions not posted on DOJ's website, revenue officers can contact the Return Preparer Coordinators (RPC) who can obtain a copy of the injunction via the Return Preparer Database. Revenue officers should contact the designated coordinator in the revenue officer’s Area using the following link: http://mysbse.web.irs.gov/exam/tip/rp/contacts/12293.aspx.

  3. Revenue officers should conduct an Internet search to verify the promoter/preparer's website is no longer operational. For promoter injunctions, the revenue officer should obtain the promoter penalty case file. For preparer injunctions, the revenue officer should consider contacting the RPC to obtain the return preparer penalty case file and client list. The client list can provide collection leads as to whether or not the preparer/promoter is still doing business.

  4. A court order enjoining a promoter/preparer from certain activities has the effect of law and monitoring this compliance is important. Violations of a court order can result in civil or criminal contempt sanctions.

  5. A civil contempt sanction is designed to compel the promoter/preparer to comply with the injunction’s terms. A criminal contempt sanction is designed to punish the promoter/preparer for a past violation of the injunction.

  6. The court’s injunction order outlines required actions and any prohibited acts by the promoter/preparer. Subject to the specific requirements of the court order, examples of potential violations include:

    1. Failing to shut down a website or starting a new website,

    2. Failing to inform participants of the court action,

    3. Failing to terminate preparing tax returns,

    4. Continuing to conduct seminars or advertisements that promote any abusive promotion,

    5. Failing to provide a participant list to the IRS,

    6. Continuing to advise participants of the mechanics of an abusive tax promotion,

    7. Failing to comply with any portion of the court order,

    8. Any conduct or activity subject to penalties under
      IRC 6700, Promoting Abusive Tax Shelters, etc.,
      IRC 6701, Penalties for Aiding and Abetting Understatement of Tax Liability,
      IRC 6694, Understatement of Taxpayer's Liability by Tax Return Preparer, or
      IRC 6695, Other Assessable Penalties with Respect to the Preparation of Tax Returns for Other Persons, and
      IRC 6707, Failure to Furnish Information Regarding Reportable Transactions, and IRC 6708, Failure to Maintain Lists of Advisees with Respect to Reportable Transactions,

    9. Any acts resulting in the impairment or impeding the administration of the Internal Revenue Laws.

  7. If the promoter/preparer is found to be in violation of the injunction order, the revenue officer should prepare a contempt referral. In egregious cases where the promoter/preparer is causing significant intentional harm to the tax system, a referral to Criminal Investigation should be considered. Contact the local Fraud Technical Advisor (FTA) for assistance.

5.20.7.4  (09-03-2014)
Making a Contempt Referral

  1. The SB/SE LDC is responsible for monitoring compliance with injunction orders granted against SB/SE promoters and preparers. Office of Tax Shelter Analysis (OTSA) is responsible for monitoring compliance with injunction orders granted against Large Business and International (LB&I) promoters and preparers.

  2. IRS employees who learn of any new or continuing unlawful activity by an enjoined promoter/preparer must make a referral to the SB/SE LDC.

  3. The investigating revenue officer should complete the SB/SE LDC contempt referral form and email to *LDC. The referral form can be found on the Abusive Transactions and Technical Issues website at http://mysbse.web.irs.gov/AboutSBSE/Exam/at/ldc/referral/default.aspx. The SB/SE LDC is responsible for following up on contempt referrals and ensuring they are pursued in appropriate cases. If the contempt referral is on an LB&I promoter/preparer, the LDC will forward the referral to OTSA if appropriate.


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