5.20.7  Monitoring of IRC 7407 and 7408 Injunctions

5.20.7.1  (09-21-2005)
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, Action to Enjoin Promoters of Abusive Tax Shelters, etc., 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 20.1.6.5, Penalty for Promoting Abusive Tax Shelters--IRC Section 6700). 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). These types of penalties are assessed against individuals who actively and willingly participated in abusive schemes for personal monetary gain.

  3. Any IRC 6700 or IRC 6701 penalty assessment received in collection will be treated as a priority 100 case and worked expeditiously. (See IRM 5.20.1.7, 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, The Abusive Tax Avoidance Transactions (ATAT) Process; or submit a referral online. Procedures for making a promoter/preparer referral can be found on the Abusive Transactions website at http://abusiveshelter.web.irs.gov/LDC/LDC.htm.

5.20.7.2  (07-23-2010)
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. Injunction orders and related press releases can be found at the Department of Justice Tax Division's website at http://www.usdoj.gov/tax/injunctions.htm, or on PACER.

  3. A court order enjoining a promoter 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.

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

  5. The Court’s injunction order outlines required actions and any prohibited acts by the promoter. 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 § 6111, Disclosure of Reportable Transactions, and IRC § 6112, Material Advisors of Reportable Transactions Must Keep Lists of Advisees, etc., subject to penalty per 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.

  6. If the promoter/preparer is found to be in violation of the injunction order, the revenue officer should prepare a contempt referral.

5.20.7.3  (07-23-2010)
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 LMSB promoters and preparers.

  2. IRS employees who learn of any new or continuing unlawful activity by an enjoined promoter 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 website at http://abusiveshelter.web.irs.gov/LDC/LDC%20Referral%20Form.doc . The SB/SE LDC is responsible for forwarding the information to Department of Justice who will determine the appropriate legal action to take. If the contempt referral is on an LMSB promoter, the LDC will forward the referral to OTSA if appropriate.


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