This program involves claims on Federal income tax returns prepared by unscrupulous return preparers who knowingly claim excessive deductions and exemptions on returns prepared for clients. The clients may or may not have knowledge of the excessive deductions and exemptions claimed.

These preparers may have one or more of the following characteristics:

Investigations in this group originate from a variety of sources, such as:

If a return preparer investigation involves attorneys, CPAs or enrolled agents, the Office of Professional Responsibility (OPR) is to be notified regarding the misconduct as soon as practical without compromising the criminal investigation or prosecution (see IRM 9.5.13, Civil Considerations).

If information is developed which involves allegations of employee misconduct or an attempt to corrupt an employee, CI personnel are required to immediately report the matter to the nearest Treasury Inspector General for Tax Administration (TIGTA) office. The Treasury Inspector General for Tax Administration’s office will be responsible for providing the information to OPR.

Criminal Investigation is an active participant in national projects aimed at identifying and prosecuting the most flagrant frivolous filers/non-filers. These projects include individuals who object or refuse to file returns, pay income taxes and/or withhold employment taxes.

Criminal Investigation pursues the most egregious, high profile, high impact frivolous filers/non-filers. Areas to consider when numbering an investigation are:

Criminal Investigation is also active in the development of criteria for identifying potential fraud referrals from the Repeat Non-filers Project. This initiative examines the specific market segments of repeat non-filers and establishes a tracking system to better evaluate subsequent compliance efforts.

In every frivolous filer/non-filer investigation, it is important to determine if the subject has corresponded with the IRS and what response, if any, they received. The following actions should be taken:

If frivolous correspondence is received subsequent to the initiation of a criminal investigation and the frivolous correspondence unit of disclosure has not previously responded, it is the field office’s decision as to whether a response is appropriate. Criminal Tax Counsel should be contacted when drafting responses to frivolous correspondence.

Per IRS Restructuring and Reform Act of 1998 (RRA 98) Section 3707, officers and employees of the IRS are prohibited from utilizing designations that might stigmatize an individual.

The criminal provisions relating to bankruptcy fraud were enacted to preserve honest administration in bankruptcy proceedings and ensure the distribution to creditors of as much of the bankrupt's estate as possible. As IRS may be a major creditor in a bankruptcy proceeding, field offices are authorized to use bankruptcy fraud statutes (18 USC §1952, Concealment of Assets, and 18 USC §157, Bankruptcy Fraud) to investigate tax crimes involving bankruptcy. There are special disclosure provisions for a bankruptcy investigation, (see IRM 11.3.2, Disclosure to Persons with a Material Interest).

The goals of the bankruptcy fraud program are to:

Preferably, bankruptcy fraud will be charged in conjunction with violations of the tax, money laundering, or currency statutes within CI's statutory jurisdiction. In instances where prosecution of these offenses is not practicable, prosecution can be recommended for bankruptcy fraud alone.

Bankruptcy fraud prosecutions will be considered tax-related offenses and are subject to review by CT Counsel and DOJ, Tax Division.

Criminal Investigation's compliance effort in financial institution fraud is designed to address criminal violations involving fraud relative to banks, savings and loan associations, credit unions, and other financial institutions such as check-cashing businesses, stockbrokers, and thrifts. Criminal tax, money laundering and currency investigations make major contributions to the Federal government's effort to combat the various fraudulent schemes being committed against financial institutions. For CI, these investigations focus on unreported income or the illegal laundering of income obtained by violators operating inside and outside the financial institution.

Criminal Investigation is a member of the Interagency Bank Fraud Working Group (IBFWG). This group is comprised of regulatory and law enforcement agencies that either regulate financial institutions or investigate frauds committed against these institutions. This group also seeks to improve the coordination and exchange of information between agencies involved in the investigation and prosecution of financial institution fraud cases.

See IRM 1.2.2, Delegation Order 158 and Delegation Order 143 for authority to initiate investigations of financial institutions.

Entitlement is a legal right to benefits, income, or property, which may not be abridged without due process. In some instances, in order to establish the entitlement, citizenship is not required, only residency in the United States. Various Federal agencies manage entitlement programs, which may be administered through corresponding or related state agencies. The respective Federal agencies have been empowered through legislation to establish rules and regulations concerning the methodology and procedures for setting qualifying and/or quantifying eligibility standards in order to provide recipients economic assistance or relief with financial hardships.

The applicant bears the burden of proving his/her entitlement to a subsidy. The applicant must usually comply with any procedural restrictions or qualifications. The award of assistance is not discretionary. It is a matter of entitlement once the applicant has demonstrated his/her eligibility for economic subsidy or assistance. Accordingly, proof of entitlement to an economic benefit does not include proving the validity of the doctrines or beliefs of the applicant.

Most Federal agencies have their own Office of Inspector General (OIG), which oversees and investigates civil misuse and criminal abuse of their respective entitlement programs. Criminal Investigation's involvement in entitlement fraud is based on fraudulent undue economic enrichment from these programs. Tax and/or money laundering charges may be applicable. Criminal Investigation may investigate these economic crimes with or without the respective OIG's assistance. The respective agency's OIG can provide valuable information regarding their entitlement program requirements and qualifications.

A few of the larger, non-health care, entitlement programs are listed below:

The cost of health care, especially Medicare and Medicaid, has focused attention on the fraud and abuse taking place in the health care industry. Many health care insurers operate independently without compatible data processing systems. This limits cooperative efforts among insurers and contributes to the problem of health care fraud. So, a fraudulent scheme discovered in one jurisdiction may well continue to operate undetected in other jurisdictions.

While most health care fraud is investigated by the Federal Bureau of Investigation (FBI), Health and Human Services, and the US Postal Service as mail fraud violations, CI frequently investigates them as income tax or money laundering violations.

Headquarters keeps apprised of changes in the health care industry and of significant investigations through participation in the National Health Care Anti-Fraud Association and various fraud working groups. At the field office level, many investigations are developed through participation in the DOJ mandated Health Care Task Forces.

Traditionally, processing health care claims and disbursing funds to health care providers is cumbersome and paper intensive. Innovative methods to process and pay claims electronically to reduce costs and increase productivity at the Federal, state, and private insurance levels have facilitated fraud, making it difficult for Federal officials to detect.

During the course of an investigation involving health care, patient records are often sought by special agents. While there is no recognized privilege in this area, the physician-patient privilege must be addressed. This also applies to patient records for psychotherapy-related matters. The privilege is determined on a case-by-case basis, depending on the judicial district and circuit involved. Criminal Tax Counsel advice should be sought when patient records are to be requested.

The use of the money laundering and forfeiture statutes in health care fraud prosecutions presents unique issues, because health care fraud investigations often involve health care providers that conduct on a substantial amount of legitimate business.

In such investigations, the legitimate and illegitimate funds are often deposited into the same account. While it is permissible to charge a transaction where proceeds from a specified unlawful activity have been commingled with legitimate funds (18 USC §1956 (a)(1)), special agents should consult with CT Counsel. Special agents do not need to trace the origin of all funds deposited into a bank account to determine exactly which funds were used for what transaction. However, every effort should be made to trace the flow of illegal funds in financial transactions as closely as possible.

The Asset Forfeiture Money Laundering Section of the Criminal Division, DOJ, guideline for charging a 18 USC §1956 violation is that more than 50 percent of the money in the commingled account is Specified Unlawful Activity (SUA) proceeds. If less than 50 percent of the money in the account is SUA proceeds, then care should be exercised in charging a 18 USC §1956 violation. In such investigations, the special agent should make an effort to carefully trace the flow of the SUA proceeds in the proposed money laundering transactions.

The Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191, 110 Stat. 1936, contains a definition of "federal health care offense" in 18 USC §24 and provides for criminal forfeiture under 18 USC §982 for violations of (and conspiracies to commit) such health care fraud offenses. Civil recovery of health care fraud proceeds must generally be accomplished under the money laundering forfeiture statute, 18 USC §981(a)(1)(A).

Criminal Investigation's Insurance Fraud Program addresses criminal tax and money laundering violations relative to insurance claims and other frauds perpetrated against insurance companies (exclusive of medical or health care fraud investigations.) Specifically, investigations in this program involve property or casualty insurance, staged or caused accident insurance claims, reinsurance, premium diversion (including Multiple Employer Welfare Arrangements), and worker's compensation insurance.

The McCarran-Ferguson Act of 1945 reserves regulation of the insurance industry to the states. As a result, the Federal oversight role of the insurance industry is limited. Regulation of solvency requirements; licensing of insurance companies, agents and brokers; setting policy forms and rates; resolving consumer complaints; and imposing administrative sanctions are just some of the responsibilities of the state authority in the insurance industry. These are generally handled by a state insurance commissioner or department that may have limited resources or lack jurisdiction to effectively confront and prosecute some of the sophisticated fraudulent schemes that have multi-state or international off-shore operations. There have been reports by Congress, private organizations, and industry groups that over the last few years insurance company insolvencies are a growing threat to the health of the industry and that fraud is a contributing factor.

As there are essentially no Federal agencies or laws regulating the insurance industry, CI plays a role in the investigation of tax and money laundering violations associated with insurance fraud. The primary Federal statutes available to prosecutors to combat insurance fraud are mail and wire fraud and violations of the interstate transportation, money laundering, and tax statutes.

As regulated by the states, there are requirements for reserves of assets that are actuarially determined to insure that funds are available to cover the claims that occur relative to the types of policies written. Once policies are written that encumber the current level of reserves, additional policies can only be written if additional reserves are obtained through operating profits, returns on investments, or the amount of liability against current reserves is reduced.

The large amount of money involved in employee plan trust funds and tax exempt organizations provides both a temptation and an opportunity for fraud. The traditional criminal and civil provisions of Title 26 will apply to violations in these areas. The only significant difference may be that instead of a tax deficiency, the element of damage to the government may be established by showing a tax benefit, such as attempting to make taxable income non-taxable or taxable contributions tax deductible.

While the Department of Labor (DOL) is primarily responsible for the Employee Retirement Income Security Act enforcement, the IRS has significant involvement, since qualified employee plans receive favored tax treatment via the deduction of the contribution by the employer, tax exemption for the related trust, and the deferral of income by the employee. These tax advantages can be used in criminal investigations to meet the requirements that a tax be due and owing as described in 26 USC §7201 (Attempt to Evade or Defeat Tax) and that financial damage is attributed to the government as described in 26 USC §7206 (Fraudulent or False Statement).

The Tax Reform Act of 1969 and other tax laws subsequently enacted establish new and more stringent requirements:

Title 26 USC §6033 requires that every exempt organization, with some exceptions, file an annual return stating specifically the items of gross income, receipts and disbursements and such other information as may be prescribed by the Secretary or appropriate delegate. In addition, 26 USC §6011 requires the filing of certain taxable returns by exempt organizations. These information reports and returns are used to determine whether the submitting organization continues to qualify for favored tax treatment and to report any taxes for which it may be liable. Like the application forms, these reports and returns are subscribed under the penalty of perjury. If an organization ceases to qualify under the provisions of 26 USC §501 or 26 USC §521 for which exemption was granted, its exempt status will be revoked.