9.5.3  Criminal Investigation Strategies (Cont. 1)

9.5.3.2 
Compliance Strategy

9.5.3.2.5 
Questionable Refund Program

9.5.3.2.5.1 
Procedures for Fraud Detection Center Identified Questionable Refund Program Schemes

9.5.3.2.5.1.1 
Field Office Procedures for IRS Campus Identified Questionable Refund Program Schemes

9.5.3.2.5.1.1.1  (02-09-2005)
Procedures for Field Office Identified Questionable Refund Program Schemes

  1. In the event the field office, rather than the FDC, opens a QRP PI, the special agent will contact the QRP field office coordinator. The QRP field office coordinator will call the FDC at the appropriate IRS Campus to request a scheme number. This will help to prevent duplicating open PIs on schemes the FDC is already tracking.

  2. The field office is responsible for closing all QRP PI and SCI investigations in a manner consistent with all other PI and SCI investigations (see IRM 9.5.14, Closing Procedures).

  3. The PI initiated by the field office is not to be associated with the national GI for QRP investigations.

9.5.3.2.6  (02-09-2005)
Return Preparer Program

  1. 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.

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

    1. The preparer develops a large clientele through a reputation for saving clients' money.

    2. The preparer often charges exorbitant fees.

    3. The fee may be based on a percentage of the refund.

    4. The refund check is mailed to the preparer's office or deposited into the preparers account.

      Note:

      In legitimate Refund Anticipation Loan (RAL) processes, the client often receives a check from the preparer for the refund he/she is entitled to less preparation and processing fees. The IRS refund is then automatically deposited into an account specifically set up to receive refunds. Some fraudulent preparers, however, submit a return to IRS with inflated figures that the client is unaware of in order to receive a significantly larger refund. Some even prepare and file amended returns and keep the refunds from prior years as well.

    5. The preparer forges the endorsement and negotiates the refund check without the client's knowledge.

    6. The preparer fails to sign the return as the preparer.

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

    1. Letters of complaint from the public and information from informants concerning return preparers.

    2. Complaints from ethical practitioners and professional societies.

    3. Screening of returns by IRS Campus personnel.

    4. Identification of suspect preparers by CI and other IRS personnel.

9.5.3.2.6.1  (02-09-2005)
Procedures for IRS Campus Identified Return Preparer Program Schemes

  1. All RPP schemes referred to a field office will be inputted as PIs into the CIMIS database by personnel in the FDC at the IRS Campuses.

  2. The Form 4930 will be prepared at the FDC and entries will be made in items 1-10, 12-18, 23, 24, 27, 29, and 71. The original Form 4930 will accompany the referral to the field office. A copy of the Form 4930 will be retained in the scheme file maintained at each FDC.

  3. The investigation number for each of these investigations will contain a specific identifier for each FDC.

  4. The first two digits, normally the field office number, will identify the IRS Campus where the investigation was initiated.

  5. After the PI is initiated, CIMIS will place the investigation in a RPP group investigation pool. Each field office is assigned a group pool number for RPP referrals and this number will appear in the Lead SSN field (Item 1) of the Form 4930 (see CIMIS User Guide).

  6. The RPP has been assigned pool number 8888. For example, the group pool number for Los Angeles will be 000-95-8888.

  7. Return Preparer Program PIs will appear in the field office inventory and on in the CIMIS reports and statistical summaries as with any other open PIs in the field office.

  8. All RPP schemes must be linked to the national GI for RPP. The GI number (009910005) is assigned to all FDCs.

9.5.3.2.6.1.1  (02-09-2005)
Field Office Procedures for Return Preparer Program Scheme Referrals

  1. Upon receipt of the RPP scheme referral from the FDC, the receiving field office will promptly assign a special agent to evaluate the referral, and he/she will update the Form 4930 to reflect the investigation assignment and the due date of the evaluation of the referral.

  2. The due date is 90-days from the receipt of the referral by the field office.

  3. The name of the PI should not be changed. If an SCI is initiated as a result of the evaluation of the RPP PI, the Form 4930 initiating the SCI should reflect the name of the subject of the investigation. This will not be consistent with the name on the PI. Even though they are not consistent, the PI will still be linked to all SCIs initiated.

  4. The field office is responsible for closing RPP PIs, as well as any SCIs which are initiated as a result of the evaluation of the RPP scheme referral. These investigations should be closed in a manner consistent with all other PI and SCI investigations (see IRM 9.5.14, Closing Procedures).

  5. During the course of the investigation, returns identified as part of the RPP scheme should be updated to show an association with the PI in CIMIS as Associate Identities (AI).

  6. At the conclusion of the criminal aspects of a false refund investigation, the SAC will forward a Criminal Investigation Closing Report with attachments to the RAC. The RAC will forward the Closing Report to the Territory Manager, Technical Services, for notification and initiation of civil action. This process is the same for declined or discontinued investigations (see IRM 9.5.14, Closing Procedures).

9.5.3.2.6.1.1.1  (02-09-2005)
Procedures for Field Office Identified Return Preparer Program Schemes

  1. In the event the field office, rather than the FDC, opens a RPP PI, the special agent will contact the RPP field office coordinator. The RPP field office coordinator will call the FDC at the appropriate IRS Campus to request a scheme number. This will help to prevent duplicating open PIs on schemes the FDC is already tracking.

  2. The field office is responsible for closing all RPP PI and SCI investigations in a manner consistent with all other PI and SCI investigations (see IRM 9.5.14, Closing Procedures).

  3. The PI initiated by the field office is not to be associated with the national GI for RPP investigations.

9.5.3.2.6.2  (02-09-2005)
Controls for Return Preparer Investigations

  1. Controls should be placed on client returns that are part of the criminal investigation (see LEM 9.14.5, Automated Data Processing Account Controls).

  2. Controls should be placed on the preparer's accounts while the criminal investigation is being conducted (see LEM 9.14.5, Automated Data Processing Account Controls).

9.5.3.2.6.3  (02-09-2005)
Return Preparer Program Investigative Techniques

  1. The investigative techniques used in RPP investigations are different from those used in QRP investigations. Return Preparer Program investigations are directed toward:

    1. determining the responsibility for the overstatement of the deductions and exemptions claimed

    2. establishing whether such overstatements were made with corrupt intent

9.5.3.2.6.3.1  (02-09-2005)
Investigation of Multiple Fraudulent Returns

  1. The returns in this group of investigations usually report income of authentic origin but are fraudulent because of overstated deductions or exemptions.

  2. Some of the most flagrant violations are committed by unscrupulous return preparers who have illiterate, trusting clientele.

  3. Occasionally, it is established that a preparer has conspired with the client to file a false and fraudulent return.

9.5.3.2.6.4  (02-09-2005)
Developing the Return Preparer Investigation

  1. Consideration should be given to using an undercover operation to learn the practitioner’s modus operandi and obtain evidence. Keep in mind that if the practitioner prepares a correct return for the undercover agent it does not necessarily mean he/she is an honest preparer.

  2. Unless there is a good reason not to, the special agent should contact the civil return preparer coordinator. The return preparer coordinator can assist the special agent in determining what audit path is best for the particular preparer. Client audit results can be used to identify witnesses in the criminal investigation. Great care should be taken to avoid even the appearance that the special agent is directing aspects of the civil audit function other than referring the preparer.

  3. Multiple refund investigations involving unscrupulous preparers are developed by patient and painstaking interviews of the clientele to determine responsibility for fraudulent returns.

  4. If the client interview discloses information or records material to the investigation, consideration should be given to obtaining a sworn affidavit from the client.

  5. The investigation should establish if the fraud is attributable to the preparer, the client, or both. An interview will, therefore, be designed to ascertain:

    1. The name of the person that recommended the preparer and the identity of others known to have used the preparer's services. It is advisable to obtain prior years' returns filed by the client. Prior year returns not prepared by the subject can be used for comparison.

    2. Information and records used in the preparation of the return.

    3. Any memorandum or notes the preparer made of information furnished.

    4. Any discussion between the preparer and client regarding the amount of deductions and exemptions to be claimed.

    5. Any suggestions made by the preparer that more deductions should be claimed. These suggestions should be fully explained.

    6. If each deduction claimed is the same amount furnished to the preparer by the client, obtain documents and statements concerning the amounts claimed. If the amount claimed is different than that which was furnished to the preparer, obtain the client's explanation.

    7. If the client knew that an excessive amount was claimed, determine why he/she permitted it and, if the client was unaware of the actual amount claimed, how it escaped his/her attention.

    8. The circumstances surrounding the client's execution of the return, including: was the return signed before or after it was completed; if the return was completed before the client signed it, did the client review the contents, and how did excessive amounts escape him/her.

    9. Did the client know a refund was claimed? If so, how much was the refund? (Some preparers have claimed significantly higher refunds and kept the difference without the client’s knowledge.)

    10. Why the client believed he/she was to receive a refund.

    11. The client's literacy, knowledge, or training in tax matters.

    12. The amount of the preparer's fee and whether the fee was based on the amount of the refund to be obtained?

    13. Where the refund check was to be mailed/deposited; if to the preparer's address/account, why?

    14. Did the client cash the refund check?

    15. Obtain a full statement (who, what, where, etc.) relative to the cashing of the check. If it was cashed by the preparer, determine if the preparer took a fee from the proceeds and if possession of the check by the preparer was used to coerce payment of an exorbitant fee?

    16. Did the preparer endorse the client's name to the check? If so, did the client authorize it?

  6. The items above should assist in the preparation of an outline for preparer and client interviews. Other pertinent questions may be necessary to meet the facts of each case and follow-up questions may arise as the interview proceeds. If possible, during the preparer interview, obtain copies of:

    1. any memorandums or notes made during interviews with clients

    2. any memorandums, documents, and data furnished to the preparer by the client for use in preparing the client's return

    3. any list of fees charged, list of clients, retained copies of returns filed, or other pertinent material that the preparer maintains

  7. The preparer's employees should be interviewed to establish procedures for the preparation of returns. The outline for the interview of the subject preparer should also be used for all employees preparing returns.

  8. Investigations which most often lead to successful criminal prosecutions are those which involve:

    1. returns having claims that are completely without basis

    2. clients who testify that deductions were listed without their knowledge and/or undercover tape recordings clearly demonstrating the preparer’s knowledge that expenses were fabricated

    3. the actions of the practitioner corroborate the testimony of his/her clientele

  9. Special agents should not use possibly legitimate deductions as evidence.

  10. Special agents should keep in mind that the clients might be as culpable as the practitioner. Client culpability should be resolved as soon as possible.

9.5.3.2.6.5  (02-09-2005)
Embezzlement of the Client's Tax Payment

  1. These are investigations in which the unscrupulous preparer accepts payment for the tax liability of the client at the time the return is prepared but does not file the return or pay the tax. In these investigations, it is recommended the preparer be charged with violation of 26 USC §7201.

  2. InUS vs. Mesheski, the court held that such acts involve only the crime of embezzlement under state law and do not come within the definition of attempt to evade or defeat tax.

  3. Other courts have disagreed with the US vs. Mesheski conclusion, and have found that the defendant intended to cheat not only his/her clients by embezzling their money but also the government by evading the clients' taxes, see US vs. Charles L. O. Edwards.

9.5.3.2.6.6  (02-09-2005)
Coordination of Criminal Investigations Requiring Compliance Support

  1. Full development of a refund fraud investigation often requires that audits be conducted on the questionable returns. The civil operating divisions conduct the audits. Requests for a large number of audits are to be forwarded to the Area Planning and Special Programs (PSP) Office. If a mass correspondence audit would be appropriate, the field office QRP/RPP coordinator will contact the FDC RAC to coordinate the request. Coordination with the SB/SE return preparer coordinator to determine the correct audit approach is highly recommended. Often, a combination of face to face audits to determine a pattern, then followed up by correspondence audits, is effective and will provide optimal use of resources.

  2. Special agents will not be present during the civil audit. Interviews of the potential witnesses will not be conducted until all aspects of the civil audit pertaining to that individual are concluded.

  3. Criminial Investigation is prohibited from giving advice or direction to the other operating divisions regarding a specific case under examination. It is imperative that special agents not specifically direct the other operating division concerning the selection of taxpayers for civil examination or the degree of substantiation to be required from these individuals. Any such actions could be regarded as overreaching and manipulative and could potentially jeopardize the success of the investigation. These restrictions, however, do not constrain special agents or the attorney for the government from sharing relevant non-grand jury information with the other operating divisions. Further, these restrictions do not preclude CI from providing the other operating divisions with general (non-case specific) criteria for determining which examinations might be criminally referred as long as the purpose is not to influence the civil examination.

  4. Special agents or the attorney for the government should not have a role in determining what civil penalties are asserted against abusive preparers and/or their clients.

  5. In the case of a grand jury investigation, Rule 6(e) of the Federal Rules of Criminal Procedure severely limits the exchange of information derived from the grand jury investigation. The attorney for the government should be consulted for specific guidance.

  6. It is permissible for the other operating division to share return information and completed revenue agent’s reports (RAR) with special agents conducting both administrative and grand jury investigations. These civil examinations may identify additional individuals who could become witnesses or subjects. The identification of these individuals may be legally shared with special agents by the other operating divisions. The other operating divisions should only turn over reports once a civil examination is completed. This will avoid the appearance that the special agent is either interfering with or directing the civil examination.

  7. In order to enhance compliance in these investigations, it is critical that both civil and criminal remedies be fully pursued. This includes the examination of clients, as well as, criminal prosecution recommendations against promoters, preparers, and clients when warranted. When the individual under audit may be culpable in the refund crime, CT Counsel should be consultated.

9.5.3.2.6.7  (02-09-2005)
Protection of Civil Statutes

  1. A determination must be made regarding the protection of the civil statute on QRP/RPP returns where the civil assessment statute is due to expire within the next ten months, (See LEM 9.14.5, Automated Data Processing Account Controls):

    1. Controls should be placed on all related returns.

    2. On a quarterly basis, the FDC will notify the field office of all returns with approaching assessment statute expirations. Appropriate controls must be established for notification to occur.

9.5.3.2.7  (02-09-2005)
Notification of the Office of Professional Responsibility

  1. 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).

9.5.3.2.8  (02-09-2005)
Notification of the Office of the Treasury Inspector General for Tax Administration (TIGTA)

  1. 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.

9.5.3.2.9  (02-09-2005)
Frivolous Filer/Non-Filer Initiative

  1. 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.

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

    1. education

    2. level of sophistication

    3. reasonableness of the subject’s beliefs

    4. professional advice received

  3. 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.

  4. 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:

    1. Interview the referring agent/officer to determine if frivolous correspondence was received and if a response was issued.

    2. Contact the program analyst in charge of the program at the Refund Crimes Unit, Ogden Fraud Detection Center.

    3. Contact the local disclosure officer and request the Electronic Disclosure Information Management System (EDMIS) be queried for Freedom of Information Act (FOIA) requests filed by the subject. The EDMIS will contain a record of all FOIA request and where the requests was filed.

  5. 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.

  6. 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.

9.5.3.2.9.1  (02-09-2005)
Ogden Compliance Campus

  1. IRS has centralized its frivolous return program at the Ogden Compliance Campus. All frivolous correspondence is being forwarded to Ogden for processing in accordance with the procedures set forth in IRM 4.19, Liability Determination.

  2. Generally, upon receipt of frivolous correspondence, the frivolous return program unit will send letter 3175 (SC) (2-1999). The unit will also include the brochure Why Do I Have To Pay Taxes? (Publication 2105). The letter and publication explain the basis for the individual’s duty to file returns and pay taxes and warn of the criminal and civil sanctions that can result from failing to comply with the tax laws. If the individual fails to heed this advice, no further letters are sent.

  3. When an individual files a frivolous return, the frivolous correspondence unit will send the individual letter 3176 (SC) (2-1999) admonishing the individual that the information they have sent is frivolous and their position has no basis in law. The letter also warns the individual that a civil penalty of $500 can be assessed if a corrected return is not filed within 30-days. A copy of the brochure Why Do I Have To Pay Taxes? is also provided.

  4. In corresponding with frivolous filers/non-filers, the IRS has adopted the approach of giving the individual fair warning that their actions are illegal, but refusing to engage in an "ongoing dialogue with the individual about the legality of the tax system" .

  5. The centralization of the Frivolous Return Program at the Ogden Compliance Campus did not occur until FY 2001, therefore the handling of frivolous correspondence may not have been handled consistently during the IRS reorganization.

  6. The Frivolous Filer Unit generally does not maintain copies of most frivolous correspondence received, due to the sheer volume of documents.

  7. Inquiries should be made to the program analyst in charge of the program at the Refund Crimes Unit, Ogden Fraud Detection Center.

9.5.3.3  (02-09-2005)
ILLEGAL SOURCE INCOME PROGRAM

  1. The illegal source income program encompasses a broad range of illegal activity, exclusive of those investigations meeting the criteria of the narcotics program. These investigations are often conducted in conjunction with other Federal, state and/or local enforcement agencies. These priority areas include:

    1. Bankruptcy -- investigations involving embezzlement, abuse, misappropriation, or deception in bankruptcy proceedings.

    2. Financial Institution Fraud -- investigations involving fraud against or related to a bank, credit union, savings bank, check cashing business, thrift, stockbroker, or related regulatory agency

    3. Entitlement and Subsidy Fraud -- investigations involving embezzlement, abuse, misappropriation, or deception in various government sponsored programs

    4. Health Care Fraud -- investigations involving embezzlement, abuse, misappropriation, or deception by or from the health care industry (provider, supplier, or broker)

    5. Insurance Fraud -- investigations involving embezzlement, abuse, misappropriation, or deception against the insurance industry that is not related to health care insurance

    6. Pension Fraud -- investigations of embezzlement or abuse of pension funds

    7. Public Corruption -- investigations involving violations of the public trust by government officials or employees

    8. Telemarketing Fraud -- investigations involving the use of telephonic or wire communications to fraudulently promote, solicit, or market products or services

    9. Organized Crime/Strike Force -- investigations involving specific organized crime elements. These investigations may be investigated as part of an organized crime strike force See IRM 9.4.13, Financial Investigative Task Forces).

    10. Identity Theft – CI investigates and recommends prosecution under 18 USC §1028 in tandem with the investigation of substantive tax and money laundering violations emanating from refund fraud and money laundering schemes. Identity theft violations should only be utilized when it enhances the overall investigative strategy.

    11. Fictitious Obligations – To the extent the investigative activity involves violations relating to Title 26, CI can investigate and recommend prosecution under Title 18 USC §514.

  2. Investigations may involve violations of any or all of the criminal statutes within the jurisdiction of CI, including money laundering and currency crimes.

9.5.3.3.1  (02-09-2005)
Bankruptcy

  1. 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).

  2. The goals of the bankruptcy fraud program are to:

    1. increase voluntary compliance with Federal tax laws through the prosecution of those committing significant tax crimes involving bankruptcy fraud

    2. enhance the IRS' presence among bankruptcy fraud professionals and practitioners for the dual purpose of increasing compliance and providing contact points to report allegations of criminal conduct

    3. foster closer cooperation between CI and the other operating divisions in attaining mutual compliance goals

  3. 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.

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

9.5.3.3.1.1  (02-09-2005)
Bankruptcy Investigation Selection

  1. Investigation selection is critical in accomplishing program goals. The following should be carefully weighed in selecting bankruptcy investigations:

    • Investigations should have a strong tax nexus: the IRS being a major creditor.

    • IRS generated fraud referrals should receive priority (a successful fraud referral program is essential to meeting mutual compliance goals).

    • Employment tax related bankruptcy fraud investigations should be vigorously pursued.

    • Emphasis should be placed on egregious high impact investigations, the estimated tax liability should materially exceed the LEM criteria (see LEM 9.14.1, Criminal Investigation Official Use Only Procedures, LEM 9).

    • The estimated loss due to bankruptcy fraud should equal or exceed a base offense level 14 of the US Sentencing Guidelines.

    • The investigations selected should further the goals of CI's bankruptcy fraud program, the employment tax initiative, and the fraud referral program.

      Note:

      In bankruptcy fraud investigations, collection function records should be researched for potentially false Forms 433A, Forms 433B or offers in compromise. If assets were concealed in the bankruptcy, it is very likely that the same assets were omitted from Forms 433A and/or 433B (resulting in potential 26 USC §7206(1) charges).

9.5.3.3.2  (02-09-2005)
Financial Institution Fraud

  1. 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.

  2. 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.

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

9.5.3.3.3  (02-09-2005)
Entitlement Fraud

  1. 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.

  2. 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.

  3. 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.

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

    1. Department of Agriculture (USDA) - Usually administered through state welfare agencies, USDA funds Food Stamp, Women with Infant Children (WIC) and other programs for economically disadvantaged individuals and families.

    2. Housing & Urban Development (HUD) - Guaranteed loans and low income housing programs.

    3. Small Business Administration (SBA) - Business related loans. The SBA and the IRS entered into an agreement to ensure that IRS enforcement action will not unnecessarily reduce SBA's potential recovery. The agreement is limited to FICA and withholding tax liabilities and covers all types of SBA loans: Direct, Participation, and Guaranteed.

    4. Social Security Administration (SSA) - Social Security & Disability benefits, along with identity fraud related misuse of Social Security Cards.

    5. Veterans Administration (VA) - Guaranteed loans, services and benefits.

9.5.3.3.4  (02-09-2005)
Health Care Fraud

  1. 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.

  2. 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.

  3. 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.

9.5.3.3.5  (02-09-2005)
Issues in Health Care Fraud

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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).

9.5.3.3.5.1  (02-09-2005)
Types of Health Care and Insurance Programs

  1. Health care expenses are generally paid by:

    1. government entitlement programs

    2. insurance plans such as plans sponsored by employers through private insurance companies or plans purchased by individuals

9.5.3.3.5.2  (02-09-2005)
Health Care Entitlement Programs

  1. Medicare and Medicaid account for nearly one-third of the nation's health care spending. Medicare is the Federally funded program designed to provide health care insurance to the aged, blind, and disabled. Medicaid is a joint Federal and state-funded health care program that provides subsidized payments for medical services for persons unable to afford them. The states administer the Medicaid program, even though it is funded on a 50-50 basis between the Federal government and the states. Oversight of Medicare and the Federally funded portion of Medicaid comes within the jurisdiction of the Health Care Financing Administration (HCFA), which is an agency within the Department of Health and Human Services.

9.5.3.3.5.3  (02-09-2005)
Fee-For-Service and Capitated Plans

  1. Medical insurance plans make payments to medical providers on a fee-for-service basis, a capitated basis, or a blend of fee-for-service and capitated basis. The major difference between a fee-for-service and a capitated plan (managed care usually by a health maintenance organization (HMO)) is the delivery of and payment for services. In a fee-for-service, profits increase with increased submission of billings for services. Capitated payments are based on a per-patient rate. The medical provider in a capitated HMO plan reaps profits if the cost of services for a patient is less than the allocated payment per patient. The under utilization of services is a significant consideration in the capitated system, while over utilization of services (i.e. over billings) is a concern in the fee-for-service system. There has been a trend toward managed care, or HMOs, in the health care industry. Healthy patients are selecting less costly HMOs versus he traditional fee-for-service plans. Investigators have to concentrate on vulnerable areas of fraud, particularly with the knowledge that the under utilization of services is a concern in this particular industry and provides the opportunity for kickbacks to keep referrals for service to a minimum.

9.5.3.3.6  (02-09-2005)
Insurance Fraud

  1. 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.

  2. 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.

  3. 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.

  4. 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.

    1. As a result, the reinsurance industry has emerged as a method for insurance companies to write more insurance policies when current reserves have reached their limit. Reinsurance treaties are simply insurance policies taken out by an insurance company that will pay the principal insurance company for a certain type of claim. Also, some unscrupulous reinsurance companies have used phony letters of credit or other fraudulent assets to qualify for business. Foreign reinsurers have, for the most part, been beyond the reach of state regulators, especially if the reinsurers are domiciled in countries where regulation is weak. Reinsurance frauds are surfacing in many parts of the country and have grown significantly. Frauds involving reinsurance usually have international implications and often involve foreign and domestic trusts.

      Note:

      Criminal Investigation can utilize the database of the National Association of Insurance Commissioners (NAIC) as a source of information in fraud investigations.

9.5.3.3.7  (02-09-2005)
Pension and Exempt Organization Fraud

  1. 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.

  2. 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).

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

    1. for recognition as an exempt organization

    2. expanded information reporting and annual reports

    3. imposed a new series of excise taxes

    4. placed substantial restrictions on the permissible activities of an exempt organization

  4. 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.

9.5.3.3.7.1  (02-09-2005)
Pension and Exempt Organization Criminal Investigation Selection

  1. Indications of fraud in this program area are typically discovered by the other operating division‘s examiners or officers and are referred to CI and evaluated in accordance with the IRM 25.1.3, Fraud Referrals.

9.5.3.3.7.2  (02-09-2005)
Pension or Exempt Organization Allegations

  1. When a special agent learns that the subject of an information item or PI, is also the subject of an open case in the Tax Exempt Government Entity Division (TEGE), CI will immediately evaluate the information and if warranted, number a SCI. If not, the information item or PI will be closed and all applicable information will be forwarded to the appropriate operating division in accordance with established procedures (see IRM 9.4.1, Investigation Intiations and IRM 9.5.14, Closing Procedures).

  2. The Form 3949 Information Report Referral, along with all pertinent information regarding the subject, will be transmitted by a brief memorandum, through the SAC to the Denver Lead Development Center (LDC). The Denver LDC will forward the information to the appropriate Area Manager, TE/GE.

  3. Criminal Investigation's transmittal memorandum to the other operating division with the open case will advise the operating division that information CI obtained is being referred for association with their open case. No suggestions, guidance, or direction is to be provided by CI as to actions to be taken by the receiving operating division. This is a precaution against the use, or perceived use, of this provision for developing a criminal investigation under the guise of a civil proceeding.

9.5.3.3.7.3  (02-09-2005)
Pension Fraud Schemes

  1. Some of the more common fraudulent schemes and devices used in employee plan investigations are:

    1. backdating of applications and related documents

    2. diversion of funds by officials of exempt organizations or by trustees of employee plans

    3. payment of improper expenses of exempt organization and trust officials

    4. loans of trust funds disguised as purchases or allowable deductions

    5. intentional failure to keep proper or accurate financial records

    6. disguising taxable receipts (interest and dividends) as non-taxable receipts

    7. making false statements on applications

    8. providing false receipts to donors by exempt organizations

    9. willful and intentional failure to implement and comply with those plan amendments which were agreed to during the review of the determination letter application

    10. placing friends, relatives, or associates on a company payroll when they perform no duties

    11. failure to pay over or deposit payroll deductions or the employer contributions to pension plans

    12. under funding pension plans or obtaining minimum funding waivers

    13. excessive tax deductions for pension plan contributions

9.5.3.3.7.4  (02-09-2005)
Pension Fraud Investigation

  1. Title 26 USC §7206(1), Declaration under Penalties of Perjury, is the criminal provision which will probably be the most useful in the employee plans and exempt organizations area. This section makes it a felony for anyone to willfully subscribe to a return or other document made subject to penalties of perjury, which is not believed to be true and correct as to every material matter. This provision also applies to documents other than tax returns, and a prima facie violation of 26 USC §7206(1) can be proven even in the absence of a tax deficiency.

  2. Forms filed with the IRS in connection with employee plans and exempt organizations contain a declaration that they are made subject to the penalties of perjury. Additionally, the declaration includes a statement that supporting documents are certified as being true and correct and this certification is subject to the same penalty. Thus, filing an application for a determination letter containing false statements, submitting falsified documents in support of such an application, or submitting a falsified annual return for an employee plan or exempt organization would give rise to a potential 26 USC §7206(1) prosecution if the falsifications are shown to be willful and material.

  3. Filing of a false application for a determination letter, minimum funding waiver, annual return, or registration statement can also be an affirmative act leading to tax evasion proscribed by 26 USC §7201 (Attempt to Evade or Defeat Tax). To prove tax evasion, the government must show a tax deficiency, affirmative acts to evade assessment or payment of tax, and willfulness.

  4. Willful failure to file annual returns, registration statements, or actuarial statements can be a criminal violation of 26 USC §7203 (Willful Failure to File Return, Supply Information, or Pay Tax).

9.5.3.3.8  (02-09-2005)
Public Corruption

  1. Criminal Investigation participates in numerous investigations involving individuals who have violated the public trust. The subjects of these investigations are persons from all levels of government - local, county, state, Federal, and foreign.

  2. Public corruption investigations involve a variety of offenses including bribery, extortion, embezzlement, kickbacks, money laundering, and tax fraud. Criminal Investigation generally investigates the tax and money laundering aspects in conjunction with other law enforcement agencies.

9.5.3.3.9  (02-09-2005)
Telemarketing Fraud

  1. Telemarketing fraud is one of the largest segments of consumer fraud. The development of advanced telecommunication networks expanded the abilities of telemarketers, and a corresponding increase in complaints alleging fraudulent schemes has been reported in all 50 states. Statistical data from the Federal Trade Commission and American Association of Retired Persons (AARP) shows that 56 percent of telemarketing victims surveyed were age 50 or older. Criminal Investigation is combating telemarketing fraud by conducting investigations of the major schemes in conjunction with multi-agency task forces. Criminal Investigation brings a financial expertise to these investigations that is critical to their success.

  2. Criminal Investigation has been granted access to the Federal Trade Commission (FTC) fraudulent complaint system. The computer software for obtaining access to the FTC database is in the Document Manager packages to facilitate availability of the database by the field.

  3. Sometimes, 26 USC §7211 proves to be an effective tool in plea bargain negotiations to obtain the cooperation of minor players in illegal telemarketing operations. This statute may be utilized where a prize is promised upon payment of the related tax and makes it a crime for anyone to solicit payment for the sale or lease of an article and falsely state, orally or in writing, that any part of the payment, both sale or lease, is to pay Federal tax.

9.5.3.3.10  (02-09-2005)
Organized Crime

  1. Organized crime refers to self-perpetuating, structured, and disciplined associations of individuals who combine for the purpose of obtaining monetary or commercial gains or profits, either wholly or in part, by illegal means. These groups traditionally have a strong leader to whom group members and associates owe loyalty and to whom they pay a percentage of their profits. These groups generally engage in illegal enterprises such as drug trafficking, gambling, loan sharking, extortion, theft, arson, labor racketeering, pornography, prostitution, white collar crimes of all descriptions, and money laundering. They usually employ extortion, bribery corruption and violence to achieve their objectives. Criminal Investigation, in conjunction with other Federal, state and local law enforcement agencies, pursues tax, currency, and money laundering investigations of organized crime groups. For additional information see IRM 9.4.13, Financial Investigative Task Forces.

9.5.3.3.11  (02-09-2005)
Identity Fraud

  1. Title 18 USC §1028 can be investigated in conjunction with refund fraud and money laundering investigations. Identity theft should only be utilized when it enhances the overall investigative strategy. Title 18 USC §1028 violation is not intended to stand alone.

9.5.3.3.11.1  (02-09-2005)
Tax Investigations Involving Identity Theft

  1. An identity fraud violation could be applicable where a subject steals another person’s identity for the purpose of falsely representing their identity to the IRS. The issue is most likely to occur in the QRP area where individual identities are stolen with the intent to file false tax returns claiming tax refunds. In such investigations, the individuals who steal the identities may be different from the individuals who actually file the tax returns and ultimately obtain the false refunds. In some instances, the investigation may be unable to develop sufficient evidence to sustain a criminal prosecution for substantive tax or conspiracy charges against the supplier of the false identities. In these instance, Title 18 USC §1028 could be charged against those individuals when the evidence of substantive tax or conspiracy violations falls short of the required threshold to sustain a criminal prosecution. The identity fraud must have a direct link to the substantive tax or the related conspiracy violation that is the focus of the criminal investigation. Therefore, it should be a rare exception that identity theft is charged without a companion substantive tax or related conspiracy violation.

  2. Per DOJ Directive 99, criminal and civil forfeiture provisions are not applicable when 18 USC §1028 violations are directly linked to the investigation of a substantive tax charge, absent extraordinary and compelling circumstances. The special agent should seek the advice of CT Counsel if forfeiture is being considered.

  3. If directly linked to substantive tax violations, prosecution recommendations will be reviewed in the same manner as traditional tax investigations to assure appropriate application and favorable prosecution potential.

9.5.3.3.11.2  (02-09-2005)
Money Laundering Investigations Involving Identity Theft

  1. Title 18 USC §1028 also impacts CI’s investigative jurisdiction under the money laundering laws. IRS has explicit jurisdiction with regard to 18 USC §1956 and §1957. Title 18 USC §1956(e) and §1957(e) specifically grants investigative jurisdiction to "such components of the Department of the Treasury as the Secretary of the Treasury may direct. " IRS jurisdiction is further set forth in a Memorandum of Understanding between the Attorney General, Secretary of the Treasury, and Post Master General dated August 1990 and revised in 1994. The money laundering laws criminalize activity involving the transacting of proceeds derived from " specified unlawful activity" in a subsequent financial transaction. Title 18 USC §1956(c)(7)(A) defines the term "specified unlawful activity" (SUA) as any act or activity constituting an offense listed in 18 USC §1961(1). Title 18 USC §1961(1) defines racketeering activity and includes 18 USC §1028. Note: Converting a pure tax administrative investigation to a money laundering investigation is contrary to DOJ policy.

  2. Title 18 USC §1028 violations can be charged in conjunction with money laundering violations or separately if there is insufficient evidence to support a money laundering charge. For example, when investigating potential money laundering violations involving a health care fraud scheme, if evidence of a 18 USC §1028 violation is developed, an 18 USC §1028 charge may be brought in conjunction with the substantive money laundering violation. However, if money laundering violations cannot be proven, it does not preclude 18 USC §1028 from being recommended against the supplier of the fraudulent identities when no financial nexus exists to the underlying fraud scheme.

  3. Civil and criminal forfeiture provisions may be applicable in money laundering violations involving 18 USC §1028.

9.5.3.3.12  (02-09-2005)
Fictitious Obligations

  1. Schemes involving the submission of sight drafts, bills of exchange and other fictitious financial instruments to the IRS and other government agencies are a continuing problem. To the extent the criminal activity involves violations relating to Title 26, CI can investigate and recommend prosecution under 18 USC §514 (Fictitious Obligations).

  2. The FDC, in cooperation with the Frivolous Return Processing sections at the campuses and the Office of the Comptroller of Currency (OCC), issues fraud alerts when schemes are detected.

  3. The Denver LDC will be responsible for analyzing bogus monetary instruments to identify potential schemes and trends.

  4. Fictitious obligations prosecution recommendations will be reviewed in the same manner as a traditional tax investigation to ensure appropriate application and favorable prosecution potential.

9.5.3.4  (02-09-2005)
NARCOTICS PROGRAM

  1. Criminal Investigation investigates leaders and other top echelon members of high-level drug trafficking organizations, including business and financial associates, and the orchestration of financial activities directing the transportation, distribution, and laundering of illegal drug proceeds. Narcotics investigations include the pursuit of criminal tax, currency, and/or money laundering charges. The Director of the Office of National Drug Control Policy (ONDCP) oversees the coordinated law enforcement and intelligence gathering efforts to combat illegal drugs.

  2. Within the narcotics program, there are four sub-programs:

    1. Organized Crime Drug Enforcement Task Force (OCDETF) — investigations involving members of high-level drug trafficking organizations authorized by a regional multi-agency OCDETF committee. The OCDETF designated standards and criteria are set forth in LEM 9.14.1.

    2. High Intensity Drug Trafficking Area (HITDA) — co-located multi-agency investigations involving organizations or individuals involved in narcotics trafficking or narcotics money laundering (worked through the HIDTA program of the Office of National Drug Control Policy (ONDCP)).

    3. HIDTA/OCDETF — investigations worked jointly through OCDETF.

    4. Narcotics Other — investigations involving financial activities of significant individuals or entities who direct the transportation, distribution, and laundering of illegal drug proceeds.

  3. Narcotics investigations are often investigated through joint investigative task forces such as OCDETF and HIDTA. See IRM 9.4.13, Financial Investigative Task Forces.

  4. Money laundering and currency violations are discussed in IRM 9.5.5, Money Laundering and Currency Crimes. Schemes are also detailed in subsection 9.5.3.3.

9.5.3.4.1  (02-09-2005)
Money Laundering Strategy

  1. Criminal Investigation plays an active role in the implementation of the National Money Laundering Strategy (NMLS). The NMLS is the blueprint for the Federal government's comprehensive effort to aggressively combat money laundering. Money laundering techniques are not only employed by criminals to divert illicit funds into legitimate enterprises, but are often used to facilitate tax evasion by making possible the movement of untaxed funds through the world's financial systems. Money laundering and currency crimes are discussed in IRM 9.5.5, Money Laundering and Currency Crimes.

  2. Criminal Investigation's mission is to identify and prosecute the most significant tax, currency, and money laundering offenders and to pursue the assets of those offenders both domestically and internationally. Investigative efforts are designed to use the broad authority of the statutes (criminal, tax, and forfeiture) within CI's investigative jurisdiction.

  3. Investigations may be developed and investigated through joint task force efforts. See IRM 9.4.13, Financial Investigative Task Forces.

9.5.3.4.2  (02-09-2005)
International Strategy

  1. In order to accomplish its mission, CI has developed an international strategy.

  2. International efforts include:

    1. Assignment of special agents to strategic foreign posts to facilitate the development and use of information obtained in host foreign nations.

    2. Coordination of requests from information from foreign countries.

    3. Coordinate foreign travel requests.

    4. Coordinate Simultaneous Criminal Investigation Program; (see IRM 9.4.2, Sources of Information).

9.5.3.4.3  (02-09-2005)
Terrorism Strategy

  1. Criminal Investigation, in support of the national effort to fight terrorism, provides financial investigative and devoted resources in support of terrorist task force initiatives and security demands. Criminal Investigation utilizes all violations within its jurisdiction to combat terrorism. These violations include, tax, money laundering and currency violations.

  2. Criminal Investigation also assists the Treasury Secretary in conducting a global financial war on terrorism, protecting the integrity of the financial system, fighting financial crime, enforcing economic sanctions programs, locating assets for blocking, forfeiture and/or seizure, assisting in the implementation of Executive Orders, and otherwise providing financial investigative expertise as needed by the Secretary, through Treasury’s Executive Office for Terrorist Financing and Financial Crimes.

  3. In accordance with 18 USC § 2332(b)(f), the Attorney General is the lead investigative authority for counterterrorism investigations. The FBI, as the Attorney General’s investigative arm, conducts terrorism investigations through Joint Terrorism Task Forces (JTTFs). Criminal Investigation special agents assigned to the JTTF utilize their unique financial investigative skills to investigate terrorist financing and combat international terrorism (see IRM 9.4.13, Financial Investigative Task Forces).

  4. Title 18 USC §2339A (Providing Material Support to Terrorist), 18 USC §2339B (Providing Material Support or Resources to Designated Foreign Terrorist Organizations), and 18 USC §2339C (Prohibitions Against the Financing of Terrorism) can be recommended in investigations of terrorism related financial transactions. The authority to recommend prosecution for 18 USC §2339A, 18 USC §2339B, and §18 USC 2339C is intended to support not supplant CI’s primary statutory jurisdictions of tax, money laundering and currency violations.

  5. Every terrorism investigation must be classified under fraud scheme code 207 (Domestic Terrorism) or 208 (International Terrorism). See IRM 9.9, Criminal Investigation Management Information System. The illegal activity code of 186 (Terrorism) should be used in addition to the appropriate terrorism fraud scheme code. Every JTTF investigation must contain a multi-agency code 22, (Joint Terrorism Task Force) in addition, to all other multi-agency codes.

  6. The USA Patriot Act: (a) amended the Right to Financial Privacy Act, allowing CI to obtain financial institution information and records relative to terrorism in certain circumstances by a "Special Procedures Request" as opposed to obtaining them via subpoena or court order, and (b) created a Patriot Act Section 314 request for obtaining account and transaction information relating to terrorism or money laundering (see IRM 9.4.4, Requests for Information).

  7. The FBI’s Automated Case Support (ACS) system of electronic case files contains investigative information, including interviews (see IRM 9.4.2, Sources of Information).

Exhibit 9.5.3-1  (02-09-2005)
Pattern Letter 2527(P)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, DC 20224
 
 
     
Taxpayer’s Representative    
Address    
City, State ZIP Code    
     
Dear [Name] :    
     
 We are in receipt of your letter dated [date], wherein you enclosed a check in the amount of [amount of check] and stated that your client, who wishes to remain anonymous, seeks to make a voluntary disclosure concerning his/her tax liability in exchange for the Internal Revenue Service’s agreement to not recommend criminal prosecution to the Department of Justice.  
 Please be advised that it is the position of the Internal Revenue Service that a voluntary disclosure does not bar criminal prosecution, but rather, is a factor to be considered when deciding to recommend prosecution. Thus, the decision whether to investigate your client and to recommend prosecution remains an option available to the IRS whether you disclose the identity of your client or the IRS learns of your client’s identity through its own efforts.  
 In order for a disclosure to be considered a "voluntary disclosure" the communication must be: truthful; complete; and the taxpayer must show a willingness to cooperate (and does in fact cooperate) with the Internal Revenue Service in determining his/her correct tax liability.  
 Your letter dated [date] is not considered to be a voluntary disclosure for the following reasons:  
 [Discuss why the communication is not a voluntary disclosure; e.g., the disclosure is not complete because the client/taxpayer is anonymous, and thus, the Service is unable to ascertain on whose behalf the disclosure is being made.]  
 The check that was enclosed with your letter purporting to be payment of an anonymous taxpayer’s tax liability for the years [include the years] was sent to the [Name] Service Center for posting to the "unidentified remittance" amount.  
 Should additional information be required from the Internal Revenue Service, please contact [Name of District Counsel] at [Telephone Number]. He/she stands willing to provide additional information should you so request.  
     
  Sincerely,  
     
[Name]         
Special Agent In Charge  

Exhibit 9.5.3-2  (02-09-2005)
Voluntary Disclosure Transmittal Memorandum to PSP

  Date
MEMORANDUM FOR AREA SUPPORT MANAGER, AREA # PLANNING AND SPECIAL PROGRAMS SMALL BUSINESS SELF EMPLOYED (SYMBOLS)
 
FROM: Special Agent in Charge XXXX Field Office (CI:FO:XXX) Criminal Investigation
Subject: Voluntary Disclosure
In Re: Name:
  SSN:
  Address:
  Street
  City, State, ZIP
  Telephone: (XXX)XXX-XXXX
In accordance with Paragraph 1 of Internal Revenue Manual (IRM) 9.5.3 a voluntary disclosure is being transmitted for further action. Based on the facts currently available, it is Criminal Investigation's (CI) preliminary assessment that the taxpayer has met the IRS's voluntary disclosure criteria.
Acceptance of this voluntary disclosure is contingent on the continued cooperation and truthfulness of the taxpayer. If evidence is developed that the taxpayer has not fully cooperated or provided materially false information, this matter may be sent back to CI for evaluation utilizing the fraud referral process.
Documents relevant to this voluntary disclosure are attached. (Note: Specifically describe all attachments.) This taxpayer is represented by (name, address, telephone:(XXX)XXX-XXXX).
If you have any questions, please call (name, title) at (XXX)XXX-XXXX.
Attachments (XX)

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