9.5.11  Other Investigations

Manual Transmittal

November 01, 2011

Purpose

(1) This transmits revised IRM 9.5.11, Other Investigations.

Material Changes

(1) Subsection 9.5.11.4 paragraph (1) is revised to include the definition of an Offer in Compromise (OIC). The subsection is further revised to reference the appropriate Collection and Appeals IRM Chapters for additional OIC information.

(2) Subsection 9.5.11.4.2 paragraph (4) is revised to include IRM 5.8.4, Investigation as an additional OIC reference when processing OIC related fraud referrals.

(3) Subsection 9.5.11.4.3 paragraph (4) is revised to delete an inaccurate IRM reference.

(4) Subsection 9.5.11.4.4 is revised to update the process regarding the submission of an OIC on an open criminal investigation.

(5) Subsection 9.5.11.5.6 paragraph (2) is revised to indicate the 6 year vs. 3 year Statute of Limitations difference as it relates to parts of Title 26 U.S.C. 7203.

(6) Subsection 9.5.11.6.1.3 paragraph (1) is revised to show there are excise taxes that do not require pre-payment and refund suit procedures, but allow for statutory notice procedures.

(7) Subsection 9.5.11.6.5 paragraph (1) is revised to indicate the amount that make up the assessed tax in a Jeopardy Assessment.

(8) Subsection 9.5.11.8 is revised to indicate that it is no longer necessary to initiate a separate investigation or obtain authorization from Headquarters to investigate probation revocation actions. The existing SCI number is currently used when reporting time on cases involving probation revocation activities. Neither a formal report nor a referral to the United States Attorney’s Office is required.

(9) Former subsections 9.5.11.10 through 9.5.11.10.3.4 are renumbered and revised to designate the Treasury Inspector General For Tax Administration (TIGTA) with the primary responsibility to evaluate and conduct all armed escorts; TIGTA can seek the assistance of CI on armed escorts with the concurrence of the Director, Field Operations. These procedures were effective May 2, 2011, pursuant to interim guidance issued by the Chief, CI (see “Effects on Other Documents” below).

(10) Position titles have been updated throughout the section to reflect the new organizational titles that were effective with the October 1, 2011 reorganization of Criminal Investigation.

Effect on Other Documents

This IRM supersedes IRM 9.5.11 dated December 2, 2009. This IRM also incorporates procedure(s) implemented by the Chief, CI’s guidance memorandum dated April 25, 2011 [Subject: “Armed Escort for IRS Employees”]. NOTE: The effective date of the procedural guidance as denoted in the memo is May 2, 2011.

Audience

CI

Effective Date

(11-01-2011)

Rick Raven for Victor S.O. Song
Chief, Criminal Investigation

9.5.11.1  (05-17-2005)
Overview

  1. This section details investigations categorized as "other specialized investigations" . The topics outlined in this section are:

    • Bribery & Undue Influence

    • Forcible Rescue of Seized Property

    • Offers In Compromise

    • Wagering

    • Excise Tax

    • Collateral Investigations

    • Probation Revocation Investigations

    • Voluntary Disclosure Practice

    • Armed Escorts Assignments

    • Protection and Maintenance of Informants and Witnesses

9.5.11.2  (09-09-2004)
Bribery & Undue Influence

  1. Soliciting information or influencing an IRS employee in his/her official capacity is explicitly prohibited by statute. This section discusses investigations of bribery and investigations of Executive Branch employees who try to influence the action of IRS employees.

9.5.11.2.1  (09-09-2004)
Elements of Offer to Bribe

  1. The principal elements of a bribe are: promising, offering, or giving of a thing of value to an officer or an employee of the United States, or anyone acting on behalf thereof, for the purpose of influencing his/her official conduct.

  2. To "offer" and to "give" a bribe are distinct crimes even when part of a single transaction. The test of whether a single transaction includes distinct offenses of offering and of giving a bribe is whether the separate acts have been committed with the requisite criminal intent.

  3. Regardless of the occasion, the statute is violated when a bribe is given or an offer of a bribe is made and the acceptor or offeree of the bribe is a person described in the statute.

9.5.11.2.2  (09-09-2004)
Investigation of Attempted Bribery or Solicitation of a Bribe by Internal Revenue Service Employees

  1. The Treasury Inspector General for Tax Administration (TIGTA) and the Federal Bureau of Investigation (FBI) investigate allegations of bribery, including attempted bribery of IRS employees and investigations where IRS employees are suspected of soliciting or receiving bribes. Investigative authority also includes investigations where non-IRS personnel are alleged to have solicited or received bribes while employed by the IRS.

  2. The Treasury Inspector General for Tax Administration investigates all charges of attempted bribery of IRS employees.

  3. The Treasury Inspector General for Tax Administration should notify Criminal Investigation (CI) of any attempt to bribe IRS personnel when the bribe attempt may have tax related issues within CI jurisdiction. This notification will be done when TIGTA determines that the tax investigation or other action by CI will not interfere with or affect the investigation of the attempted bribery.

  4. When there has been an allegation of an acceptance of a bribe, CI may work a joint investigation with TIGTA by inquiring into the attempted evasion of income tax as to the amount of bribe received and any other possible tax violations that pertain to the alleged bribe.

9.5.11.2.3  (09-09-2004)
Attempted Bribery

  1. Except when executing search and/or arrest warrants, when a special agent is offered a bribe, or believes that an offer will be made, he/she shall:

    1. attempt to hold the matter in abeyance by avoiding any statement or implication about whether or not he/she will accept the bribe

    2. immediately report the matter, by telephone, to TIGTA and to his/her Supervisory Special Agent (SSA)

    3. submit, as soon as possible, a memorandum to TIGTA detailing the full circumstances concerning the matter; the special agent will route the memorandum as directed by TIGTA or his/her representative on a case-by-case basis

    4. avoid any unnecessary discussion of the investigation and cooperate with TIGTA in the investigation

9.5.11.2.3.1  (09-09-2004)
Attempted Bribery during the Execution of a Search or Arrest Warrant

  1. If a bribe offer occurs during the execution of a search or arrest warrant, the special agent should prepare a sworn statement as to what was said by the offerer. The special agent should establish, from the words and conduct of the offerer, that his/her intent was that of offering a bribe to a special agent. The special agent should be able to testify about the conduct of the parties, his/her conversations, and any transactions that took place.

  2. If during an arrest the bribe offer is made by someone other than the person under arrest, the individual making the offer should also be placed under arrest and charged with offering a bribe.

  3. If the offer is made by someone already under arrest, additional charges for offering the bribe should be recommended against that individual.

  4. If money has been handed to the special agent, he/she should make a list of the serial numbers and denominations in the presence of at least one other special agent and note any other distinguishing features.

    1. The special agent should then put the money in an envelope or in some other suitable container and seal it in a way that the seal will have to be broken to get to the contents.

    2. The special agent should take the container to the field office cashier or cashier’s representative for safekeeping.

    3. The cashier or cashier’s representative must keep the container in the exact condition in which it was received.

    4. The special agent should explain the chain of custody procedure to the cashier or cashier’s representative so the chain of custody will be preserved.

  5. If currency and/or other valuables have been passed on to the special agent, the special agent should adhere to proper evidentiary procedures.

  6. Criminal Investigation will notify TIGTA of the bribe offer as soon as possible.

9.5.11.2.3.2  (09-09-2004)
Attempted Bribery in Grand Jury Investigations

  1. If an allegation or overture of bribery is made during a grand jury investigation, CI will inform TIGTA of the allegation or overture as well as the name of the attorney for the government assigned to the investigation.

  2. The information provided in the initial report should be limited to the information detailed above in subsection 9.5.11.2.3.1, Attempted Bribery During the Execution of a Search or Arrest Warrant.

  3. Criminal Investigation will inform the attorney for the government of the incident and relate that the matter has been reported to TIGTA.

  4. The Treasury Inspector General for Tax Administration will contact the attorney for the government regarding the allegation or overture. Any subsequent investigation by TIGTA will be coordinated with the attorney for the government and CI.

9.5.11.2.4  (09-09-2004)
Prohibition on Executive Branch Influence Over Taxpayer Audits and Other Investigations

  1. Title 26 USC §7217 makes it unlawful for any person to request an IRS employee to conduct or terminate an audit or investigation. The prohibition applies to both direct requests and requests made through an intermediary. As there are limited exceptions to this prohibition, each request must be evaluated individually. Any employee receiving any such request shall report the incident to TIGTA.

9.5.11.3  (09-09-2004)
Forcible Rescue of Seized Property

  1. Criminal Investigation has the responsibility for conducting investigations involving forcible rescue or dispossession of property seized under the Internal Revenue laws, except property seized by the Bureau of Alcohol, Tobacco and Firearms (ATF).

  2. Theft of government property, including seized property which has been adjudicated as government property and seized property which has been turned over to the US Marshal Service in a libel proceeding, falls within the jurisdiction of the Federal Bureau of Investigation.

9.5.11.3.1  (09-09-2004)
Forcible Rescue

  1. The essential elements of 26 USC §7212(b) are:

    1. forcible rescue or attempt to forcibly rescue

    2. property that was validly seized pursuant to 26 USC

9.5.11.3.1.1  (09-09-2004)
Rescue of Seized Property

  1. The essential elements of 18 USC §2233 are:

    1. forcible rescue or dispossession or an attempt to forcibly rescue or dispossess

    2. property taken, detained, or seized under authority of a revenue law of the United States or by any person authorized to make searches and seizures

  2. A rescue of seized property prosecution recommendation may be made if:

    1. There has been a seizure, levy, or other taking, which is sufficient to put the individual on notice that the property is under process of seizure for taxes.

    2. There is a retaking by physical force, stealth, or in any other manner, that indicates a willful defiance of the legal process.

9.5.11.3.2  (09-09-2004)
Forcible Rescue Investigations

  1. Investigations interpreting forcible rescue under both 26 USC §7212(b) and 18 USC §2233 permit prosecution against any individual who rescues or dispossesses, or attempts to rescue or dispossess, property of which the government has taken legal possession.

  2. By current practice, determination of whether an alleged forcible rescue is to be investigated by CI or the FBI depends on whether the property was taken before or after it was adjudicated government property. Before undertaking an investigation, the special agent should first determine if it is to be handled by CI, as set forth above in subsection 9.5.11.3, Forcible Rescue of Seized Property.

  3. If the investigation is within CI jurisdiction, the special agent should initially determine whether the property had been validly seized under the USC, and then determine whether it was forcibly rescued or an attempt to forcibly rescue had been made.

  4. The underlying seizure must be valid on its face before it can be considered a forcible rescue investigation under 18 USC §2233 or 26 USC §7212(b). A seizure valid on its face will generally support a rescue conviction even if the seizure could be invalidated by a court. During a forcible rescue it should be shown the person retaking the property had knowledge of the valid seizure or of the fact the property was in the possession of the government. It is not a defense that the person retaking the property claims to be the real owner or claims the property was seized by mistake. A person’s remedy is judicial, not self-help.

  5. To determine whether the property has been validly seized:

    1. Examine the file relating to the seizure and obtain certified copies of all the documents that give legal basis to the seizure.

    2. Interview all officers, employees, or other persons that have knowledge of the circumstances that led up to the seizure and/or those that relate to the actual seizure.

    3. Establish that a notice of seizure was attached to the property.

  6. "Forcible" does not necessarily mean actual physical violence to an officer. It includes threatening language and/or conduct intended to intimidate the revenue officer to make him/her stop the performance of his/her official duty. It has been held that a forcible rescue under 26 USC §7212(b) includes the use of force against property, such as the breaking of a bank window, the removal of the IRS seal on a safe deposit box, and the removal of the box and its contents from the bank.

  7. To determine whether there has been a forcible rescue or an attempted forcible rescue, the special agent should:

    1. Interview all individuals who witnessed the incident to determine the facts that led up to and pertain to the actual seizure and whether any threatening language, as well as a description of any menacing gestures, instruments, or weapons were used during the forcible rescue.

    2. Obtain any instruments or weapons used by the assailant and get the names and addresses of witnesses who can identify them.

    3. Establish what knowledge the subject had that the property was under seizure when the forcible rescue was committed or attempted (see IRM 9.4.12, Arrests).

9.5.11.3.2.1  (09-09-2004)
Corrupt or Forcible Interference

  1. The elements essential to constitute an offense under this section are: corruptly, or by force, or threats of force (including any threatening letter or communication), endeavored to impede or obstruct the due administration of the Internal Revenue laws.

  2. This section provides for the punishment of threats or threatening acts against agents of the IRS, officers or employees of the United States and/or members of the families of such persons due to the performance by such agents or officers or employees of his/her official duties.

  3. The Conference Committee’s Report (House and Senate) states that: "Subsection (a) of 26 USC §7212 is broader than 18 USC §111, relating to persons assaulting, resisting, or impeding certain officers or employees of the United States while engaged in the performance of their official duties, in that 26 USC §7212(a) covers force or threats of force (including any threatening letter or communication) or corrupt solicitation. Threats of force have been defined as meaning threats of bodily harm to the officer or employee of the United States or members of the families of such persons, on account of the performance by such agents or officers or employees of their official duties."

  4. "Corruptly" refers to an attempt to influence any official in his/her official capacity under this title by any improper inducement. For example, an offer of a bribe or a passing of a bribe to an IRS employee for the purpose of influencing the performance of his/her official duties is corrupt interference with the administration of Federal laws.

9.5.11.3.2.2  (09-09-2004)
Assault, Resisting, or Impeding Certain Officers or Employees

  1. Although there is some overlap between 18 USC §111 and 26 USC §7212(a), the latter is broader because it includes the use of force or threats of bodily harm against an officer or employee of the United States acting in his/her official capacity under the Internal Revenue laws and/or any member of his/her family.

  2. Under 26 USC §7212(a) a threat of force is chargeable only as a misdemeanor even if it consists of pointing a rifle at the agent.

  3. Title 18 USC §111 makes it an offense to assault, resist, oppose, impede, intimidate, or interfere with officers or employees designated under 18 USC §1114 (including IRS employees), and provides a much more severe punishment when the act is committed with a deadly or dangerous weapon.

  4. Investigations under 18 USC §111 have not required proof of knowledge of the official capacity of the person assaulted.

9.5.11.3.2.3  (09-09-2004)
Investigative Responsibility

  1. The Treasury Inspector General for Tax Administration has primary responsibility over 26 USC §7212(a) allegations which involve broad-based, systemic attempts to corruptly interfere with or impede tax administration generally, and/or any actions designed to harass IRS employees or interfere with activities or functions of IRS personnel. This could include the filing harassing liens designed to intimidate, influence, tamper with, or retaliate against IRS employees and his/her family, or other related persons such as witnesses and informants, as well as the filing of fictitious Forms 8300 on public officials not directly involved in tax administration. Also included are acts which collectively constitute a broad-based, systematic attempt to corruptly interfere with or impede tax administration generally, as opposed to a substantive tax offense.

  2. Criminal Investigation has investigative responsibility over 26 USC §7212(a) corrupt interference allegations that involve substantive tax violations of non-employees or interference with the activities within the responsibility of CI. Criminal Investigation also has investigative responsibility for forcible rescues under 26 USC §7212(b).

  3. There are instances in which jurisdictional overlap may occur between TIGTA and CI. In these instances, it is essential that TIGTA and CI management communicate effectively in order to avoid the duplication of investigative efforts and facilitate joint investigations when appropriate.

  4. All reports of assaults or threats against IRS employees must be forwarded directly to or through appropriate supervisory channels to TIGTA.

  5. Criminal Investigation will assist TIGTA in urgent or emergency situations. The Treasury Inspector General Tax Administration will evaluate the situation. If it is determined that the deployment of TIGTA personnel is not required, TIGTA may request assistance from CI to conduct the investigation of the alleged threat or assault and will be provided with a copy of the investigative report.

  6. In emergency forcible interference situations where an employee is in imminent danger of physical harm, CI will respond immediately.

  7. When an assault or threat occurs in the course of an armed escort or during execution of search, seizure, or arrests warrants, CI may take appropriate enforcement action, such as placing the attacker under arrest. Criminal Investigation will promptly notify TIGTA and provide documentation concerning the incident and the action taken. The Treasury Inspector General Tax Administration will determine what investigation by TIGTA is warranted and will initiate appropriate processing of Potentially Dangerous Taxpayer (PDT) determinations.

9.5.11.3.2.4  (09-09-2004)
Reporting the Incident

  1. When an employee believes he/she has been assaulted, threatened, or harassed, the employee should personally visit or telephone the servicing TIGTA office as soon as practicable to report the circumstances of the incident. The employee should furnish the taxpayer’s full name and Social Security Number (SSN) and Employer Identification Number (EIN), if appropriate.

9.5.11.3.2.5  (09-09-2004)
Reporting Assaults, Threats, or Forcible Interference Against Service Employees

  1. Employees must report to TIGTA all assaults, threats, or forcible interference against them in the course of his/her official duties and all assaults or threats against members of his/her family when made to impede the performance of the employee’s official duties.

  2. Employees should report these incidents by telephone or in person to his/her local TIGTA office as soon as possible after they occur.

9.5.11.3.2.6  (09-09-2004)
Interference Investigations

  1. Interference investigations may arise quite suddenly during a seizure or some other enforcement, levy, or collection action. The information pertaining to the incident will be promptly reported directly to the SSA and the Special Agent in Charge (SAC). The SAC will continue to monitor the investigation because of the hazard posed to the investigating officer and because of the impact these investigations have on the enforcement system of the IRS.

  2. Criminal Investigation is responsible for investigating instances of interference when there is no threat or assault. However, when an assault or threat occurs in the course of a CI armed escort assignment or during the execution of a search, seizure or arrest warrant, CI may take appropriate enforcement action, such as placing the attacker under arrest. Criminal Investigation will promptly notify TIGTA and provide documentation concerning the incident and the action taken.

  3. The Treasury Inspector General Tax Administration has the primary responsibility to investigate instances involving assaults upon and threats to IRS employees. The Treasury Inspector General Tax Administration will determine what investigation by TIGTA is warranted and will initiate appropriate procession of the PDT.

  4. The special agents will fully cooperate with TIGTA and furnish all pertinent information. The special agent should prepare a comprehensive memorandum of activity and diagram, photograph, or videotape the premises where the assault, menacing gestures, and/or threatening language occurred.

9.5.11.3.2.7  (09-09-2004)
Potentially Dangerous Taxpayer System

  1. The PDT identifies taxpayers who pose a threat to the safety of IRS employees and his/her family when the employee’s official duties may require personal contact with such taxpayer.

  2. The Treasury Inspector General for Tax Administration is responsible for conducting PDT investigations and forwarding the investigative finding to the IRS Office of Employee Protection.

  3. The IRS Office of Employee Protection is responsible for the management and administration of the PDT database. The IRS Office of Employee Protection is located in Detroit and is under the direction of Small Business/Self-Employed (SB/SE) Director of Compliance Area 6. The Director of Compliance Area 6 makes all PDT determinations after reviewing TIGTA’s investigative reports.

  4. If a local IRS executive does not concur with the Director of Compliance’s determination, the matter is referred to General Legal Services for reconsideration. General Legal Services is responsible for making the final determination.

9.5.11.4  (11-01-2011)
Offers in Compromise

  1. An accepted Offer in Compromise (OIC) is a legally binding agreement between the Service and a taxpayer and is enforceable by either party. The Service, like any business, encounters situations where an account receivable cannot be collected in full or there is a dispute regarding what is owed. It is accepted business practice to resolve collection and liability issues through compromise. The laws relating to Offers in Compromise are set forth in Title 26 USC §7121, Title 26 USC §7122, Title 26 USC §7123, and Title 26 USC §7206(5). An OIC overview and procedural guidance may be found in IRM Chapters 5.8 and 8.23, Offer in Compromise. Guidance specific to indicators of taxpayer fraud as it relates to OIC may be found in IRM 5.8.10, Independent Administrative Review.

9.5.11.4.1  (11-01-2011)
Criminal Investigation Responsibility

  1. Criminal Investigation’s responsibility regarding OIC pertain to offers with the following factors:

    1. offers containing false or fraudulent representations

    2. offers involving joint investigations by CI with other IRS operating divisions in which the criminal aspects have been completed

    3. offers made while criminal proceedings are pending

  2. Special agents should acquaint themselves with the contents of the sections of the USC dealing with offers in compromise and the pertinent sections of IRM 8.13.2, Offers in Compromise.

9.5.11.4.2  (11-01-2011)
Alleged Fraudulent Offers

  1. An allegation involving a potentially fraudulent OIC may be referred to CI by an IRS civil operating division. This referral may be made using established fraud referral procedures once indications of fraud have been identified regarding a false representation of a material matter made in or in connection with an OIC.

  2. The concealment of income and/or property, false and/or intentional misstatements, or falsifying and/or destroying records in connection with any OIC may result in criminal penalties.

  3. The principal elements of fraudulent OIC are the willful:

    1. concealing from any officer or employee of the United States any property belonging to the taxpayer, estate of a taxpayer or any other person liable in respect to the tax due

    2. receiving, withholding, destroying, mutilating, or falsifying any book, document, or record of the taxpayer or any other person liable in respect to the tax due

    3. making a false statement relating to the estate or financial condition of the taxpayer or other person liable in respect to the tax due

  4. Criminal Investigation will investigate, report, and process OIC related fraud referrals in the same manner as other tax-related fraud referral investigations (see subsection 9.5.11.4.5, OIC Reports and IRM 5.8.4, Investigation). The customary standard for establishing willfulness and intent are applicable for OIC fraud related tax investigations. The standard for these elements and the applicable criminal statutory provisions are set forth in IRM 9.1.3, Criminal Statutory Provisions and Common Law.

    Note:

    Special agents must be cognizant that the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) law includes a provision for automatic acceptance of an Offer in Compromise, if a decision has not been reached within 24 months of receipt of the OIC. IRS can no longer hold OICs open indefinitely pending a decision regarding the potential criminal investigation.

  5. Investigations of concealment involve identifying all assets belonging to the subject or to any other person liable in respect to the tax due.

  6. Investigations involving the receipt, withholding, destruction, mutilation, or falsification of any book, document, or record are investigated in the same manner as any other tax fraud investigation by gathering evidence to document the commission of the fraudulent act, that the act was committed willfully, and with the intent to defraud the government.

  7. The techniques used to investigate fraudulent OIC are similar to those used in investigations involving violations of Title 18 USC §1001, False Statements and Title 18 USC §1621, Perjury.

9.5.11.4.3  (11-01-2011)
Offers in Compromise in Closed Criminal Investigations

  1. Offers in Compromise involving joint investigations with other IRS operating divisions in which the criminal aspects have been completed will be examined solely by the responsible operating division. Except as noted in paragraph 2 below, the Territory Manager of the civil operating division will, after completion of the examination, refer the entire file to the SAC for concurrence or comment when all of the following conditions exist:

    1. a civil fraud penalty or negligence penalty are involved

    2. the offer involves an investigation in which the special agent has written a final prosecution report and recommended the assertion of a civil fraud penalty

    3. the civil operating division contemplates recommending acceptance of the offer

  2. If the sole issue presented in the OIC is the ability to pay, a fraud referral to CI will not be made.

  3. The SAC should indicate his/her concurrence with the recommended disposition of the OIC by memorandum and return the entire file to the civil operating division for processing.

  4. If the SAC does not concur and no agreement can be reached with the civil operating division as to the disposition of the OIC, the matter should be elevated to the Director, Field Operations and the respective operating division’s Area Director to resolve any differences.

9.5.11.4.4  (11-01-2011)
Offers in Compromise Made in Pending Criminal Investigations

  1. If a Special Agent (SA) or Supervisory Special Agent (SSA) is contacted regarding the submission of an OIC on an open criminal investigation, the SSA should discuss the matter with the Fraud Technical Advisor, civil manager, and CT Counsel to appropriately balance the civil and criminal aspects of the case. A determination must be made regarding how to best proceed and whether or not a referral is warranted or if parallel proceedings should ensue.

  2. Special agents must be cognizant that the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) law includes a provision for automatic acceptance of an Offer in Compromise, if a decision has not been reached within 24 months of receipt of the OIC. IRS can no longer hold OICs open indefinitely pending a decision regarding the potential criminal investigation (see IRM 5.8.4).

9.5.11.4.5  (11-01-2011)
Offers in Compromise Reports

  1. Reports relating to OIC in joint investigations, in which the criminal aspects have been closed and the SAC concurs with the disposition recommended by the civil operating division, will be returned to the referring division along with a memorandum of concurrence for further processing.

  2. If the SAC does not concur with the recommended disposition of the OIC from the referring division and an agreement cannot be reached, the report will be forwarded along with a memorandum outlining the issues to the Director, Field Operations for resolution.

9.5.11.5  (09-09-2004)
Wagering

  1. Each SAC is responsible for identifying noncompliance in the wagering tax area.

  2. The SAC shall maintain liaison with local and state law enforcement officials to keep current with wagering enforcement problems in his/her field office and to identify violators who warrant action by CI. In all such contacts, IRS personnel shall adhere to existing disclosure provisions; particularly, 26 USC §4424 and 26 USC §6103 (see IRM 9.3.1, Disclosure).

  3. Because of limited resources, CI will focus its primary enforcement efforts at independent initiation and development of investigations against important operators and situations involving widespread noncompliance. Investigations developed by local and state authorities will not be adopted for criminal investigation unless they present instances of flagrancy or situations where there is high potential.

  4. Information, which lacks criminal potential for CI, will be referred to Small Business/Self Employed (SB/SE) Compliance Programs for further screening for possible civil tax collection potential.

  5. There are special disclosure restrictions regarding wagering investigations (see IRM 9.3.1).

9.5.11.5.1  (11-01-2011)
Coordination With The United States Attorney

  1. Department of Justice, Tax Division has taken the position that wagering excise or occupational tax investigations are not generally high priority investigations. The SAC will meet with the United States or Strike Force Attorney to discuss these types of wagering tax investigations to determine if they are prosecutable under DOJ, Tax Division standards. Disclosure of information for this purpose is permissible under 26 USC §4424.

  2. The attorney for the government should be informed that any information gleaned from data subject to 26 USC §4424 must be used only for the administration or civil or criminal enforcement of the USC, and that such information may not be used for intelligence or prosecutorial purposes such as the enforcement of gambling offenses set forth in Titles 18, 26, and 31 (not all inclusive) of the USC or any other non-tax administration purpose.

9.5.11.5.2  (09-09-2004)
Civil Wagering Taxes And Penalties

  1. Wagering taxes include three types of " excise taxes." The applicable taxes are:

    1. wagering excise tax (26 USC §4401) — applicable to the acceptor of wagers (principal)

    2. special tax (26 USC §4411) — applies to both the acceptor and the receiver of wagers (agent)

    3. wagering registration (26 USC §4412) on Form 11C is required of anyone who has to pay the special tax

9.5.11.5.2.1  (09-09-2004)
Wagering Excise Tax

  1. Title 26 USC §4401 imposes an excise tax on wagers. The excise tax on wagers authorized under state law was reduced to 0.25 percent. The excise tax on wagers that are not authorized under state law remains at 2 percent. Where both authorized and unauthorized wagers are involved, the 0.25 percent rate will apply only to those wagers which are authorized under state law. The remaining (or unauthorized) wagers will be taxed at 2 percent.

  2. The wagering excise tax (26 USC §4401) is applicable to the acceptor of wagers (principal) while the special tax (26 USC §4411) applies to both the acceptor and the receiver of wagers (agent). In addition, pursuant to 26 USC §4401(c), an individual may become liable for the excise tax in the event that he/she is liable for the special tax, as an agent for a principle, and fails to disclose the identity of his/her principle. Title 26 USC §4412 provides that each person required to pay a special tax under 26 USC §4411 shall register with the designated IRS official in charge of the IRS territory office where the wagering business is conducted. Form 11C is used for the registration.

9.5.11.5.2.1.1  (11-01-2011)
Definitions of Wagering Terms

  1. Wager—The term "wager" means any wager with respect to a sports event or a contest placed with a person engaged in the business of accepting such wagers; any wager placed in a wagering pool with respect to a sports event or a contest, if such pool is conducted for profit; and any wager placed in a lottery conducted for profit.

  2. Lottery—The term "lottery" includes the numbers game, policy, and similar types of wagering. The term does not include:

    1. any game of the type in which the wagers are placed, the winners are determined, and the distribution of prizes or other property is made in the presence of all persons placing wagers

    2. any drawing conducted by an organization exempt from tax under 26 USC §501 and 26 USC §521, if no part of the net proceeds derived from such drawing is a benefit to any private shareholder or individual

9.5.11.5.2.1.2  (09-09-2004)
Elements of Wagering Tax Violations

  1. The elements of a wagering tax violation subject to criminal sanctions under 26 USC §7203 are:

    1. the wagering activity must be subject to the wagering tax laws (26 USC §4421)

    2. failure of the person to register and pay the special tax before accepting the wager and/or failure of the person to file wagering excise tax returns and pay tax

    3. evidence to prove that the person willfully failed to comply with the law

  2. In addition to proving the above elements, the government must prove affirmative acts that indicate a willful intent to evade or defeat the tax in order to sustain a violation of 26 USC §7201.

  3. Proof of willfulness is not required for a violation under 26 USC §7262, which provides a $1,000 to $5,000 fine for any wagering activity whereby a person’s liable for the special tax but fails to pay it.

9.5.11.5.2.1.3  (09-09-2004)
Amount of Wager

  1. In determining the amount of any wager, all charges incident to the placing of such wager shall be included. However, if the taxpayer establishes, in accordance with regulations prescribed by the Secretary or his/her delegate, that an amount equal to the tax has been collected as a separate charge from the person placing such wager, the amount so collected shall be excluded.

9.5.11.5.2.1.4  (11-01-2011)
Persons Liable for Wagering Excise Tax

  1. Every person required to pay the excise tax imposed by 26 USC §4401 shall keep a daily record showing the gross amount of all wagers for which he/she is liable in addition to all other records required pursuant to 26 USC §6001. An agent or employee, shall keep a daily record of wagers received, commissions retained, and amount turned over to his principal. The records required to be maintained by principal and agent shall at all times be open for inspection by revenue officers. The records shall be maintained for a period of at least three years from the date the wager was received.

  2. Monthly returns of the excise tax on wagers must be filed on Form 730, Tax on Wagering. The taxes are due and payable to the designated operating division, without notice from the IRS, on or before the last day of the month following that for which it is made.

  3. Each person who is engaged in the business of accepting wagers shall be liable for and shall pay the tax on all wagers placed with him/her. Each person who conducts a wagering pool or lottery shall be liable for and shall pay the tax on all wagers placed in such pool or lottery.

  4. A person is engaged in the business of accepting wagers if they routinely accept wagers for which they assume the risk of profit or loss depending upon the outcome of the event or contest with respect to the wager accepted. To be engaged in the business of accepting wagers, a person need not be engaged in the business to the exclusion of all other activities or even primarily engaged.

  5. Courts have ruled that a single transaction does not constitute engaging in the business of wagering unless additional evidence reveals otherwise. However, a single wagering transaction made under circumstances that indicate it is made in the usual course of business may make the person liable for the special tax. The chance for successful prosecution is better if there is evidence the person accepted several wagers and competent witnesses are available to testify as to the passage of money and its acceptance as wagers.

9.5.11.5.2.1.5  (09-09-2004)
Exclusions From Wagering Excise Tax

  1. No excise tax shall be imposed on:

    1. any wager placed with or placed in a wagering pool conducted by a pari-mutuel wagering enterprise licensed under state law

    2. any wager placed in a coin-operated device or on any amount paid in lieu of inserting a coin, token, or similar object to operate such a device

    3. any wager placed with the state or with its authorized employees or agents in a sweepstakes, wagering pool, or lottery conducted by that state agency acting under the authority of state law

9.5.11.5.2.1.6  (09-09-2004)
Territorial Extent of Wagering Excise Tax

  1. The tax imposed by 26 USC §4401 applies only to wagers which are:

    1. accepted in the United States

    2. placed by a person who is in the United States

    3. placed by a person who is a citizen or resident of the United States

    4. placed by a person in a wagering pool or lottery conducted by a person who is a citizen or resident of the United States

9.5.11.5.2.2  (09-09-2004)
Wagering Special Tax

  1. Title 26 USC §4411 imposes a special tax of $500 per year to be paid by each person who is liable for the tax under 26 USC §4401 or is engaged in receiving wagers for or on behalf of any person so liable. In states where wagers are authorized, the special tax will be $50 per year. However, in order to qualify for the $50 rate, all wagers accepted must be specifically authorized by the state where they were accepted.

  2. The application of 26 USC §4411 may be illustrated by the following examples:

    1. "A" is engaged in the business of accepting horse race bets and employs 10 persons to receive, on his/her behalf, wagers that are transmitted by telephone. "A" also employs a secretary and a bookkeeper. "A" and each of the 10 employees who receive wagers by telephone on "A’s " behalf of are liable for special tax. The secretary and bookkeeper are not liable for the special tax unless they also receive wagers for "A."

    2. "B" operates a numbers game and has an arrangement with 10 persons who are employed in such capacities as bootblacks, elevator operators, news dealers, etc., to receive wagers from the public on his/her behalf. "B" also employs " C" to collect the wagers received from the 10 persons and to deliver such wagers to "B." "C" performs no other services for "B." "B" and the 10 persons who receive wagers on his/her behalf are liable for the special tax. "C" is not liable for the special tax since he/she is not engaged in receiving wagers for "B."

  3. The special tax imposed by 26 USC §4411 must be paid before an individual or firm engages in accepting wagers. The special tax is computed as of the first day of July each year or the first day that wagers are accepted. In the former investigation, the special tax shall be computed for one year but, in the latter, it shall be prorated from the first day of the month in which wagers were accepted, to and including the 30th day of June.

9.5.11.5.2.3  (09-09-2004)
Wagering Registration

  1. Title 26 USC §4412 provides that each person required to pay a special tax under 26 USC §4411 shall register with the designated service official in charge of the IRS territory where the wagering business is conducted. In the event a firm or company conducts the wagering business, the names and places of residence of the persons constituting the firm or company shall be registered.

  2. Form 11C, Occupational Tax and Registration Return for Wagering is used for registration and requires:

    1. the name and place of residence of taxpayer

    2. whether he/she is liable for the excise tax

    3. each place of business where the wagering activity is carried on

    4. the name and place of residence of each person who is engaged in receiving wagers for him/her

    5. whether he/she is engaged in receiving wagers for or on behalf of any person subject to the excise tax

    6. the name and place of residence of each such person

9.5.11.5.3  (09-09-2004)
Civil Fraud Penalties

  1. See IRM 20.1.2, Failure to File/Failure to Pay Penalties for penalties relating to failure to file tax returns and failure to pay taxes.

9.5.11.5.4  (11-01-2011)
Processing Wagering Tax Information

  1. The SAC will ensure that leads involving major customers of bookmakers are followed up for income tax purposes. Income tax information obtained by a special agent during a wagering investigation will be summarized on Form 3949, Information Report Referral, and submitted to his/ her SSA who will forward the lead to the Lead Development Center (LDC) (see IRM 9.4.1, Investigation Initiation).

  2. In determining whether information received during wagering investigations has tax consequences, data reported on tax returns and results of prior investigations may need to be considered. If tax returns or other data are not readily available, the information may be placed in a pending status until the tax returns are obtained.

  3. Upon receiving the requested returns, the SSA will forward the information item to the SAC for processing. The SAC may defer acting on leads involving customers until the criminal investigation against the bookmaker is concluded. The SAC, in determining when to act on these leads, should consider such factors as the civil and criminal statute of limitations as well as the effect IRS action may have on pending investigations.

9.5.11.5.5  (09-09-2004)
Criminal Investigations of Wagering Excise Statutes

  1. Primary enforcement efforts in the wagering tax area shall be aimed at the independent initiation and development of criminal investigations against major operators and financiers along with situations involving widespread noncompliance. IRS efforts will strive to promote balanced enforcement with respect to investigations of wagering occupational, wagering excise, and income tax violations on identified subjects.

  2. Generally, a major wagering operation is one comprised of five or more individuals who conduct, finance, manage, supervise, direct or own all or part of a gambling business and meet one or more of the following criteria:

    1. has a daily gross of over $2000

    2. conducts business at more than one location

    3. actively handles lay-off bets

    4. is a principal of the operation

    5. is notorious or powerful with respect to local criminal activity

  3. Investigations not meeting the criteria may be investigated and recommended for prosecution only if they are associated with and are simultaneously submitted for prosecution as a package with an investigation meeting the criteria.

  4. The most frequently used criminal statutes in wagering tax violations are:

    1. willful attempt to evade or defeat the payment of wagering tax (26 USC §7201)

    2. willful failure to file return or supply information (26 USC §7203)

    3. failure to pay special wagering tax (26 USC §7262)

9.5.11.5.6  (11-01-2011)
Venue and Statute of Limitations on Wagering Taxes

  1. Violation of 26 USC §7262, which provides a maximum penalty of $5,000 for not paying the special tax imposed by 26 USC §4411, is committed in the judicial district where the wager was accepted. Therefore, venue lies in the judicial district where the wager was accepted without regard to the location of the territory office.

  2. The statute of limitations with regard to both excise and occupational wagering taxes (26 USC §7201 or 26 USC §7203) is 6 years from the date of the last overt act or statutory due date of the return, whichever is later. However, the statute of limitation for Title 26 USC § 7203 with respect to, Failure to Keep Records and Failure to Supply Information, is 3 years, not 6 years.

  3. Collateral violations related to wagering, such as filing false claims, conspiracy, and false statements, may also incur penalties prescribed by 18 USC §287, 18 USC §371, and 18 USC §1001 respectively.

  4. Title 26 USC §4424 was intended to remove any constitutional challenges regarding enforcement of the wagering taxes resulting from improper disclosure of wagering tax information.

9.5.11.5.7  (11-01-2011)
Investigative Techniques Used in Wagering Investigations

  1. Investigations of wagering tax violations usually require the surveillance of violators and localities to obtain evidence of the underlying wagering activity. When appropriate, this evidence can be used to obtain probable cause for issuance of search warrants. In the affidavit for a search warrant, the special agent must state that IRS records were searched, and by whom, for the wagering tax stamp. See IRM 9.4.9, Search Warrants, Evidence, and Chain of Custody, for information concerning affidavits for search warrants.

  2. If during the course of the investigation, a special agent participates in any type of game which requires continuous play and is exempt from wagering excise tax (i.e., blackjack, poker, craps or roulette), the accountability for amounts wagered, won or lost, will be determined at the conclusion of play. The computation will be made by comparing the amount on hand at the conclusion of the wagering activity to the amount at the outset of play.

  3. Winnings on wagers placed by special agents may be treated the same as other profits which are received by the government in ongoing undercover operations. If winnings are to be held for use as evidence, the special agent will follow procedures for the safekeeping, control, and disposition of seized money as discussed in IRM Chapter 9.7, Asset Seizure and Forfeiture.

9.5.11.6  (09-09-2004)
Excise Tax

  1. An excise tax is a duty imposed upon the manufacture, sale, or consumption of commodities within the country, and upon certain occupations.

  2. Some taxes are merely regulatory while others are imposed for both regulatory and revenue generating purposes. Most excise taxes, however, are levied exclusively for the purpose of generating revenue.

9.5.11.6.1  (11-01-2011)
Excise and Income Taxes Distinguished

  1. Income taxes are based on net income or net profits and are computed on a graduated scale. Excise taxes are not computed on a graduated scale and may be based upon any of the following factors:

    1. selling price of merchandise or facilities

    2. services sold or used

    3. number, weight, or volume of units sold, and

    4. nature of occupation

9.5.11.6.1.1  (09-09-2004)
Tax Period

  1. Certain excise tax returns are required to be filed on either a fiscal year or calendar year basis. In general, excise tax returns are filed on a calendar quarter year basis. Income tax returns are required to be filed on either a fiscal year or calendar year basis.

9.5.11.6.1.2  (09-09-2004)
Additional Taxes and Penalties

  1. Assessments of additional or delinquent excise taxes are referred to as "additional taxes." In income tax investigations, such assessments are known as "deficiencies. " There are many types of civil penalties specifically applicable to excise tax investigations. Civil penalties in income tax investigations are limited to three types: delinquency, negligence, and fraud (see IRM 9.5.13, Civil Considerations).


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