25.1.5 Grand Jury Investigations184.108.40.206 Overview220.127.116.11 Grand Jury Suspense18.104.22.168 Cooperating Grand Jury Examiner/Revenue Officer Procedures22.214.171.124 Unique Features126.96.36.199 Civil Case Resolution Part 25. Special TopicsChapter 1. Fraud HandbookSection 5. Grand Jury Investigations 25.1.5 Grand Jury Investigations Manual Transmittal June 07, 2016 Purpose (1) This transmits revised IRM 25.1.5, Fraud Handbook - Grand Jury Investigations. Material Changes (1) 188.8.131.52(4) - Added reference to IRM 9.5.2. (2) 184.108.40.206(4) - Added reference to IRM 220.127.116.11.1. (3) Throughout - Updates distribution of Form 13308 by CI to now also include any appropriate civil business operating divisions. Effect on Other DocumentsThis IRM supersedes IRM 25.1.5 dated March 20, 2015. Audience Criminal Investigation (CI), Large Business & International (LB&I), Small Business/Self-Employed (SB/SE), Tax Exempt/Government Entities (TE/GE), and Wage & Investment (W&I) Effective Date(06-07-2016)Mark E. Pursley, Director, Servicewide Operations, SB/SE 18.104.22.168 (06-07-2016) Overview This section addresses Grand Jury investigations. By Federal Rules of Criminal Procedure, Rule 6(e), information obtained during a Grand Jury investigation is secret and cannot be disclosed or used in any civil proceeding. Criminal Investigation (CI) may request a Grand Jury investigation by referring the matter to the Department of Justice (DOJ), Tax Division or an investigation may be initiated by the U.S. Attorney's Office, which requests the assistance of the IRS. See IRM 9.5.2, Grand Jury Investigations, for further information on the initiation, procedures, and rules pertaining to Grand Jury investigations. 22.214.171.124 (06-07-2016) Grand Jury Suspense When CI initiates a Grand Jury investigation which has not been referred by a civil compliance function or when the Grand Jury was initiated by the DOJ, the special agent (SA) must determine if any civil action is being taken or planned. The SA will complete and submit Form 14584, IRS - Criminal Investigation - Check for and Suspend Civil Activity Notification, to the civil business operating divisions for deconfliction. Upon receipt of notification, taxpayer contact must immediately cease on tax years currently under examination/collection activity unless a parallel investigation is authorized. For cases in examination, the Examination group will forward the case to Technical Services (TS), or to the appropriate Tax Exempt/Government Entities (TE/GE) suspense unit, for Grand Jury suspense, and Collection will close the case and transfer it to Advisory. Procedures for civil/criminal parallel investigations in Examination Abusive Transaction (AT) promotion cases are in IRM 126.96.36.199, Parallel Investigations. Procedures for civil/criminal parallel investigations in Collection Field cases are in IRM 5.1.5, Balancing Civil and Criminal Cases. When an existing administrative criminal investigation, either with or without an assigned cooperating compliance employee, becomes an approved Grand Jury investigation, CI will send a Notice of Department of Justice Referral memorandum to TS, Advisory, and the civil business operating divisions to initiate suspense action. Upon receipt of such notification, the Examination group will forward the case to TS, or to the appropriate TE/GE suspense unit, for Grand Jury suspense, and Collection will close the case and transfer it to Advisory. http://mysbse.web.irs.gov/collection/aiqorg/default.aspx Other civil business operating divisions will forward the case to their appropriate suspense unit. The examiner will prepare an unagreed income tax examination changes report, identifying only known and supportable adjustments and applicable penalties. See IRM 188.8.131.52.3.6.1, Review of Cases Submitted to Fraud or Grand Jury Suspense. Workpapers should reflect the results of the examination, as far as it has progressed, and support all known applicable adjustments and penalties. All workpapers and documentation in the case file must reflect the dates of receipt or preparation which must precede the acceptance date by the Grand Jury. If additional documents are gathered by Examination or Collection between the date of the Grand Jury's commencement and the date when Examination or Collection was notified about the Grand Jury proceedings, those documents should be included in the file, but separately marked. In addition, the transmittal memorandum must include a statement about the existence of additional documents and the date(s) they were collected. Additional information on Grand Jury suspense can be found in IRM 184.108.40.206.3, Fraud and Grand Jury Suspense. The examiner will also prepare Form 4665, Report Transmittal, as explained in IRM 220.127.116.11.10(6), Preparation of the Pre-Prosecution Report, except the transmittal should not be labeled "Pre-Prosecution Report." Caution: When the case is returned to an examination group from suspense, the examiner must place the Form 4665 (used to transmit the case to suspense) in a confidential envelope with a TD F 15-05.11, Sensitive But Unclassified (SBU), cover sheet (catalog 56033J) attached to the confidential envelope. Please refer to IRM 18.104.22.168.6, Form 4665, Report Transmittal, for instructions relating to Form 4665 at case closing. After receiving notification of the Grand Jury investigation, the examiner should not establish Audit Information Management Systems (AIMS) controls for prior or subsequent periods. Prior to forwarding the case to Examination TS for Grand Jury suspense, the examiner must ensure all open statutes of limitation are protected and a minimum of one year remains on the statute for each open return. If the target of a Grand Jury investigation is not currently under examination/collection activity, AIMS controls should not be established and statute protection is not the responsibility of examination or collection. 22.214.171.124 (06-07-2016) Cooperating Grand Jury Examiner/Revenue Officer Procedures Civil information may be used when the case is returned to the field for civil resolution. The information must either be a matter of public record, or be obtained prior to convening the Grand Jury. One of the most important responsibilities of the cooperating Grand Jury examiner/revenue officer is to ensure this information is provided to the field. If a taxpayer files a delinquent or amended return during a Grand Jury investigation, the assigned cooperating examiner/revenue officer must discuss such filing with the assigned SA. The assigned SA must provide written guidance to the cooperating examiner/revenue officer whether or not any tax shown on such return should be immediately assessed. If the SA determines that such an assessment may jeopardize the criminal case, then the SA should advise the cooperating examiner/revenue officer to not make the assessment at that time. At a minimum, however, the cooperating examiner/revenue officer must update the statute for assessment on AIMS to reflect receipt of the delinquent return and insure transaction codes are reflected on master file to reflect the receipt of an amended or delinquent tax return. The quarterly (four-way) conference requirement: All Grand Jury investigations in which an examiner/revenue officer is asked to participate as a cooperating Grand Jury examiner/revenue officer, are subject to the mandatory quarterly (four-way) conference requirements prescribed in IRM 126.96.36.199.3, Required Communications. The names of all participants, including the compliance group manager, will appear on the Federal Rules of Criminal Procedure, Rule 6(e), "6(e) list" , or official list filed with the court of those individuals authorized to view information protected by that statute. The four-way conference may include the fraud technical advisor (FTA) when deemed necessary. In such instances, the FTA will be added to the 6(e) list but will not be able to assist in the civil resolution of the case. All Grand Jury investigations resulting from compliance referrals in which a cooperating compliance employee is not asked to participate, are also subject to the mandatory quarterly conference requirements. See IRM 188.8.131.52(5), Accepted Criminal Referrals, for conference activities in this scenario. When the FTA is not included on the 6(e) list and does not participate in the mandatory quarterly (four-way) conferences, the FTA is available to assist the conference participants for the sole purpose of scheduling the mandatory quarterly conferences, if requested. Note: If the compliance employee has closed the civil case after the criminal referral was accepted, the mandatory quarterly conference may be waived. See IRM 184.108.40.206.1, Conduct of the Cooperating Compliance Employee, for guidance on the proper conduct of a cooperating compliance employee during a criminal tax case. There are generally four critical stages of the cooperating Grand Jury examiner's/revenue officer's involvement in the Grand Jury investigation and subsequent criminal proceedings. During these stages pertinent civil assessment information (specific tax information, including the sources of income for each year under investigation) or collection information, with respect to the taxpayer's ability to pay a tax that is due and owing, may be developed and preserved. During these four stages, the cooperating Grand Jury examiner/revenue officer should identify and secure pre-Grand Jury information and Grand Jury information that is a matter of public record. The cooperating Grand Jury examiner/revenue officer must take action to preserve all non-Grand Jury information for the subsequent civil resolution of the case. Pre-Investigation Stage — Immediately after assignment, the cooperating Grand Jury examiner/revenue officer must identify the records, evidence and other documents secured to date. Information secured prior to the Grand Jury should be identified and dated. This information will be free of secrecy restrictions imposed by Rule 6(e) and may be used for civil purposes. Examples of information excluded from the secrecy restrictions include: • Interviews conducted and documents obtained by CI prior to referral to the Grand Jury.• Information obtained by search warrants issued and executed prior to referral to the Grand Jury.• Affidavits sworn by the SA pursuant to securing a search warrant issued by the court. These affidavits reflect alleged offenses. Indictment Stage — An indictment is the formal document identifying the Grand Jury's charges against the defendant. The indictment is a matter of public record. The cooperating Grand Jury examiner/revenue officer, in cooperation with the Assistant U.S. Attorney (AUSA), should include complete civil assessment information required for the collection of taxes in the indictment. However, depending on the charges alleged in the indictment, the AUSA may or may not be able to include this information in the indictment. If the case does not go to trial, the next opportunity for the cooperating Grand Jury examiner/revenue officer to ensure civil assessment information required for the collection of taxes is preserved, is during the plea agreement stage. Plea Agreement Stage — Even though the cooperating Grand Jury examiner/revenue officer usually does not participate in this stage, it is important that the cooperating Grand Jury examiner/revenue officer convey to the AUSA the importance of including specific civil assessment information and/or information required for the collection of taxes in the plea agreement. Plea negotiations generally result in the defendant pleading guilty to lesser charges. If there was limited disclosure of civil information in the indictment, the absence of specific civil assessment information and/or information required for the collection of taxes in the plea agreement may result in the civil examiner/revenue officer not having enough non-Grand Jury information to propose adjustments, make assessments or provide information needed for the collection of taxes. Thus, the defendant may receive a criminal sentence but may not pay any tax and penalties due to lack of information in the public record. If specific civil assessment information and/or information required for the collection of taxes is not made a matter of public record through the indictment or plea agreement, the last opportunity to achieve this objective is during formal sentencing proceedings. Formal Sentencing Proceedings Stage — There are many statements and documents entered into the public record during this stage. One of the most important documents entered in the public record is the Government's Version of the Facts. This document is often read into the record by the prosecuting attorney. This document usually summarizes what the government would have proven if the case had gone to trial and covers years and/or charges to which the defendant did not plead. Because the Federal Sentencing Guidelines advise that the entire intended loss to the government be disclosed, including years not included in the plea agreement or indictment when sentencing an offender on a tax charge, the cooperating Grand Jury examiner/revenue officer should request the AUSA read this information into the record. This is necessary because this information is often sealed as part of the probationary report. Note: Information entered into the record during sentencing proceedings must be relevant to the question of guilt or assist the court in sentencing the defendant. In United States v. Alexander, 860 F.2d. 508 (2d. Cir. 1988), the court rejected the government's argument that unlimited public disclosure of Grand Jury materials was permissible during sentencing proceedings. Rather, the court stated that "[a] party moving for a relaxation of the normal rule of secrecy should structure its request to cover only material that is needed." 860 F.2d at 513. This holding is consistent with the Supreme Court's interpretation of Rule 6(e) to require a "strong showing of particularized need for Grand Jury materials before any disclosure will be permitted." United States v. Sells Engineering, Inc., 463 U.S. 418, 443 (1983). The cooperating Grand Jury examiner/revenue officer is responsible for assembling and forwarding documents and evidence, necessary for a civil tax closing of a Grand Jury investigation, to the SA and for association with Form 13308 , Criminal Investigation Closing Report (Tax and Tax related Only). The cooperating Grand Jury examiner/revenue officer, in preparing to close the case after the Grand Jury investigation, should complete the following actions: If the investigation is discontinued and/or no indictment is returned, the cooperating Grand Jury examiner/revenue officer will assist the SA in preparing a memorandum, which informs TS and any appropriate civil business operating divisions that the Grand Jury investigation has been concluded and the case should be released for civil resolution. If the investigation was entirely conducted using Grand Jury procedures and as a result there are no pre-Grand Jury documents, the cooperating Grand Jury examiner/revenue officer will assist the SA in preparing a memorandum to TS and any appropriate civil business operating divisions which informs them that the Grand Jury investigation has been concluded, there are no pre-Grand Jury documents and the case should be released for civil resolution. Segregate and assemble non-Grand Jury documents that will be used in the civil resolution. Immediately following sentencing of the defendant, the cooperating Grand Jury examiner, if one was assigned, must prepare Form 5346, Examination Information Report, addressing the civil aspects of the case. Form 5346 should include the following non-Grand Jury information: A narrative summarizing the case history and the results of the investigation; An index of documents included in the case file, briefly describing the source of the documents and their content; Copies of documents, i.e., juror books, evidence admitted during trial, transcripts of the trial proceedings, if available; Cooperating Grand Jury examiners workpapers and schedules admitted or referenced, and specifically discussed in open court; Cooperating Grand Jury examiners trial notes, if appropriate and useful in civil resolution; Tax computations; and Any other pertinent and relevant public documents that the SA did not attach to Form 13308. The cooperating Grand Jury revenue officer, if one was assigned, must prepare a memorandum addressing the civil aspects of the case. The memorandum should include the following non-Grand Jury information: A narrative summarizing the case history and the results of the investigation; An index of documents included in the case file, briefly describing the source of the documents and their content; Copies of documents, i.e., juror books, evidence admitted during trial, transcripts of the trial proceedings, if available; Cooperating Grand Jury revenue officer's notes and schedules admitted or referenced, and specifically discussed in open court; Cooperating Grand Jury revenue officer's trial notes, if appropriate and useful in civil resolution; and Any other pertinent and relevant public documents that the SA did not attach to Form 13308. The completed information item package must be associated with Form 13308 and forwarded through the Supervisory Special Agent (SSA) to TS/Advisory and any appropriate civil business operating divisions for civil disposition. TS/Advisory and any appropriate civil business operating divisions will forward the Form 13308 information package and a memorandum notifying the initiating group (if any) that the civil case cannot be assigned to any employee "tainted" by Grand Jury information. In other words, the case must be assigned to an examiner/revenue officer whose name was not on the 6(e) list or who was not privy to Grand Jury information; and to another group, if the name of the group manager was on the 6(e) list or if the group manager was privy to Grand Jury information. Note: In such instance, TS will consult with Planning and Special Programs (PSP) for SB/SE cases, LB&I Ogden PSP for LB&I cases, or appropriate TE/GE functional Examination Planning and Review (EPR) unit for TE/GE cases to determine which group will receive the case for civil disposition. Grand Jury cases that are not in suspense or controlled by examination should be routed to PSP for group assignment by TS. 220.127.116.11 (03-20-2015) Unique Features IRS relinquishes control of a Grand Jury case to the AUSA. The cooperating Grand Jury examiner/revenue officer assists the AUSA with the consideration, resolution and review of technical issues related to the criminal charges being investigated. Evidence obtained during a Grand Jury investigation is protected under the secrecy provisions of Rule 6(e) of the Federal Rules of Criminal Procedure. Therefore, in a civil case, the cooperating Grand Jury examiner/revenue officer cannot disclose any information obtained by the Grand Jury, unless that Grand Jury information has been made a matter of public record. The cooperating Grand Jury examiner/revenue officer assigned to a Grand Jury investigation is "tainted" and therefore prohibited from any subsequent civil examination/collection action. This also applies to a group manager that has access to Grand Jury information. Examiner’s time should be charged to the applicable activity code: Activity Code 815 Grand Jury — Non Narcotics Related Activity Code 816 Grand Jury — Drug Enforcement Task Force Case Activity Code 817 Grand Jury Narcotics Related — Other Activity Code 155 Fraud/Fraud Related Activities, (TE/GE Only). See IRM 18.104.22.168.1, General Information, http://irm.web.irs.gov/Part25/Chapter1/Section9/IRM25.1.9.asp#22.214.171.124.1 During a Grand Jury investigation, the cooperating Grand Jury examiner/revenue officer should be identified as an assistant to the AUSA and not an IRS employee. IRS credentials may only be used for identification purposes. Grand Jury materials should be kept in a secured workspace, inaccessible to others who do not have Grand Jury authorization from the AUSA. The cooperating Grand Jury examiner's/revenue officer's workpapers will be part of the Cl Grand Jury files. The files will not be available for the civil examination/collection activity without a release of Grand Jury materials pursuant to a Rule 6(e) court order. Workpapers, however, that have been admitted through a court proceeding are available for use in any subsequent civil examination/collection action. 126.96.36.199 (06-07-2016) Civil Case Resolution Upon completion of the Grand Jury investigation, cases open in an Examination group when the Grand Jury was initiated will be released by TS from Grand Jury Suspense and returned to the field for civil case resolution with a memorandum explaining the required procedures. Collection cases will be released from Advisory with a memorandum explaining the civil settlement procedures for collection action. Other civil business operating divisions will release cases in suspense to the field for civil case resolution. Examiners/revenue officers who had access to Grand Jury information are "tainted" for civil case resolution and cannot be assigned to the case. Likewise, if the group manager had direct or indirect access to Grand Jury information, the case must be assigned to another manager for civil resolution. Rule 6(e) precludes the use of "matters occurring before the Grand Jury" in any subsequent civil action. "Any person to whom matters are disclosed under subparagraph (A)(ii) of this paragraph shall not utilize Grand Jury material for any purpose other than assisting the attorney for the government in the performance of such attorney's duty to enforce federal criminal law." Note: TS/Advisory and any appropriate civil business operating divisions will release the case from suspense after the Form 13308 package is received from CI. Once received, the case will be released as prescribed in IRM 188.8.131.52 (6). The civil examiner/revenue officer may use information in public record, including the search warrant, affidavit, indictment, plea agreement and other information in the court file for civil settlement purposes. As noted above, the cooperating Grand Jury examiner/revenue officer will gather this information during the Grand Jury investigation. At the conclusion of the Grand Jury investigation, that information will be given to the SA to attach to Form 13308 and will be forwarded to TS/Advisory and any appropriate civil business operating divisions for the civil examination case file. Since the taxpayer may not be convicted for all years in the indictment, information available may not be complete. A Rule 6(e) order may be requested through the AUSA to disclose Grand Jury information when the information is needed "preliminarily to or in connection with a judicial proceeding. " There must be a "particularized need," in that, the information cannot be obtained from some other source. An IRS civil examination does not meet this requirement. There must be specific litigation, such as a Tax Court or District Court proceeding. The touchstone of Rule 6(e)’s applicability is whether the disclosed material would "elucidate the inner workings of the Grand Jury. " The "inner workings" test would preclude disclosure of evidence, which tended to reveal the identity and/or testimony of witnesses, the direction of the investigation, and the deliberation of the grand jurors. The civil examiner/revenue officer should ask Cl if they have possession of specific documents known to be non-Grand Jury evidence. A memorandum from the field territory manager to the Special Agent in Charge (SAC) should be prepared, providing a brief explanation of the situation and the specific documents requested. Grand Jury evidence cannot be released even when the taxpayer volunteers to execute a waiver authorizing disclosure. However, the taxpayer can furnish records in their possession even though the Grand Jury subpoenaed the same records. If a court determines the IRS has improperly used Grand Jury material, the court may refuse to admit the evidence, reverse the burden of proof and/or require the IRS to proceed with evidence not derived from the Grand Jury. Further, the court may decide to dismiss the case, without prejudice, due to government misconduct. If the court determines that the IRS intentionally used Grand Jury material, attorney and legal fees can be awarded to the taxpayer.