25.2.3 Reimbursements to State/Local Law Enforcement Agencies

Overview: General

  1. This section explains the guidelines for reimbursing State/Local Law Enforcement Agencies for services provided during a federal tax investigation.

  2. IRC 7624 gives the Service discretion to reimburse a State or local law enforcement agency for expenses incurred in an investigation where information furnished by the agency to the Service substantially contributes to the recovery of Federal taxes with respect to illegal drug or related money laundering activities.

  3. If information provided by a State or local law enforcement agency results in the collection of at least $50,000 in additional taxes and civil penalties with respect to illegal drug or related money laundering activities, the Service may provide reimbursement for reasonable investigative expenses, not otherwise reimbursed, up to a maximum of 10 percent of the taxes recovered.

  4. The reimbursement allowable under this provision is limited to 10 percent of the amount recovered for Federal taxes, including additions to tax and civil penalties, but not interest or criminal fines.

  5. No reimbursement is allowable with respect to expenses that have been or will be reimbursed from other sources, such as a Federal or State forfeiture program.

  6. This law applies to State law enforcement agencies, including the District of Columbia, and local law enforcement agencies within the States and the District of Columbia for information first provided after February 16, 1989.

  7. A special fund/account has been established to receive and expend these funds.

Application for Reimbursement

  1. A State or local law enforcement agency furnishing information to the Service must use Form 211A, State or Local Law Enforcement Application for Reimbursement for Original Information, to apply for reimbursement under this section.

  2. An application for reimbursement may be filed with the Service as soon as the agency has made a final determination as to the amount of the expenses incurred and the amount received or to be received from other sources.

  3. Copies of Forms 9061, Application for Transfer of Property Administratively Forfeited Pursuant to USC 981 by the IRS, and DAG–71, Application for Transfer of Federally Forfeited Property, or other claims for an equitable share of asset forfeitures in the case, must also be furnished with Form 211A.

  4. No application will be considered by the Service if filed later than 30 days after the Service has notified the agency of the amount of taxes recovered.

  5. If more than one agency files an application for reimbursement with respect to the taxes recovered, the Service will use discretion in allocating the amount of reimbursement to be paid to each agency, but in no event shall the aggregate of amounts paid by the Service exceed 10 percent of the sum of additional Federal taxes recovered.

Source of Funds for Reimbursement

  1. Code section 7809(d) provides that reimbursement under section 7624 must be paid out of the amounts recovered as a result of information furnished by the State or local law enforcement agency which substantially contributed to the recovery.

  2. Since Congress did not provide for any separate appropriation of Federal funds for this purpose, the Service must guard against the possibility of having to refund to the taxpayer amounts collected after monies have already been paid to a State or local law enforcement agency as reimbursement.

  3. Temporary Regulations Section 301.7624 provides that no reimbursement will be paid before expiration of the period of limitations for filing a claim for refund by taxpayer or the determination of the taxpayer’s liability becomes final.

  4. In most cases, the payment of reimbursements under Section 7624 would be delayed for a minimum of two years after the information is provided to the Service (i.e., the minimum period within which a refund may be claimed) and in many cases the delay could be much longer.

  5. An agency that adequately indemnifies (posts bond) the Service against loss due to a refund to the taxpayer of Federal taxes collected may receive reimbursement at an earlier time.

Processing Claims for Reimbursement

  1. Claims for reimbursement filed by State and local law enforcement agencies on Form 211A will be processed in the service center and the district having jurisdiction of the returns of the taxpayers, or in the district to which the returns have been transferred for examination.

  2. Claims for reimbursement will be received and screened by Criminal Investigation.

  3. Criminal Investigation will refer worthy information to the areas and notify the Examination function the service centers that a Form 211A has been or will be filed.

  4. The administrative control of all claims for reimbursement will be the responsibility of the Informants Claims Examiner located in the Examination function in each service center.

  5. Form 211A claims should be maintained in each service center by a card index/computer file containing:

    • Each law enforcement agency’s name and address.

    • A claim number.

    • The taxpayer’s name and address.

    • Taxpayer’s Identification Number.

    • Tax years(s) involved.

    • Date information was received.

    • Date and name of district to which the claim was sent (if applicable).

    • Subsequent history, in particular, the amount of additional taxes/civil penalties collected.

Special Accounts

  1. Funds for the reimbursement of State and local law enforcement agencies will be held in Special Account 20X5099, Reimbursement of State and Local Agencies.

  2. The Accounting Branch in the service center has control over this account and that branch must be notified of the amount of monies that must be transferred from the general fund to Special Account 20X5099 whether or not a 211A claim has been filed.

  3. When additional taxes/civil penalties of at least $50,000 have been collected and the period for filing a claim for refund by the taxpayer has expired, the State or local law enforcement agency is eligible to receive an appropriate reimbursement for expenses incurred and reimbursement has been requested using Form 211A.

  4. A determination as to whether the information provided substantially contributed to the recovery of taxes will be made on a case by case basis.

  5. Treasury Regulations, section 301.7624–1, explain the type of information that will be considered in making such determinations.

  6. Form 3753, Voucher and Schedule of Payments, must be prepared by the Examination function to accomplish the reimbursement.

  7. If the State or local law enforcement agency has not filed a claim on Form 211A, the Informants’ Claim Examiner will notify the agency that they are eligible to file a claim for reimbursement.

  8. After approval of the allowable recommendation by the Informants’ Claim Examiner, the Form 211A will be administratively approved by the service center director.

  9. Any funds that remain in Special Account 20X5099 after reimbursement of State/local law enforcement agencies, with respect to a particular taxpayer, must be returned to the general revenue fund.

  10. The Accounting Branch must be notified of the amount to be transferred.

  11. At the end of each month’s accounting period, a copy of the Anti-Drug Special Fund liability report will be forwarded to Examination function to be used to confirm the amounts transferred to and from the Anti-Drug Special Fund Account, disbursements made to law enforcement agencies for the current month and the cumulative-to-date balance.

  12. The Examination function will contact the Accounting Branch if discrepancies are noted; reconciliation will require a joint effort.