4.19.10 Examination General Overview

Manual Transmittal

December 06, 2022

Purpose

(1) This transmits revised IRM 4.19.10, Liability Determination, Examination General Overview.

Material Changes

(1) IRM 4.19.10.1, Program Scope and Objectives, corrected the title for the Program Owner.

(2) IRM 4.19.10.1.6, Acronyms, added the acronym BCFC for the Brookhaven Campus Fraud Coordinator.

(3) IRM 4.19.10.1.7.1, Correspondence Examination Letters, under (1) the reference to originator/owner of a letter was changed to reflect the titles on the Electronic Publishing Catalog. Under (3) Changed the SNIP location from SERP to the SharePoint site for CP Notice information.

(4) IRM 4.19.10.3, Disclosure, provided new IRM reference for FAX procedures. Prior reference no longer exists. IPU 22U0601, issued 05-10-2022.

(5) IRM 4.19.10.4, Fraud Referrals, updated the note under (2)e) to reflect that fraud development in SB/SE is centralized in Brookhaven.

(6) IRM 4.19.10.4.1, Identifying Fraud in Correspondence Exam, under (4), added information on where to send cases for fraud development.

(7) IRM 4.19.10.4.2, Responsibilities of the Correspondence Exam Technicians (CET) and the Tax Examiners (TE), added a recommendation to use a copy of the taxpayer correspondence to make notes on.

(8) IRM 4.19.10.4.3, Responsibilities of the Functional Fraud Coordinator (FFC) - SB/SE Only, under (6), corrected the number of days for the fraud referral to be accepted by the FFC (for agreement with IRM 25.1.14.4(2)). Removed the guidance for updating the fraud referral tracking number and added information on where SB/SE will find the instructions for completing the Centralized Campus Fraud Monitoring Workbook. Updated the instruction for AUR referrals under (6)a).

(9) IRM 4.19.10.4.4, Responsibilities of the Exam Fraud Coordinator (EFC) - W&I Only, under (10), the instruction for the Austin EFC to follow was changed from IRM 4.19.10.4.5 to IRM 4.19.10.4.5.1.

(10) IRM 4.19.10.4.5, Responsibilities of the Campus Fraud Coordinator (CFC), removed responsibilities relating to fraud development and expanded on CFC duties.

(11) IRM 4.19.10.4.5.1, CFC Responsibility in the Fraud Development Process, renamed to Responsibilities of the Brookhaven CFC (BCFC) and the Austin EFC. Responsibilities expanded on and the bullet listing under (1) incorporated. Removed duplicate information contained in 4.19.10.4.7.

(12) IRM 4.19.10.4.5.2, Responsibility of Coordination with Counsel, under (1), CFC changed to BCFC, changed EFC to Austin EFC.

(13) IRM 4.19.10.4.5.4, Additional Responsibilities of the CFC, removed three responsibilities that belong to the BCFC and added a responsibility of saving the Form 13549 and Form 2797.

(14) IRM 4.19.10.4.6, Status 24 (90-day) Referrals, under (1), changed CFC to BCFC and EFC to Austin EFC.

(15) IRM 4.19.10.4.7, Fraud Development Procedures, title changed to Centralized Fraud Development Procedures since fraud development is now centralized in W&I and SB/SE. (2) was updated to indicate that the procedures in the subsection apply only to the Brookhaven and Austin CFC/EFC/FEA and the CFC/EFC managers in Brookhaven and Austin.

(16) IRM 4.19.10.4.9, Aims Case Control and Planning and Special Programs (PSP) Transfer Procedures and IRM 4.19.10.4.9.1, Instructions for Completing Form 3185, the two subsections were reviewed together. While procedures remain the same, some information was combined/rewritten/resorted for better flow and understanding. Unnecessary duplicated information in the two sections removed, IRM 4.19.10.4.9.1 was renamed to Transfer of Fraud Cases for Area (Field) Examination.

(17) IRM 4.19.10.4.10, Program Letters and Actions to Close Case, under (1), in the example, added SB/SE cases are transferred to Brookhaven. Removed (4), the listing of letters not needed since (3) instructs the caseworker to go to IRM 4.19.13 to determine the applicable letters to send to the taxpayer. Changed CFC to BCFC and EFC to Austin EFC.

(18) IRM 4.19.10.4.10.1, Initial Contact Letter (ICL) Procedures, modified the title to more adequately reflect the content in the subsection. In the table, changed CFC references to BCFC and EFC to Austin EFC. Letter 566-M replaced with Letter 566-S as the initial contact letter with IPU 22U0601, issued 05-10-2022.

(19) IRM 4.19.10.4.10.2, 30-Day Letter Procedures, in (1) changed CFC to BCFC and EFC to Austin EFC, including within the table. Under the table in (1), under the 2nd Then box, added an action to update AIMS and RGS to the proper status and EGC and corrected the instruction for the 886-H form.

(20) IRM 4.19.10.4.10.3, 90-Day Procedures, combined (2) with (1) and added an IRM reference for information on asserting civil fraud penalties on a joint return. Under 5, changed CFC to BCFC and EFC to Austin EFC.

(21) IRM 4.19.10.4.12, Third Party Notification Procedures for Campus Fraud Cases, under (8) the 3rd reference was removed because it is instruction for SEP agents.

(22) IRM 4.19.10.4.13, Ten-Year Earned Income Tax Credit (EITC), Child Tax Credit (CTC)/Additional Child Tax Credit (ACTC)/Credit for Other Dependents (ODC) and American Opportunity Tax Credit (AOTC) Ban Procedures, updated (2) to the correct Form 13549 section number. Under (2) and (5), changed CFC to BCFC and EFC to Austin EFC. Removed (10) since the IRM reference for general case research and development was not needed in support of the subsection topic.

(23) IRM 4.19.10.6, Return Preparer Scheme Identification, under (3)a) changed table title to "Information to provide". Under (3)b) added "In SB/SE" to front of sentence. Changed CFC to CFC/EFC in (3)c, (7), and (8). Removed HQ actions from (4). Added HQ actions under (5) and (6).

(24) Exhibit 4.19.10-4, Form 886-A 90-Day Overview, added a second overview example.

(25) Editorial changes throughout the IRM including:

  • updates to IRM links and references

  • plain language updates

  • gender neutral updates

  • throughout the IRM, the Campus Fraud Monitoring Report was renamed to the Centralized Campus Fraud Monitoring Workbook.

Effect on Other Documents

IRM 4.19.10, dated November 30, 2021, effective date 01-01-2022, is superseded. IPU 22U0601, issued 05-02-2022, is incorporated.

Audience

This IRM is intended for the use of the Small Business/Self-Employed (SB/SE) and Wage and Investment (W&I) Campus Examination Operations.

Effective Date

(01-01-2023)

Ishmael Alejo
Director, Refundable Credits Program Management (RCPM)
Wage and Investment Division

Program Scope and Objectives

  1. Purpose: This section contains information on Examination general procedures for administrative matters and provides references for common issues and related items that might be found on tax returns. Throughout the IRM, there are references to other IRMs which may contain related information needed when working cases. The IRS Mission Statement includes enforcing the tax law with integrity and fairness to all. As Examination employees, we must provide the best possible service to the public and are expected to perform our duties with integrity and fairness to all. See Policy Statement 1-236 at http://irm.web.irs.gov/Part1/Chapter2/Section1/IRM1.2.1.aspx#1.2.1.2.36.

  2. Audience: This IRM is intended for use by Wage & Investment (W&I) and Small Business/Self-Employed (SB/SE) Campus Examinations.

  3. Policy Owner: W&I Return Integrity and Compliance Services (RICS) Refundable Credits Program Management (RCPM), Exam Policy and Coordination (EPC) Non-EITC is responsible for the clearance and publishing of this IRM. The policy information in this IRM is owned and updated by W&I and SB/SE Headquarters (HQ) Analysts.

  4. Program Owner: The Director of Refundable Credits Program Management (RCPM).

  5. Primary Stakeholders:

    • W&I

    • SB/SE

  6. Contact Information: To recommend changes or provide feedback for this IRM section send an email to the IRM author or utilize the SERP Feedback Application.

Background

  1. This IRM provides information on Examination general procedures for administrative matters and references for common issues and related items that might be found on tax returns.

  2. Wage and Investment (W&I) Refundable Credits Exam Operations (RCEO) and Small Business/Self Employed (SB/SE) Campus Examination support the mission of the Service by maintaining an enforcement presence and encouraging the correct reporting by taxpayers of income, deduction and credit, and estate, gift, employment, and certain excise taxes, so as to instill the highest degree of public confidence in the tax system's integrity, fairness, and efficiency. Both W&I and SB/SE Campus Examination are referred to as "Examination" , "Campus Examination" , or "Correspondence Examination" .

  3. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Taxpayers contact TAS for assistance in resolving problems, when they:

    • are unsuccessful in resolving the problem through normal channels

    • are experiencing economic harm, or

    • believe that an IRS system or procedure is not working as it should

    Note:

    For more information, see IRM 4.19.13.25, Taxpayer Advocate Services (TAS) Procedures.

Authority

  1. By law, the Internal Revenue Service has the authority to conduct examinations, make assessments and apply penalties under Title 26 of the Internal Revenue Code, Subtitle F, Procedure and Administration. Additional information relating to conducting examinations is contained in 26 CFR 601.105 - Examination of returns and claims for refund, credit or abatement; determination of correct tax liability. Examiners conduct correspondence examinations for multiple programs and utilize Internal Revenue Code, Regulations, Policy Statements, and Policies and Procedures relevant to Correspondence Exam. The authority for the assertion of the ten-year ban when there is a final determination that the taxpayer’s claim for credit is due to fraud are; IRC 32(k)(1) for EIC, IRC 24(g)(1) for CTC/ACTC/ODC and IRC 25A(b)(4) for AOTC.

Responsibilities

  1. Campus Examination employees:

    • Will reduce non-compliance by identifying and cost effectively allocating resources to those returns most in need of examination and taxpayer contact

    • Will conduct timely and quality examinations of tax returns and make quality contact to determine the correct tax liability

    • Are responsible for researching and following IRM procedures when processing taxpayer audits and applying the tax law with integrity and fairness to all

    • Must understand and are obligated to protect taxpayer rights. The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see https://www.irs.gov/taxpayer-bill-of-rights

Program Management and Review

  1. Audits are conducted by W&I Refundable Credits Examination Operations (RCEO) and Small Business/Self Employed (SB/SE) Campus Operations employees.

  2. Headquarters analyzes audit results, performs program reviews, and monitors the rule-based applications used to select inventory. The results are used to make data-based decisions to improve quality, improve case selection and to ensure the integrity of the selection methods.

  3. W&I Program Management (PM) is responsible for providing oversight and monitoring the performance results of the EITC and Non-EITC programs for the Refundable Credits Examination Operations (RCEO) campuses.

  4. SB/SE Examination Planning and Performance Analysis provides support and monitors the program results for the SB/SE campuses.

Program Controls

  1. Case review is performed using the Embedded Quality Review System (EQRS). EQRS is an on-line database, accessed through the IRS intranet, used by Campus Compliance Services and Return Integrity and Compliance Services (RICS). EQRS is used by managers and the National Quality Review System (NQRS) is used by national quality reviewers to input a Data Collection Instrument (DCI) into the system, capturing results on case reviews performed. The EQ website contains an electronic Master Attribute Job Aid (MAJA) that provides information specific to Examination Paper and Phones. EQRS/NQRS report data is available through the EQRS/NQRS database as well as in the monthly Campus Operations Business Results (COBR) reports.

Acronyms

  1. The following is a listing of definitions for the most common acronyms used in this IRM:

    Acronym Term/Definition
    ACTC Additional Child Tax Credit
    AOTC American Opportunity Tax Credit
    BCFC Brookhaven Campus Fraud Coordinator
    BMF Business Master File
    CET Correspondence Exam Technician
    CFC Campus Fraud Coordinator
    CFP Civil Fraud Penalty
    CPS Correspondence Production Services
    CTC Child Tax Credit
    EFC Exam Fraud Coordinator
    FFC Functional Fraud Coordinator
    FEA Fraud Enforcement Advisor
    IDRS Integrated Data Retrieval System
    IMF Individual Master File
    ODC Credit for Other Dependent
    RCEO Refundable Credits Exam Operations
    RICS Return Integrity Compliance Services
    RCPM Refundable Credits Program Management
    SB/SE Small Business/Self Employed
    TAS Taxpayer Advocate Service
    W&I Wage & Investment

  2. Acronyms may also be checked on the Acronym Database, http://rnet.web.irs.gov/resources/acronymdb.aspx.

Related Resources

  1. Examination employees are responsible for researching and utilizing information contained in all reference materials. Other IRM chapters provide information on single topics that pertain to more than one function. Links to the most commonly used reference materials are listed below.

    • IRM Part 4, Examining Process http://publish.no.irs.gov/pubsys/irm/indp04.htm

    • IRM Part 3, Submission Processing http://publish.no.irs.gov/pubsys/irm/indp03.htm

    • IRM Part 21, Customer Account Services http://publish.no.irs.gov/pubsys/irm/indp21.htm

    • Numerical index for other IRMs http://publish.no.irs.gov/pubsys/irm/numind.html

    • Information on forms and publications http://publish.no.irs.gov/catlg.html

Correspondence Examination Letters
  1. Letters used for correspondence issues are referenced and linked in the program procedures.

  2. The names for the Content Point of Contact (POC) and Publishing Specialist for a letter can be found by researching the Electronic Publishing web site http://publish.no.irs.gov/catlg.html. Any revisions must be discussed with the Content POC.

  3. Computer Paragraph (CP) Notices can be viewed on the Servicewide Notice Information Program (SNIP) SharePoint site, at https://irsgov.sharepoint.com/sites/SNIP.

  4. New and revised letters must be approved by the Office of Taxpayer Correspondence (OTC), prior to publication. All letter headers will contain:

    • Taxpayer Identification Number

    • Form

    • Year

    • Person to Contact Name

    • Contact Person Identification Number

    • Contact Telephone Number

    • Contact Fax Number

    • Contact Hours

  5. Correspondence letters can be prepared by the clerical staff, or Tax Examiners (TE)/Correspondence Examination Technicians (CET).

  6. Letters mailed for cases in the corporate inventory will include the appropriate Business Operating Division (BOD) toll-free number, "Tax Examiner" as person to contact, and the site-specific identification number. If the letter being sent is in reply to taxpayer correspondence, then the letter, case history, and all letter attachments must identify the originating tax examiner to provide information for any subsequent contact, if needed.

Standard Suspense Periods for Correspondence Examination
  1. The following table lists the suspense period requirements for all Discretionary and EITC cases being worked in Correspondence Examination and the earliest day for mailing the next letter. The information in the table covers manually issued letters and those issued through the Automated Correspondence Exam (ACE) System (formerly RGS Batch).

    Letter/Notice being issued AIMS/CEAS letter status ACE (RGS/ BATCH) Suspense Period Manual mailing/closing allowed on: Letter/Notice being issued: days = the days from the previous letter date
    EITC, W&I Non-EITC, and the single-issue Premium Tax Credit (PTC)- Initial Contact Letters (ICLs), without report 10 30 days day 31
    • ACE – day 42

    • Manual – No earlier than day 31

    SB/SE Non EIC - Initial Contact Letter (ICL) without report 10 45 days day 46
    • ACE - Day 63

    • Manual-No Earlier than day 46

    30-day letter with report 22 45 days day 46
    • ACE – day 63

    • Manual – No earlier than day 46

    15-day letter with report (i.e., Letter 692-M) 23 or 25 30 days day 31
    • ACE – day 42

    • Manual – No earlier than day 31

    Statutory Notice of Deficiency (Within USA) – Certified Mail 24 105 days day 106 N/A
    Statutory Notice of Deficiency (Outside of USA) – Registered Mail 24 165 days day 166 N/A

  2. Generally, a manually prepared letter/notice may be mailed on the 16th day after the taxpayer’s reply due date. If a letter has given a taxpayer 30 days to respond, the subsequent letter may not be mailed earlier than the 46th day from the date of the letter. The only exceptions to this are:

    • The EITC, W&I Non-EITC, and the single-issue PTC ICLs (with no report)- the 30-day letter with report may be mailed no earlier than the 31st day following the ICL.

    • The Letter 692-M, Request for Consideration of Additional Findings (Manual Letter), providing the taxpayer with a response/determination on submitted documents, may be mailed prior to the suspense period end date of an ICL or a 30-day letter. A manually prepared Statutory Notice of Deficiency may be mailed no earlier than the 31st day following a Letter 692-M.

  3. A letter cannot be transmitted (triggered) to Correspondence Production Services (CPS) until the prior ACE suspense period has expired.

Campus Return Selection

  1. Information on the audit return selection processes for Refundable Credits Examination Operations (RCEO) and Small Business/Self-Employed (SB/SE) Campus Operations is found in IRM 4.1.26. Campus Exam Return Selection, Delivery and Monitoring. Information for Compliance initiative projects is found in IRM 4.17, Compliance Initiative Projects.

Disclosure

  1. One of the cornerstones of the American tax system is confidentiality. The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. Under these rights, taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information. For additional information about the TBOR, see https://www.irs.gov/taxpayer-bill-of-rights. Disclosure is also one of the key elements under the Case Administration Auditing Standards. See IRM 4.19.13.3.7, Standard 7 - Case Administration.

  2. All employees must be familiar with the basic information available in IRM 21.1.3.1.7, Overview. More detailed information is always available in IRM 11.3, Disclosure of Official Information, and from your local Disclosure Officer.

  3. Before disclosing any tax information, you must be sure you are speaking with the taxpayer or authorized representative. See the Taxpayer Authentication guidelines in IRM 4.19.13.9, Power of Attorney and Other Third Party Authorizations, and IRM 4.19.19.2.1, Authentication. Before leaving any messages on a taxpayer's answering machine, review IRM 10.5.1.6.7.2, Answering Machine or Voice Mail. The facsimile (FAX) procedures contained in IRM 10.8.1, Information Technology (IT) Security, Policy and Guidance, must be reviewed prior to faxing confidential information to the taxpayer.

Fraud Referrals

  1. The primary objective of the Office of Fraud Enforcement (OFE) is to foster voluntary compliance through the recommendation of a criminal investigation and civil penalties. SB/SE and W&I Campus Examination Operations have a program which includes assertion of the Civil Fraud Penalty (CFP) and imposition of the Ten-year ban(s) for the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), the Credit for Other Dependents (ODC) and American Opportunity Tax Credit (AOTC).

  2. The objective of the Campus Fraud Program is to:

    1. Identify cases with potential fraud.

    2. Develop fraud with guidance from the Fraud Enforcement Advisor (FEA).

    3. Transfer potential fraud cases to the field for initial or further development, if it is beyond the scope and ability of the campus examination operation. The case transfer to the field must be approved by the assigned FEA.

    4. Refer potential criminal fraud cases to Criminal Investigation (CI) for criminal investigation consideration.

    5. Pursue assertion of the CFP and imposition of the Ten-year ban(s) for EITC, CTC/ACTC/ODC, and AOTC.

    Note:

    In the W&I campuses, fraud development is centralized in Austin. In the SB/SE campuses, fraud development is centralized in Brookhaven.

  3. The forms used to develop and refer cases with potential fraud are:

    1. Form 13549, Campus Fraud Lead Sheet, and

    2. Form 2797, Referral Report of Potential Criminal Fraud Cases.

  4. Contacts are available for assistance and guidance for this program:

    1. Campus Operations should contact the applicable Functional Fraud Coordinator (FFC) or the Campus Fraud Coordinator (CFC)/Exam Fraud Coordinator (EFC), depending on the structure of the fraud program within their campus.

    2. The FFC should contact the CFC.

    3. The CFC/EFC should contact the assigned Fraud Enforcement Advisor (FEA).

    4. The CFC/EFC should contact the Headquarters Fraud Program analyst with questions regarding procedures, policy or other issues.

Identifying Fraud in Correspondence Examination

  1. During an examination, information may be obtained which indicates the taxpayer has, or is attempting to, understate their tax liability through fraudulent means. Although only a small percentage of cases are fraudulent, it is necessary to detect and report any potentially fraudulent activities. The fraud may involve a promoter or return preparer.

  2. Taxpayers who knowingly understate their tax liability often leave evidence in the form of identifying earmarks (or indicators). Indicators of fraud serve as a sign or symptom, or show that actions may have been taken for the purpose of deceit, concealment, or to make things seem other than what they are. Indicators of fraud, by themselves, do not prove fraud. Fraud indicators are the starting point to complete further inquiry and analysis to determine if affirmative acts of fraud exist. See IRM 25.1.1.4, Indicators of Fraud vs. Affirmative Acts of Fraud. Some examples of common indicators of campus fraud are:

    • Apparent history of Exam disallowance for similar issues

    • Taxpayer responding to unreported income inquiries with unsubstantiated deductions or expenses

    • Apparent large, unusual or questionable (LUQ) expenses/deductions

    • Apparent conflicting false statement made by the taxpayer

    • Apparent claiming of different dependents from year to year in order to qualify for EITC and other tax credits and/or benefits

    • Suspicious forms and documents (e.g., Form W-2, Form 1099, Form 1098-T etc.)

    • Suspicious statements from third parties (e.g., medical records, school letters, etc.)

    • Apparent Command Code (CC) DDBKD/MFTRAU mismatch for birth certificate cases

    • Apparent use of decedent’s Social Security Number (SSN) for dependent exemptions

    • Apparent unsubstantiated refundable credits, (e.g., American Opportunity Tax Credit (AOTC)), not verifiable through IDRS

    Note:

    Examiners and fraud coordinators need to conduct research if the case is from the Questionable Refund Program (QRP) inventory referrals from Return Integrity Verification Operations (RIVO). See IRM 4.19.10.4.3, Responsibilities of the Functional Fraud Coordinator (FFC), for additional procedures on conducting preliminary research.

  3. If fraud is suspected, the case will be referred to the FFC, CFC, or the EFC, as applicable.

  4. The case will be evaluated for fraud development by the CFC/EFC, working with the FEA, to determine if affirmative acts (e.g., deceit, subterfuge, camouflage, concealment) of fraud exist. The Internal Revenue Service (IRS) must prove that the taxpayer acted deliberately and knowingly with the specific intent to violate the law. If the CFC/EFC and the FEA determine the case has fraud potential, the case will be referred to Brookhaven for SB/SE or Austin for W&I.

  5. If preparer or promoter involvement is identified, a referral should be made. See IRM 4.19.10.6, Return Preparer Scheme Identification for procedures.

    Note:

    Any potential fraud referrals coming from CI, such as the Return Preparer Program (RPP), should be coordinated through the HQ Analysts who will contact CI HQ and the referring Scheme Development Center (SDC).

  6. Refer to IRM 25.1.2, Recognizing and Developing Fraud, IRM 25.1.2.3, Indicators of Fraud, and IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures, for additional information.

Responsibilities of the Correspondence Examination Technicians (CET) and the Tax Examiners (TE)

  1. Correspondence Examination Technicians/Tax Examiners (CET/TE) must familiarize themselves with indicators of fraud. See IRM 4.19.10.4.1, Identifying Fraud in Correspondence Examination, and IRM 25.1.2, Recognizing and Developing Fraud, for more information.

  2. Identify indicators of fraud during the examination process. This may occur:

    1. based upon pre-examination research and analysis.

    2. upon determination that the same issue(s) or scheme exists in another examiner's inventory.

    3. based upon initial taxpayer reply and document submission, in response to an Initial Contact Letter (ICL), a 30-day letter or Statutory Notice of Deficiency (90-day letter).

  3. Maintain an accurate case record reflecting all statuses/actions taken, documents received from and conversations with the taxpayer, representative, return preparer and third parties.

    Note:

    Documentation is critical in the referral and development of fraud. Do not write on any of the documents provided by the taxpayer. Make a copy of the documents to add notes and highlight areas of interest. The CETs and other employees involved in various steps of case development should maintain, when possible, simultaneous and detailed narrative of taxpayer contact. This may be the most important portion of the case development.

  4. Follow the existing Auditing Standards and preparation of work papers as defined in IRM 4.19.13, General Case Development and Resolution.

  5. Discuss the indicators of fraud with the team supervisor/lead. If the team supervisor/lead concurs, prepare the Form 13549, Campus Fraud Lead Sheet, detailing the indicators of fraud. For instructions, see Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

  6. Secure the team supervisor/lead's initials with the date and forward the Form 13549 to the FFC, the CFC or the EFC, as applicable.

    Note:

    In SB/SE, after the supervisor/lead approves the fraud referral by signing the Form 13549, cases that are not in Status (ST) 24 will be updated to ST 38 on AIMS and RGS. Cases in ST 24 will be updated to ST 38 on RGS only. Also see IRM 4.19.10.4.9(5), AIMS Case Control and PSP Transfer Procedures.

  7. Expedite the referral process for cases in ST 22 when the taxpayer’s response indicates fraud. Do not change the status code. The RGS suspense date may need to be updated to prevent automatic issuance of the 90-day letter, Statutory Notice of Deficiency. Be sure to document actions taken.

  8. Expedite the referral process for cases in ST 24 when the taxpayer’s response indicates fraud. Do not change the status code. The RGS suspense date may need to be updated to ensure the prevention of the tax and penalty assessment as a result of the automatic default of the 90-day letter, Statutory Notice of Deficiency. Be sure to document actions taken.

  9. Research identity theft indicators on AIMS and IDRS. Refer to IRM 25.23, Identity Protection and Victim Assistance, and IRM 4.19.13.27, Campus Exam Identity Theft.

Responsibilities of the Functional Fraud Coordinator (FFC) - SB/SE only

  1. Serve as point of contact for the tax examiner and team supervisor/lead, for assistance with potential fraud referrals in their function.

    Note:

    The Functional Fraud Coordinator (FFC) positions are in the Automated Under Reporter (AUR) Examination function and if applicable, in Classification, Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) Units in the SB/SE Campuses. The AUR function is aligned under the SB/SE Division and the referral process is handled under the SB/SE Campus Exam Fraud program. Atlanta and Austin are aligned with Cincinnati, Fresno is aligned with Ogden. Andover and Brookhaven are aligned with Brookhaven. Philadelphia is aligned with Philadelphia. AUR FFCs will use IRM 4.19.3.5.8.3, AUR Functional Fraud Coordinator Responsibilities.

  2. Ensure Form 13549 is properly completed by the CET/TE and approved by the team supervisor/lead. If:

    • the CET/TE did not complete all the applicable Form 13549 sections and provide detailed information on the apparent and specific indicators of fraud, return the document to the CET for correction.

    • the team supervisor/lead did not initial and date the Form 13549 to indicate their approval for the referral, return the document to the team supervisor/lead for correction.

  3. Review the information, provided by the tax examiner and team supervisor/lead, on Form 13549. If:

    • there is insufficient evidence for fraud development, decline the referral and return it to the originator. For example, the SB/SE Exam case file didn’t contain false or altered documents that could be refuted by a third-party contact. Document the reason for the declination so that the originator has a clear understanding of why the case could not be developed for fraud.

    • the case wasn’t updated to status 38, Suspense Other, return the case to the CET/TE for correction. See IRM 4.19.10.4.2, Responsibilities of the Correspondence Examination Technicians (CET) and Tax Examiners (TE).

  4. Conduct preliminary IDRS research, on the tax year submitted, for fraud development:

    • Check the Assessment Statute Expiration Date (ASED). If it is less than one year, decline the referral and return it to the SB/SE Exam team.

    • Look at prior and subsequent years to see if the same issues (pattern) or other fraud related matters exist for case development.

      Note:

      If there was merit to the referral but for administrative timeframe and actions, fraud development is impractical, the FFC should determine if the same issues exist on subsequent year(s). The FFC will provide the information to the CFC. If the CFC approves fraud development for the subsequent year(s), the applicable case information from the declined year's files must be copied and provided for the subsequent year(s) case development.

    • If there is a QRP indicator showing Return Integrity Verification Operations (RIVO), CI or Exam involvement, see IRM 4.19.14.9.2, QRP Source Code and Project Codes, for more information. If transaction code (TC) 971 with action code (AC) 136, 134, 099, or 617 is present in the current, prior or subsequent years, do not refer the case unless false, or altered documents are present.

    • If there are identity theft indicators on the account, refer to IRM 25.23, Identity Protection and Victim Assistance, for more information. If identity theft is suspected, discuss the case with the CFC and refer the case only if the perpetrator is identified.

  5. Expedite the referral when the case is in the ST 24 suspense period and you concur with the fraud potential. Contact the CFC immediately and make a prompt decision regarding the case. The issuance of a Statutory Notice of Deficiency, Letter 3219, does not preclude subsequent fraud development; but it does create some additional considerations. Questionable documents that were received prior to the issuance of the statutory notice cannot be used to refer the case for fraud development once the statutory notice has been issued. Referring the case for fraud development, after the issuance of the statutory notice, must be based on taxpayer responses and document submissions received after the issuance of the statutory notice

  6. Accept or decline the fraud referral within 10 business days; includes transfer of cases to a co-aligned campus:

    1. If the referral is accepted, the completed form and the case file will be forwarded to the CFC for fraud development consideration. If the case is being transferred from AUR, the FFC will input a process code that suspends action on the case in the AUR system and annotate on Form 13549 that the case has been accepted for examination. No tax or credit adjustments will be made by AUR. The AUR discrepancy will be addressed as part of the examination.

    2. If the referral is declined for fraud development, the FFC must provide a written explanation for the declination in Section VI, Explanation for Declination, of Form 13549 and return a copy of the completed form and the case to the CET/TE through the team manager/lead.

  7. Document all research and activities on Form 13549. See Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

  8. Update the taxpayer information and Functional Fraud Coordinator sections in the Centralized Campus Fraud Monitoring Workbook. SB/SE will follow the instructions included under separate tab in the workbook.

  9. Place the most current Form 13549 in the case file and retain a copy of the form for 3 years.

  10. Refer to IRM 25.1.14, Campus Examination Fraud Procedures, for additional information.

Responsibilities of the Exam Fraud Coordinator (EFC) - W&I Only

  1. Ensure Form 13549 is properly completed and approved by the initiator's supervisor/lead.

  2. Review Form 13549 received from the CET/TE to determine if sufficient indicators of fraud exist.

  3. Conduct further research as needed and document the results on Form 13549, Section V, Fraud Indicators and Development Actions.

  4. If identity theft is present, proceed only if the responsible party is identified.

  5. Update referred cases to EGC 5024. Accept or decline the Form 13549 referral within 21 business days of receipt. This includes contacting the FEA within 10 business days to discuss the case.

    1. If the referral is accepted, the EFC will contact the FEA to discuss fraud development consideration, or

    2. If the referral is declined, the reason for the declination will be entered in Section VI, Explanation for Declination, of Form 13549. The case will be updated back to the prior EGC and returned to the CET/TE through the team supervisor/lead.

  6. The table below lists the actions that the EFC will take on referrals:

    If And Then
    The referral originated in W&I Exam other than Austin The FEA concurs that the case can be developed for fraud in Correspondence Examination The EFC will:
    1. Complete Form 13549, with the facts of the case and results of the research.

    2. Secure FEA recommendation to transfer case to Austin Exam on Form 13549.

    3. Transfer the case to Austin Exam.

    The referral originated in the Austin Exam The FEA concurs that the case can be developed for fraud in Correspondence Exam The Austin EFC will:
    1. Complete Form 13549 with the facts of the case and results of the research.

    2. Secure FEA recommendation to update case on AIMS to Status 17 on Form 13549.

    3. Follow the procedures in IRM 4.19.10.4.7, Fraud Development Procedures.

    The referral originated in any W&I Campus Exam The FEA concurs that the case should be developed by Field Office Examination The EFC will:
    1. Complete Form 13549 with the facts of the case and results of the research.

    2. Secure FEA recommendation to transfer the case to the field on Form 13549.

    3. Follow the transfer procedures in IRM 4.19.10.4.9, AIMS Case Control and PSP Transfer Procedures.

    The referral originated in any W&I Campus Exam The FEA concurs that the case should be referred to CI for criminal investigation consideration The EFC will:
    1. Complete Form 13549 and Form 2797, with the facts of the case and results of the research.

    2. Secure FEA recommendation to update case on AIMS to Status 18.

    3. Transfer case to CI per IRM 25.1.3, Criminal Referrals.

    Note:

    If the potential fraud referral transferred for fraud development is declined in Austin, the case will be worked by Austin Correspondence Exam. The case will not be returned to the originating campus.

  7. Update the Taxpayer Identification, Campus Fraud Coordinator and Fraud Enforcement Advisor Recommendation sections in the Centralized Campus Fraud Monitoring Workbook.

  8. For additional information, see IRM 25.1.14, Campus Examination Fraud Procedures.

  9. The Austin EFC will also follow the procedures under IRM 4.19.10.4.5.1, Responsibilities of the Brookhaven CFC (BCFC) and the Austin EFC, and IRM 4.19.10.4.7, Centralized Fraud Development Procedures.

Responsibilities of the Campus Fraud Coordinator (CFC)

  1. Ensure Form 13549 is properly completed and approved by the initiator's supervisor/lead. The form must contain the required digital signatures and dates.

  2. Update the Centralized Campus Fraud Monitoring Workbook. Follow the instructions included under separate tab in the Workbook. The referral tracking number on Form 13549 must match the entry on the Campus Fraud Spreadsheet.

  3. If the case is not in status (ST) 24, update the case to ST 38. If the case is in ST 24, refer to IRM 4.19.10.4.6, Status 24 (90-Day) Referrals.

  4. Update the referred cases to the appropriate employee group code (EGC); 5500 for Philadelphia & Memphis, 5335 for Cincinnati, 5195 for Ogden, and 5217 for Brookhaven.

  5. Review the Form 13549 received from the CET/TE to determine if sufficient indicators of fraud exist.

  6. Conduct further research as needed and document the results on Form 13549, Section V, Fraud Indicators and Development Actions.

    Note:

    If identity theft is present, proceed only if the responsible party is identified. Refer to IRM 25.23, Identity Protection and Victim Assistance.

  7. Accept or decline the referred Form 13549 within 21 business days. This includes contacting the FEA within 10 business days to discuss the case and obtaining acceptance or denial from the Brookhaven CFC (BCFC).

  8. If the CFC determines that the referral does not warrant fraud development (and the case will not be referred to the BCFC):

    1. note the reason for declination on Form 13549, Section VI, Explanation for Declination

    2. update the Centralized Campus Fraud Monitoring Workbook

    3. Save the completed Form 13549 (signed and dated) to the shared storage subdirectory. Rename the form to include the referral number before saving (e.g., 0001-22PH F13549). The shared drive storage is located at \\VPWSENTSHRCMN43\Common\EO\HQ\EPSPP\Shared\Fraud.

    4. return the completed Form 13549 to the CET’s manager or to the FFC for AUR referrals. The CFC should suggest applying the Negligence Penalty and the Two-Year Ban if EITC, CTC/ACTC/ODC or AOTC is involved by making the appropriate notations when returning Form 13549.

    5. for cases originating in correspondence exam, update the status on AIMS and RGS to the status code prior to ST 38 and return the case to the EGC of the examiner who last worked or referred the case.

    6. for referrals from AUR, update the status on AIMS and RGS to the ST code prior to ST 38 and return the case to the FFC who will continue the examination. The FFC will consider and apply the negligence penalty if appropriate.

  9. If the CFC and FEA determine the case should be referred to Criminal Investigation, the CFC will prepare Form 2797, Referral Report of Potential Criminal Fraud Cases, and refer the case to CI if affirmative acts of fraud are established and criminal criteria is met.

  10. If the CFC and FEA determine that the referral does have the potential for fraud development in Brookhaven:

    1. Ensure that all supporting case documents are scanned into RGS. Update the RGS case history and workpaper.

    2. Notify the BCFC of the potential fraud referral by emailing the completed Form 13549, via secure messaging, to *SBSE CEA Fraud Centralization. The subject line of the email should contain the referral number and a response due date (e.g., 0001-22PH F13549 due MM-DD-YYYY).

      Note:

      If the referral is from AUR, all case documentation and Form 13549 is emailed by the FFC to the centralized mailbox. If accepted for fraud development, the BCFC establishes the case on AIMS, creates the RGS case and scans supporting case documents into RGS.

    3. Save the completed Form 13549 (signed and dated) to the shared storage subdirectory. Rename the form to include the referral number before saving (e.g. 0001-22PH F13549). The shared drive storage is located at \\VPWSENTSHRCMN43\Common\EO\HQ\EPSPP\Shared\Fraud.

  11. If the fraud referral is declined by the BCFC, the BCFC will return the completed form 13549 (dated, signed and noting reasons for declination) to the CFC. Since the CFC accepted the fraud referral from the TE/CET, the CFC will work the case through examination closure (including consideration of the negligence penalty and appropriate bans).

  12. If the fraud referral is accepted by the BCFC, and the FEA concurs that the indicators of fraud warrant further development, the CFC will:

    1. Secure a signed and dated Form 13549 from Brookhaven, verifying acceptance by the BCFC, group manager and FEA.

    2. Transfer the case (on AIMS and RGS) to Brookhaven for fraud development. The case should be in ST 38 or ST 24 when transferring. Refer to IRM 4.19.10.4.6, Status 24 (90-day) Referrals, if status 24 applies.

      Note:

      All paper case files will remain at the originating campus location until the BCFC closes the case. Once the case is closed, the paper files can be sent to files for association. Closed cases will be identified with yellow highlighting (by the BCFC) on the Fraud Development Status Report spreadsheet, in the Centralized Campus Fraud Monitoring Workbook.

    3. Issue letter 86C, Referring Taxpayer Inquiry/Forms to Another Office, to the taxpayer

    4. Notate all actions taken on Form 13549. The form should clearly indicate the acceptance of the fraud referral and the applicable status and organization code that the case was updated to. Return a copy of the completed form to the CET/TE through the team supervisor/lead or the FFC for AUR referrals.

Responsibilities of the Brookhaven CFC (BCFC) and the Austin EFC
  1. The BCFC/Austin EFC receives Form 13549 fraud development referrals from the campuses. When a referral is received, they will:

    • verify that the submitted Form 13549 is complete, signed and saved appropriately.

    • respond to the CFC/EFC with the decision to accept or decline the referral.

    • return Form 13549 to the CFC/EFC if declined, notating reasons for declination.

  2. Accepted referral responsibilities include:

    1. Emailing the signed and dated Form 13549 to the originating CFC/EFC to document acceptance of the referral

    2. Establishing AUR referrals on RGS and AIMS. SB/SE will use source code (SC) 85 and employee group code (EGC) 5217. W&I will use SC 85, EGC 5024, and primary business code (PBC) 192.

    3. Updating the case to ST 17, fraud development status

    4. Developing the CFP issue, including the ten-year EITC, CTC/ACTC/ODC and AOTC ban if applicable

    5. Coordinating the CFP case/ten-year EITC, CTC/ACTC/ODC and AOTC ban with the FEA

    6. Conducting third-party contacts as needed. Refer to IRM 4.19.10.4.12, Third Party Notification Procedures for Campus Fraud Cases

    7. Preparing and issuing the 30-day letters

    8. Composing the language for the Form 886-A, Explanation of Items, to explain the adjustments for the fraud issue(s). See the examples in Exhibit 4.19.10-4, Form 886-A 90 Day Overview

    9. Computing and reviewing the civil fraud and/or fraudulent failure to file penalty computations

    10. Preparing and issuing the Statutory Notice of Deficiency (90-day letter) containing the Civil Fraud Penalty, ten-year EITC, CTC/ACTC/ODC, and AOTC ban, and Fraudulent Failure to File penalty and ensuring the proper alternative positions are specified in the package

    11. Saving completed, signed, and dated Forms 13549 to the RGS casefile. The BCFC will also save the form to the shared storage drive subdirectory. Before saving, add the referral number to the front of the file name (e.g., 0001-22PH F13549). The shared storage drive is location is : \\VPWSENTSHRCMN43\Common\EO\HQ\EP\CEPSPP\Shared\Fraud. Stored Forms 13549 will be retained for 3 years

    12. Preparing Form 2797 and referring the case to CI if affirmative acts of fraud are established and criminal criteria is met

    13. Updating, monitoring, and ensuring the accuracy of the Centralized Campus Fraud Monitoring Workbook, on a regular basis. All Forms 13549 should be entered and numbered on receipt

    14. Updating the Centralized Campus Fraud Monitoring Workbook, on a regular basis and ensuring all prior month activity is recorded by the 5th day of the subsequent month

    15. Comparing the Office of Fraud Enforcement report to the Centralized Campus Fraud Monitoring Workbook to ensure all cases are properly recorded and reflect the correct status. Any discrepancies must be researched and resolved as soon as possible

    16. Working the AIMS Status Workload Report for cases in ST 17, and reconciling the report to the Centralized Campus Fraud Monitoring Workbook

    17. Timely responding to the HQ analyst on the required quarterly update for user access to the Centralized Campus Fraud Monitoring Workbook

    18. Providing an updated campus fraud program staffing chart to the HQ analyst when changes are made

    19. Creating and mapping a new Centralized Campus Fraud Monitoring Workbook at the beginning of each new fiscal year

  3. Additional responsibilities include:

    1. Evaluating audit reconsideration requests involving a previously asserted CFP

    2. Coordinating and delivering fraud training for other SB/SE CFCs and W&I EFCs

Coordination with Counsel
  1. Counsel review and approval is not required before the issuance of the 90-day letter unless the case falls under the criteria for mandatory review listed in IRM 4.8.9.9.2.1, Mandatory Area Counsel Review. Per Counsel guidance, there is one exception to the mandatory review - under IRM 4.8.9.9.2.1(1)a, Campus “Fraud Penalty” cases for individual taxpayers are excluded. However, the BCFC/Austin EFC may request a review/approval from Counsel, based on their judgement of the facts and circumstances of the case. For information relating to penalties for return preparers, refer to IRM 4.19.10.6.1, Return Preparer Penalties.

Supervisory Approval of Penalties and Bans
  1. IRC 6751(b) requires supervisory approval for the assessment of a penalty that includes any addition to tax or any additional amount, excluding section 6651, 6654 or 6655, and any other penalty calculated by electronic means.

  2. IRC 6751(b) does not apply to the 2/10 year ban. Supervisory approval, for the assertion of the 2/10 year ban, is required as a matter of Campus Examination policy.

  3. Supervisory approval for penalties and bans must be documented prior to the issuance of any letter/report including a penalty or ban (and the opportunity to protest the penalty or ban with the IRS Independent Office of Appeals).

  4. For more information on supervisory approval of penalties and bans, see:

    • IRM 4.19.13.7.1, Supervisory Approval of Penalties/Bans

    • IRM 4.19.13.7.1.1, Supervisory Approval of Bans

    • IRM 20.1.5.2.3, Supervisory Approval of Penalties - IRC 6751 Procedural Requirements

    • IRM 20.1.5.2.3.1, Documenting Supervisory Approval of Penalties

Additional Duties of the CFC
  1. The CFC also has the responsibility of:

    • Maintaining copies of the file including Form 13549 and Form 2797 for a retention period of 3 years.

    • Saving a copy of Form 13549 and Form 2797 (if applicable) to the shared drive storage subdirectory, located at \\VPWSENTSHRCMN43\Common\EO\EP\CEPSPP\Shared|\Fraud.

      Note:

      The signed Form 13549 will be renamed to include the referral number (e.g., 0001-22PH F13549).

    • Evaluating audit reconsideration requests of the civil fraud penalty which had been asserted by the campus.

    • Coordinating and delivering fraud training for new campus employees; as well as annual fraud awareness for Continuing Professional Educational (CPE).

    • Serving as the point of contact with the applicable headquarters (HQ) analysts.

    • Monitoring, updating and ensuring the accuracy of the applicable Centralized Campus Fraud Monitoring Workbook spreadsheets.

    • Working the AIMS Status Workload Report, for cases in ST 17, in the assigned EGC.

    • Timely responding to the headquarters analyst regarding the required quarterly update for user access to the Centralized Campus Fraud Monitoring Workbook.

    • Providing an updated campus fraud program staffing chart to the headquarters analyst when any changes are made.

Status 24 (90-Day) Referrals

  1. The BCFC/Austin EFC will coordinate with the FEA and Counsel to discuss the subsequent course of action when the case is in ST 24 and the taxpayer submits apparently false or altered documentation after the issuance of the Statutory Notice of Deficiency.

    Note:

    These actions are applicable when the first indication of fraud or submission of altered documents occurs AFTER the issuance of the 90-day letter. The tax examiner generally should not issue a 90-day statutory notice on the case with suspected fraud potential prior to preparing the Form 13549, discussion with the team lead, and submission to the CFC/EFC/FFC.

  2. The BCFC/Austin EFC will expedite contact with Counsel if the case is in Status 24. They will inform them that the taxpayer is suspected of submitting false or altered documentation and ask whether the civil fraud penalty should be pursued. Counsel should be consulted on a case-by-case basis and IRM 4.8.9, Statutory Notices of Deficiency, guidelines must be followed to ensure that the notice accurately reflects the Service's position, should the case proceed to Tax Court.

  3. If the taxpayer's actions are serious enough to warrant a criminal investigation referral, Counsel must be informed immediately.

Centralized Fraud Development Procedures

  1. The originating campus completes the Form 13549, including documenting the reasons for the potential fraud, and forwards the form to the Brookhaven CFC (for SB/SE) or the Austin EFC (for W&I) for fraud development consideration. W&I campuses will also transfer the case on AIMS/RGS to Austin. SB/SE campuses will not transfer the case until Brookhaven has approved the case for fraud development.

  2. The following fraud development procedures apply only to the Brookhaven and Austin CFC/EFC/FEAs and the Brookhaven and Austin CFC/EFC managers.

  3. Form 13549 is used to document the approval of the CFC/EFC/FEA and CFC/EFC’s group manager for placing a case in status 17, fraud development status. A case should not be placed into or taken out of Status 17, without consulting the FEA. If a disagreement exists for whether a case is placed into ST 17 or remains in ST 17, the ultimate decision rests with the CFC/EFC's group manager.

  4. The CFC/EFC's group manager reviews Form 13549, indicates their approval by signing their name, dating, and electronically forwarding the completed form to the FEA for consideration.

  5. If the FEA concurs with fraud development they will sign and date the Form 13549 and return it to the CFC/EFC and the CFC/EFC's group manager. A copy of the form is retained by the FEA and documented in the RGS workpapers.

    Note:

    In SB/SE, a copy of the Form 13549 will also be sent to the originating campus CFC and CFC group manager. The form will be renamed to include the referral number (e.g., 0001-22PH F13549) and saved to the shared storage drive.

  6. For any case approved for fraud development, the FEA must prepare an agreed upon "plan of action" , under Section VII of the Form 13549. The plan will:

    1. Provide audit steps required to establish affirmative acts (proof) of fraud;

    2. Be the joint effort of the CFC/EFC, the group manager and the FEA;

    3. Guide the case to its appropriate conclusion in a timely manner;

    4. Specify any direct assistance the FEA will provide. The role of the FEA can be more advisory or consultative in nature; and,

    5. Be in writing and documented with a copy of the initial plan, containing follow up dates and items placed in the work papers and a copy retained by the FEA.

  7. The CFC/EFC will update the case on AIMS/RGS to ST 17 and secure the original tax return(s), only if requested by the FEA or Counsel. Usually, the case can be developed using the existing tax return facsimile or document. The CFC/EFC will proceed with the plan until affirmative acts of fraud are established or a determination is made that the potential for fraud no longer exists. Cycle time is excluded from the monthly aging reports to management if the case is in fraud development status 17.

    Note:

    Timely action is required on all cases that are in fraud development status. Warning: The CFC/EFC or the group manager should never obtain advice from CI for a specific case under examination/collection activity. When approved for fraud development, the case is assigned to the CFC/EFC. The referring tax examiner is not responsible for subsequent action(s) on the case. The Austin EFC will provide a quarterly case status update, if requested by the referring EFC.

  8. If affirmative acts of fraud are established:

    1. The CFC/EFC will suspend the examination and immediately notify their group manager and the FEA;

    2. The FEA will generally recommend a referral to CI, if criminal criteria is met (See IRM 25.1.3, Criminal Referrals); and

    3. The FEA will generally recommend assertion of the civil fraud penalty and/or the fraudulent failure to file penalty, and imposition of the Ten-Year EITC, CTC/ACTC/ODC or AOTC Ban(s). (See IRM 25.1.6, Civil Fraud).

  9. A case will stay in Status 17 until a determination is made that the potential for fraud no longer exists or that the case will be transferred to the field or other BOD for fraud development. If the potential for fraud no longer exists:

    1. The determination that fraud is no longer an issue will be made by agreement between the CFC/EFC, the CFC/EFC group manager, and the FEA. If an agreement cannot be reached, the group manager will make the final decision, and:

    2. In SB/SE, the BCFC will update the case to the status code prior to Status 38, retain control of the case, and complete the examination. The BCFC should appropriately consider the alternative position by applying the Negligence Penalty and the Two-Year Ban, if EITC, CTC/ACTC/ODC, and AOTC are involved.

    3. In W&I, the EFC will return the case to Austin Correspondence Examination in the prior status code to continue examination. The EFC should indicate that Correspondence Examination should appropriately consider the alternative position of applying the Negligence Penalty and the Two-Year Ban if EITC, CTC/ACTC/ODC, or AOTC are involved.

  10. For case transfer, see IRM 4.19.10.4.9 and IRM 4.19.10.4.9.1.

Responsibilities of the Fraud Enforcement Advisor (FEA)

  1. See IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures.

AIMS Case Control and Planning and Special Programs (PSP) Transfer Procedures

  1. If the case is not open on AIMS and it has been accepted into the campus fraud program by the BCFC/EFC, the cases will be established on AIMS in the appropriate EGC

    1. W&I will establish the case in EGC 5024.

    2. SB/SE will establish the case in EGC 5217.

    Note:

    Cases accepted into the Campus Fraud Program should have at least 13 months remaining on the statute. Any exceptions to this should be discussed with Counsel and the CFC/EFC's group manager.

  2. In W&I, if a case is open on AIMS, and accepted by the EFC/FEA, the case will be updated to EGC 5024 and transferred on RGS/AIMS to the Austin Campus. Refer to the W&I Fraud Transfers of Potential Fraud Cases to Austin job aid and the Transfer Checksheet on SERP.

  3. In SB/SE, if the case is open on AIMS and accepted by the CFC/FEA, it will be updated to Status 38, within 21 business, days and remain in the originating campus EGC until acceptance by the BCFC/FEA for fraud development. Once the BCFC/FEA accepts a case, it will be transferred to Brookhaven and updated to ST 17. The BCFC becomes responsible for the examination, development of the fraud issue, issuance of the Report 4549 and Form 886A, etc.

  4. When applicable, prior and subsequent year returns will be opened for exam. Current exam procedures will be followed.

  5. Use the following organization function program (OFP) Code when working a fraud case:

    1. 93421 for W&I Non-EITC Fraud Referrals or 93621 for W&I EITC Fraud Referrals, and Function Codes 710, 720 and 730 are approved for use in W&I

    2. 710, 730, 740, or 790–91892 for SB/SE fraud development work other than performed by an FFC or CFC

    3. 640–91424 for FFCs reviewing initial fraud referrals to SB/SE

    4. 730 or 740–91891 for SB/SE CFCs only

  6. Update the case(s), with FEA approval for fraud development, with the appropriate Project Code:

    1. 0076, Discretionary ,or

    2. 0691, EITC Fraud

  7. A case selected for field examination, on the joint recommendation of the FEA and CFC/EFC, will be transferred to the respective Area PSP Office, using Form 3185, Transfer of Return, and cover memo. See Exhibit 4.19.10-2, W&I PSP Fraud Memo, and Exhibit 4.19.10-3, SB/SE PSP Fraud Memo. The case will be transferred in Status 07, with an AIMS Aging Reason Code (ARC) of:

    1. ARC 06 - case originated in campus and has fraud potential, per FEA concurrence, or

    2. ARC 07 - case originated in the campus, was considered in the campus fraud program, but with FEA concurrence has Large, Unusual and Questionable (LUQ) items without initial fraud potential, requiring Area exam.

  8. For additional information on transferring cases for field examination, see IRM 4.19.10.4.9.1, Transfer of Fraud Case for Area (Field) Examination.

  9. For additional information on AIMS transfer procedures, contact your Campus AIMS Coordinators and refer to IRM 4.4.33, Transfers.

Transfer of Fraud Case for Area (Field) Examination
  1. Fraud cases, approved for Area (Field) examination, are transferred to the respective Area PSP office.

  2. The referral must be established on AIMS, be in the correct EGC, and reflect the correct aging reason code (ARC). There must be a minimum of 13 months left on the statute. See IRM 4.19.10.4.9, AIMS Case Control and Planning and Special Programs Transfer (PSP) Procedures.

  3. Form 3185, Transfer of Return, is used to document the transfer of the case and the receipt by Area Office.

    1. the form must be filled out completely, including checking the box to indicate that the exam has started and providing campus contact name and phone number.

    2. the following standard paragraph must be added to the Comments section of the form: "The attached case has considerable fraud potential. The FEA and the BCFC/CFC/Austin EFC/EFC concur that fraud development is better suited for Area exam assignment (see attached Form 13549).".

  4. The appropriate PSP Fraud Memo is also sent with the transfer. See Exhibit 4.19.10-2 for W&I, and Exhibit 4.19.10-3 for SB/SE.

  5. It is important that the receiving Area PSP office be able to easily identify the fraud case transfer. To avoid confusion, a fraud case will not be sent out with regular transfers. It must be sent to the attention of the Fraud Coordinator for the specific PSP office where the case is being transferred. PSP contact information can be viewed by selecting the link to Employee Group Code (EGC) Contacts under the AIMS Assignee Code Contact Listings athttps://portal.ds.irsnet.gov/sites/VL091/Lists/AIMS/DispItemForm.aspx?ID=8.

  6. The full PSP transfer package Includes:

    • Form 3185 (completed, including the addition of the standard paragraph under Comments),

    • The appropriate PSP Transfer Memo,

    • Form 13549 with BCFC/CFC/Austin EFC/EFC/FEA recommendation/approval for transfer to the Area PSP office for fraud development,

    • Research used to develop the issues,

    • Return facsimile, with potential fraud issues properly identified (an original return is only provided on the recommendation of the FEA)

    • Completed Form 3210, Document Transmittal.

  7. The PSP Fraud Memo requests a response from Area PSP, on case acceptance or rejection, within 10 business days. If a timely response is not received, the BCFC/CFC/Austin EFC/EFC must contact Area Office for their decision.

    Note:

    It is recommended that the BCFC/CFC/Austin EFC/EFC/FEA monitor for the receipt of the Form 3210 acknowledgement copy. The originator’s copy of the Form 3210 can be used to monitor case acceptance or rejection, and notate follow-up phone calls made or emails sent to ensure a timely response,

  8. If the Area PSP Office declines the case, the BCFC/CFC/Austin EFC/EFC must ensure that the case is promptly transferred back and consult with the FEA on whether any portion of the issues are suitable for campus fraud development.

Monitoring the Issuance of Manual Interim Letters on Open Mail Cases in Status 17
  1. When a case is updated into Status 17 (fraud development), the automated process for acknowledging the receipt of mail and sending interim letters is not available. Interim letters must be manually generated, and cases must be monitored to ensure the letters are timely sent. Mail will be acknowledged within 30 days of receipt. Additional interim letters are sent when no response has been sent to the taxpayer within established timeframes. See IRM 4.19.13.12, Monitoring Overaged Replies. Document activity in the case history.

    1. Letter 2645-C, Interim Letter, or another applicable interim letter, is sent to the taxpayer within 30 days from the correspondence received date (CRD).

    2. If subsequent contact is needed, Letter 2644-C, Second Interim Response, or another applicable interim letter, is sent to the taxpayer.

Program Letters and Actions to Close Case

  1. For cases transferred to another campus or other examination location (i.e., W&I cases transferred to Austin Exam and SB/SE cases transferred to Brookhaven), the originating campus will issue Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office, to the taxpayer. If any prior contact has occurred with the taxpayer or correspondence was received from the taxpayer, the transfer notification procedures are required. (For W&I, refer to the W&I Transfers of Potential Fraud Cases to Austin and Transfer Check Sheet job aids on SERP.)

    Note:

    A case cannot be transferred to Area Field Exam if the refund remains frozen. See IRM 4.19.13.16, Transfers to Area Office Examination or Appeals Office, for additional procedures.

  2. Interim Letters and Action 61 guidelines apply to fraud cases. See IRM 4.19.13.3.6, Standard 6 -Timely Actions, and IRM 4.19.3.22.1.5, Action 61/Policy Statement P-21-3.

  3. When a case is accepted into the Fraud Program, the BCFC/EFC will issue the appropriate letters, following examination procedures in IRM 4.19.13, General Case Development and Resolution and observe suspense periods per IRM 4.19.10.1.7.2, Standard Suspense Periods for Correspondence Examination.

Initial Contact Letter (ICL) and Response Procedures
  1. After initial research has been completed, a Letter 566-S, Initial Contact, will be issued to the taxpayer requesting an explanation of the potential fraud issue. Both the Integrated Data Retrieval System (IDRS) and Report Generating System (RGS) controls will be updated to reflect the ICL status. The table below lists the actions to be taken, based on the taxpayer’s response.

    If Then
    The taxpayer responds and the information is sufficient to support the taxpayer’s position.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Close the AIMS record (DC02) using RGS Form 5344, Examination Closing Record, and close any IDRS controls.

    • The BCFC/Austin EFC will update the Centralized Campus Fraud Monitoring Workbook to reflect the closing of the case.

    The taxpayer responds claiming identity theft. Refer to IRM 4.19.13.27, Campus Exam Identity Theft.
    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    • The BCFC/Austin EFC should consider a conference with the FEA to discuss subsequent actions.

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ See IRM 4.19.10.4.12, Third Party Notification Procedures for Campus Fraud Cases.

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • Update IDRS and RGS controls to reflect the purge status.

    The taxpayer does not respond Confer with the FEA and manager and prepare the 30-day package. See IRM 4.19.10.4.10.2, 30-Day Letter Procedures.

30-Day Letter Procedures
  1. The BCFC/Austin EFC will determine if the 30-day letter should be issued based upon the taxpayer’s response or lack thereof, as well as the documented research and any third-party information. See actions to take in the table below.

    If Then
    The BCFC/EFC determines a 30-day letter should be issued
    • Secure recommendation from FEA on assertion of the civil fraud penalty.

    • The BCFC/Austin EFC will prepare a 30-day package consisting of:

      1. overview of the case similar to 90-day Overview, see examples in Exhibit 4.19.10-4, Form 886-A 90-Day Overview;

      2. appropriate Letter and

      3. Form 4549, Income Tax Examination Changes

        Note:

        The FEA will assist with the write-up, if needed.

    • Before issuance of the 30-day letter, the BCFC/Austin EFC group manager will sign off on the case file/work papers to confirm agreement (or disagreement) with the issuance of the 30-day letter including the Civil Fraud Penalty and/or imposition of Ten-Year EITC, CTC/ACTC/ODC, or AOTC Ban by inputting a non-action note on CEAS. See IRM 4.19.10.4.5.3, Supervisory Approval of Penalties and Bans.

    • The FEA may review the 30-day package prior to issuance to the taxpayer.

    • Letter 525 will be issued to the taxpayer.

    • Update AIMS and RGS to proper status.

    The BCFC/EFC and the FEA determine the 30-day letter is not yet warranted or that intent has not been established and the case is in Status 17
    • The BCFC/Austin EFC will update the Centralized Campus Fraud Monitoring Workbook

    • Form 13549 will be annotated and returned to the originating CFC/EFC/FFC /Manager/Lead for feedback purposes

    • Update the status on AIMS and RGS. The EFC will update the status to the status prior to ST17. The BCFC will update the status to the status prior to ST 38.

    • The BCFC/ Austin EFC will consider the assertion of the two-Year EITC, CTC/ACTC/ODC and AOTC Ban, or other penalties.

    • In W&I, if the case was transferred to Austin, the case will not be returned to originating campus. The case will be sent to Austin Correspondence Exam to continue the examination

    • In SB/SE, the BCFC will complete the examination and issue the 30-day letter when applicable

  2. If the case involves a joint return, each spouse’s knowledge regarding the examination issues must be addressed. Refer to IRM 25.15, Relief from Joint and Several Liability, if a taxpayer requests innocent spouse relief.

  3. Based upon the taxpayer’s response, further research and development may be required. Refer to IRM 4.19.13.11, Taxpayer Replies, and IRM 4.19.13.29, Campus Exam Closing Actions. The table below lists actions to take, based on the taxpayer’s reply:

    If Then
    The information does not support the taxpayer’s position or only partially supports the taxpayer’s position.
    • Issue follow-up Letter 692-M with Form 4549 and a clear explanation of the issues on Form 886-A or Form 886-H-XXX - (For XXX, refer to list of forms 886-H for specific issues) required or still needed.

    • Allow the taxpayer time to reply.

    • Update the AIMS / RGS case status as needed.

    The information is sufficient to support the taxpayer’s position
    • See IRM 4.19.13.29, Campus Exam Closing Actions

    • Close any IDRS controls

    • Update the Centralized Campus Fraud Monitoring Workbook

    The taxpayer agrees with the report (signed Form 4549)
    • See IRM 4.19.13.29, Campus Exam Closing Actions

    • Close any IDRS controls

    • Update the Centralized Campus Fraud Monitoring Workbook

    The taxpayer does not respond and the suspense period expired See IRM 4.19.10.4.10.3, 90-Day Procedures.

90-Day Procedures
  1. If the 90-day letter (Letter 3219) is to be issued, an overview of the Civil Fraud Penalty must be written and saved as part of the RGS/CEAS case file on Form 886-A (See Exhibit 4.19.10-4, Form 886-A 90-Day Overview). On jointly filed returns, the overview must address the culpability of each spouse. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Refer to IRM 20.1.5.16.2 (9), for additional information for asserting civil fraud penalties on a joint return.

  2. An explanation of the Civil Fraud Penalty/Ten-Year EITC, CTC/ACTC/ODC and AOTC Ban, along with the amount of the penalty, will be included in the Other Information Section of Form 4549.

  3. The BCFC/Austin EFC will obtain group manager's concurrence with the issuance of the 90-day letter, which includes the Civil Fraud Penalty/Ten-Year EITC, CTC/ACTC/ODC or AOTC Ban.

  4. The BCFC/Austin EFC, with the assistance of the FEA, will prepare the Form 886-A, outlining the Government’s alternative position (e.g., the negligence penalty in lieu of the civil fraud penalty).

  5. Prior to the issuance of the 90-day letter, the letter will be reviewed by the FEA for accuracy.

  6. Prior to issuing the 90-day letter, the BCFC/Austin EFC must obtain supervisory approval for asserting penalties and bans. See IRM 4.19.10.4.5.3, Supervisory Approval of Penalties and Bans. Counsel review may also be needed. See IRM 4.19.10.4.5.2 , Responsibility of Coordination with Counsel.

    Note:

    If a case needs Counsel review, the original case file will be forwarded to Area Counsel for approval. A photocopy of the file will be maintained by the referring campus until Area Counsel returns the original file. The case will be updated on IDRS and RGS with designated controls to reflect the 90-day Area Counsel review status.

  7. The documents that will be saved in the 90-day package include the following:

    • Letter 3219, Notice of Deficiency;

    • Form 3198, Special Handling Notice for Examination Case Processing ;

    • Form 4549, Income Tax Examination Changes;

    • Form 5564-A, Notice of Deficiency-Waiver;

    • RGS Schedules and worksheets;

    • Explanation of the fraud issue on Form 886-A;

    • Explanation of the Civil Fraud Penalty (IRC 6663), the Fraudulent Failure to File penalty (IRC 6651(f)) and/or the Ten-Year EITC (IRC 32(k), CTC/ACTC/ODC (IRC 24(g)), and AOTC Ban (IRC 25A(i)(7))) on Form 886-A;

    • Alternative Position proposed on Form 886-A (e.g., Accuracy Related Penalty(s) (IRC 6662(a)) or Delinquency Penalty (IRC 6651(a));

    • Verification of managerial approval for assertion of penalties or bans (CEAS non-action note or penalty lead sheet).

    • Overview of the case, on Form 886-A;

    • Evidence of fraud (altered and/or false documents; original correct documents; notes of conversations with taxpayer; all correspondence received from taxpayer, etc.); and

    • Original tax return(s) for the tax year(s) under examination, if requested by Counsel.

Withholding Only Cases
  1. The following section applies to returns that are referred to the Fraud Program with suspected altered or false Form W-2 and/or Forms 1099 with inflated or false withholding amounts.

  2. Refer to Penalty Handbook IRM 20.1.5.3.1, Definitions, for what constitutes an underpayment. Per IRC 6664(a) and Treas. Reg. 1.6664–2(a), an underpayment is defined as the amount by which any tax imposed, exceeds the excess of:

    1. The sum of the amount of tax shown on the return, plus

    2. Amounts not shown that were previously assessed (or collected without assessment), over the amount of rebates made.

      Note:

      In calculating the amount of an underpayment, adjustments to refundable credits or prepayment credits for withholding or estimated tax are included in the amount shown as the tax on the taxpayer’s return. In a Program Manager Technical Advice, issued on May 30, 2012, https://www.irs.gov/pub/lanoa/pmta_2012-16.pdf, the Office of Chief Counsel reconsidered its previous advice regarding the application of the accuracy-related penalty in the situation where the Service does not approve or pay a refund for a refundable credit the taxpayer is not entitled to. “In many cases involving this fact pattern, there will be no ‘underpayment’, as that term is defined in IRC 6664. Without an underpayment there can be no liability for the accuracy-related penalty.”.

    3. See IRM 20.1.5, Return Related Penalties, Exhibit 20.2.5-1, Calculation of Underpayment Penalty, for an example of a calculation of an underpayment.

  3. Follow the third-party procedures to verify/document that the information provided by the taxpayer is fraudulent. For additional information, see IRM 4.19.10.4.12, Third Party Notification Procedures for Campus Fraud Cases.

  4. Refer to IRM 4.8.9.16.9, Notices with Prepayment Credit Adjustments, for assessment. The assessment for the over claimed withholding must be made prior to issuance of the 90-Day Letter. Inform the taxpayer that disallowance of the withholding credit is not subject to deficiency procedures. An assessment must be made (TC 290) for the amount of the overstated withholding credit. Per IRM 3.14.1.6.7.2, Category B ERRF Resolution, and IRM 21.4.5.5, Erroneous Refund Categories and Procedures, a TC 290 results in a legal assessment that allows the IRS to correct the overstated credits using the provisions of IRC 6201(a)(3). The assessment amount should not include any amount of income tax withholding actually withheld from the taxpayer’s wages. The IRS only makes this assessment for amounts of erroneous withholding claimed by the taxpayer on the return.

  5. Upon manager review and concurrence of the civil fraud penalty assertion, update the work papers with the following: BCFC/EFC determined that since the only adjustment on this case is regarding withholding, IRM 4.8.9.16.9, Notices with Prepayment Credit Adjustments, will be followed.

  6. To compute the penalty, follow the guidelines below. Refer to IRM 4.8.9.16, Special Issues, for additional information:

    1. Run tax computation as though no special circumstances exist and notate Civil Fraud and Delinquency Penalty amounts.

    2. Edit issues to remove the Civil Fraud Penalty.

    3. On all issues other than withholding, both fraud and non-fraud, adjust the "per Exam" amount to eliminate the adjustment amount.

    4. If return was subject to the Delinquency Penalty, access "return related penalties" and un-check the "delinquent return and delinquency" boxes (be sure to notate figures in Failure to Pay (FTP)/Failure to File (FTF) fields).

    5. Run another tax computation and verify that the only balance due is the withholding issue and that no Civil Fraud or Delinquency Penalties (if applicable) are present.

    6. Run Form 5344, Examination Closing Record, to generate a TC 300 for zero with a TC 807 to reduce the withholding, use DC 08 and leave the agreement date blank (until known). Per IRM 4.8.9, Statutory Notices of Deficiency, attach a Form 3198 and Form 4549. When preparing the Form 4549 to attach, in the tax computation window, clear the other information section and if there is a Delinquency Penalty involved, un-check the "6406(g) box" so the automatic paragraph does not generate.

    7. Once the approval to issue the 90-day Letter is received from Counsel, re-input the proper Exam amount in each of the issues and in the withholding issue, make the Exam amount the “per return” amount so there is no adjustment amount.

    8. For delinquent returns, access "return related penalties" and re-check the "delinquent return and delinquency" boxes and re-input the figures, notated earlier, in the FTP/FTF fields.

    9. Create the Civil Fraud Penalty manually in "return related penalties" and create a Form 886-A to show the computation of the Civil Fraud Penalty.

    10. In Tax Computation/Other Information box, type the following: "Please note that the overstated federal withholding has been reduced by $--------.00. Your account was adjusted on Month, Day, Year. It has been determined that this adjustment was due to fraud. Consequently, a penalty in an amount equal to 75% of such overstated Federal withholding has been asserted pursuant to IRC 6663. The amount of the penalty is $------.00 and is reflected in this notice. The penalty asserted in this notice is the only issue subject to appeal rights. The additional balance due for the federal withholding adjustment will be issued under separate cover" .

    11. If withholding is the only issue, interest will not compute on the Civil Fraud Penalty and must be manually computed. This is done by using Total Interest/Estimated Interest option on the RGS tree. Click on the tax period. Input the amount of the Civil Fraud Penalty, beginning date and ending date. Click "+/-" to compute.

    12. Run the Form 4549 and save it to case file documents. If interest has been computed manually, changes have to be made to the adobe file (to add the manually computed interest) as follows: Tools/Advanced Editing/Text Field Tool/double click in the area to be edited/pop up window, select the General Tab, un-check the read only box, close, click on the "hand" tool on the tool bar/change the fields.

    13. If withholding is the only issue, a "How to pay your taxes" page must be edited from a previously generated Form 4549 to correct the date (this page does not generate when there is no deficiency in tax being asserted on the new notice).

    14. Once the manager has approved the 90-day letter, the adjustment for the over claimed withholding will be input and the 90-day letter will be issued only for the Civil Fraud Penalty. Include an explanation that the withholding adjustment has already been made to the account and a notice is being provided to advise them of their appeal rights regarding the Civil Fraud Penalty.

      Note:

      Per IRM 4.8.9.16.9, Notices with Prepayment Credit Adjustments, the assessment for the over claimed withholding must be made prior to the issuance of the 90-day letter. Once the adjustment is made, the 90-day letter will be issued only for the Civil Fraud Penalty. The IRM also provides instruction for reducing the over claimed withholding.

    15. When the case is returned as approved by the manager, re-compute the interest to the expiration date of the notice and re-print the interest report. The Form 4549 will have to be manually updated to include the revised interest amounts.

Statute Consideration

  1. General assessment period - The normal assessment statute expiration date (ASED) is three years from the due date or three years from the date the original (valid) return was filed, whichever is later. See IRC 6501(a).

  2. Special assessment periods:

    1. Fraudulent return - There is no period of limitations on assessment for a false or fraudulent return with intent to evade tax. See IRC 6501(c).

    2. 25 percent Omission - The period of limitations is extended to six years, if the taxpayer omits:

      More than 25 percent of the gross income reported on the original income tax return;

      More than 25 percent of the tax reported on the original excise tax return; or

      Includable items in excess of 25 percent of the gross estate reported on the original estate tax return. See IRC 6501(e).

  3. See IRM 25.6, Statute of Limitations, for the procedures used to control the ASED.

Third Party Notification Procedures for Campus Fraud Cases

  1. Effective 8/15/19, Publication 1, Your Rights as a Taxpayer, will no longer satisfy the advance notice requirement of IRC Section 7602(c)(1).

  2. Effective after 8/15/19, the Taxpayer First Act impacts third-party contact notice procedures. Section 1206 of the Taxpayer First Act amended IRC Section 7602(c)(1) (advance notice provision), now requires the IRS to:

    • Issue notice of the intent to make third-party contacts

    • Intend, at the time such notice is issued, to contact third parties (the notice must state this intent)

    • Specify the time period in the notice (not to exceed one year) in which the IRS will be making the contact

    • Send the notice at least 45 days in advance of contact with a third party

  3. For pre-notification of third party contact, campuses will send Letter 3164-E, (Exam 1) Third Party Contact. A copy of the Letter 3164-E must be saved to the RGS case file folder.

  4. The Letter 3164-E notification takes effect in 45 days from the date of the letter and remains valid for one year, from the 46th day.

  5. No contact with the third-party should be initiated before the 46th day after the date of the Letter 3164-E.

  6. If additional third-party contact is needed after the expiration of the original contact period, a new Letter 3164-E must be issued.

  7. Other provisions of IRC Section 7602(c) are unchanged and require the IRS to:

    • Record all third-party contacts

    • Provide a list of third-party contacts to the taxpayer, on request

  8. For procedures relating to third-party contact, refer to:

    • IRM 25.27.1, Third-Party Contact Program

    • IRM 4.11.57, Third Party Contacts

Ten-Year Earned Income Tax Credit (EITC), Child Tax Credit (CTC)/Additional Child Tax Credit (ACTC)/Credit for Other Dependents (ODC) and American Opportunity Tax Credit (AOTC) Ban Procedures

  1. The Internal Revenue Code (IRC) provides that no EITC, and for tax years after 2015, CTC/ACTC or AOTC shall be allowed for a period of ten years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of the credit was due to fraud. The Credit for Other Dependents (ODC) is added for tax years 2018 - 2025. See:

    • IRC 32(k)(1)(B)(i) for EITC

    • IRC 24(g)(1)(B)(i) for CTC/ACTC/ODC

    • IRC 25A(b)(4)(A)(ii)(I) for AOTC

  2. The BCFC/Austin EFC will secure the FEA’s recommendation to impose the ten-year EITC, CTC/ACTC/ODC or AOTC Ban(s) on the Form 13549, Campus Fraud Lead Sheet. The BCFC/Austin EFC will complete the form and electronically send it to the FEA. The FEA will complete Section VII, Fraud Indicators and Developmental Actions, indicating "Assert CFP/FFTFP (Fraudulent Failure to File Penalty), impose Ten-Year EITC, CTC/ACTC/ODC or AOTC Ban(s)" and electronically return the form to the CFC/Austin EFC.

  3. The case file must contain sufficient write-up and documentary evidence needed to document the affirmative acts of fraud.

  4. When fraud is established, both CFP and ten-year bans normally apply. However there are instances when the CFP does not apply. Prior to assertion of the ten-year EITC, CTC/ACTC/ODC, or AOTC Ban(s) without the Civil Fraud Penalty, agreement must be secured from both the FEA and the applicable HQ Analyst.

  5. If the FFC or BCFC/Austin EFC determine that the disallowance of the EITC, CTC/ACTC/ODC or AOTC was not due to fraud, but instead a result of the taxpayer’s reckless and intentional disregard of the rules and regulations, the two-year EITC, CTC/ACTC/ODC or AOTC ban(s) and negligence penalty should be considered. See IRM 4.19.14.7.1, 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET), for information related to the two-year ban.

  6. These sanctions are in addition to any other penalty imposed under present law.

  7. Priority Code 6 must be input on Form 5344, Examination Closing Record, to impose the ten-year ban for EITC. If an "A" freeze is present on the account, the examiner must use a priority code 7.

  8. Priority codes are not required to assert the ten-year ban for CTC/ACTC/ODC or AOTC. When the CTC/ACTC/ODC and/or AOTC issue is disallowed in RGS, a recertification code is systemically generated by RGS on the 5344. To assert the ten-year ban, the examiner must overwrite the recertification code with the appropriate reason code:

    • Reason Code 183 to set the ten-year ban for CTC/ACTC/ODC

    • Reason Code 180 to set the ten-year ban for AOTC

  9. For more information on the two and ten year bans, refer to IRM 4.19.14.7.1, 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET). Also, see the Penalty Handbook IRM 20.1.5.3.5, Two and Ten Year Bans on Claiming the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC) and American Opportunity Tax Credit (AOTC).

Return Preparer Referrals

  1. If the CFC/EFC receives a case with fraud potential that was prepared by a return preparer, the case will be referred to the W&I or SB/SE HQ Analyst for scheme identification. The CFC/EFC should conduct the following return preparer research prior to referring the case:

    • RPVUE information on the preparer including: name, address, EIN/SSN/Preparer Tax Identification Number (PTIN), and any identifying numbers, volume of returns prepared for prior, current and subsequent year, percentage of refund rate, issues found such as EITC, CTC/ACTC/ODC, AOTC, and energy credits.

    • Accurint.

    • Electronic Fraud Detection System (EFDS)/Workload Management System (WMS) (if available) for any scheme information identified by Return Integrity Verification Operations (RIVO).

  2. Refer to IRM 4.19.10.6, Return Preparer Scheme Identification, to refer the case to the W&I or SB/SE HQ Analyst. The CFC/EFC/W&I Return Preparer Coordinator (RPC) must coordinate with the HQ analysts prior to referring the case to other functions for penalty consideration. The CFC/EFC should send the preparer cases identified to the Lead Development Center at *LDC and copy the HQ analysts on the referral. HQ may also recommend that the referral go to the Return Preparer Office (RPO).

  3. Upon acceptance of the case by another function, the CFC/EFC will notate the disposition and the date of disposition of the referral in the Centralized Campus Fraud Monitoring Workbook and Form 13549, Campus Fraud Lead Sheet.

Questionable Refunds

  1. The scanning, verification process and stopping of refunds is conducted by Return Integrity Verification Operations (RIVO) as outlined in IRM 25.25, Revenue Protection.

  2. See IRM 4.19.10.4.2, Responsibilities of the Correspondence Examination Technicians (CET) and the Tax Examiners (TE), procedures to report questionable returns that indicate any multiple and/or fraudulent refund schemes discovered during classification/screening to the Campus Fraud Coordinator (CFC).

Return Preparer Scheme Identification

  1. Return preparer schemes may be identified within any Examination Operation workload and by any method (i.e., correspondence examination, classification, etc.).

  2. A return preparer scheme may be identified by a suspected pattern of non-compliant issues which have similar characteristics and appear on three or more original tax returns or amended returns.

    1. Example One: When classifying Form 1040-X, Amended U.S. Individual Income Tax Returns, the same language appears on Page 2, Section III, Explanation of Changes, on three or more amended returns. The explanation for the issue/tax change is suspect or egregious and the impact on tax may be large or small.

    2. Example Two: Three or more taxpayers have been examined and adjusted by Correspondence Examination, whose original tax returns have been completed by the same preparer. The examination revealed the same types of deductions, expenses or credits with similar dollar amounts were claimed by all or most of the taxpayers and/or similar/same documents were provided by the taxpayers as substantiation.

  3. Preparer Scheme Referral Process

    1. Examination Operations will refer the following information to the CFC or RPC if the scheme (as described in (2) above) was identified in an SB/SE Campus or to the EFC/FEA if the scheme was identified in a W&I Campus.

      Information to provide
      • Preparer name and/or business name

      • Preparer TIN and/or EIN

      • Scheme issues identified

      • Affected Tax Years

      • Any statute of limitations (SOL/ASED) concerns

      • Number of open/in-process taxpayer cases

      • Adjusted Gross Income (AGI) of each open/in-process case

      • Number of closed taxpayer cases

      • Examination results (Dollars/Hour and Dollars/Return)

      • Project Code and Source Code from which the affected returns generated, if known

      • Provide remarks/comments/additional information which establishes the non-compliant or negligent behavior of the preparer

    2. In SB/SE, a case in the referral process will be updated (within 21 business days) to ST 38 until it is declined and returned to its prior status or accepted and updated to ST 17.

    3. The CFC/EFC or RPC will review the preparer scheme documentation to determine if the information warrants referral to the appropriate Headquarter Analyst.

  4. If the CFC/EFC or RPC determines the preparer scheme has merit for further development/action, they will prepare a preparer scheme spreadsheet containing the information referenced in (3)a) above and:

    1. The SB/SE CFC or RPC will forward the referral to Examination Case Selection (ECS) and Campus Exam Program (CEP) Analyst responsible for the CI Referrals/Return Preparer Program.

    2. The W&I EFC or RPC will forward the referral to the W&I HQ Analyst responsible for the Fraud Program.

  5. In SB/SE, the HQ analyst will:

    1. Present the preparer scheme information package to the SB/SE LDC HQ, ECS, and Return Preparer Office (RPO) analysts to determine further actions to take.

    2. Send the case to the SBSE LDC at *LDC for return preparer penalty and injunction consideration if the case was not referred by CFC/EFC/RPC.

  6. In W&I, the HQ analyst will send the referral to the LDC who, in turn, will coordinate with other specialty offices to ensure there is no overlap.

  7. The CFC/EFC or RPC should consult the FEA if criminal referral is warranted. If approved, the Form 2797, Referral Report of Potential Criminal Fraud Cases, should be submitted to CI.

  8. If the CFC/EFC or RPC determines the preparer scheme should not be referred to the appropriate HQ Analyst for further development/action, the CFC/EFC or RPC will return the preparer scheme information package to the Examination Operation with a written explanation for declination.

Return Preparer Penalties

  1. Generally, Campus Examination Operation personnel do not develop or assert penalties against tax return preparers. However, there may be instances where campus employees may be directed to do so. In that event, the following information and procedures will apply.

  2. Refer to IRM 20.1, Penalty Handbook, for additional information.

  3. A number of penalties apply to tax return preparers. Any person who prepares a tax return or claim for refund for compensation or who employs one or more persons to prepare for compensation, any return of tax, or claim for refund is considered to be a tax return preparer.

  4. Absent reasonable cause and good faith, preparers incur a penalty if:

    1. Any part of the understatement of liability with respect to any return or claim for refund is due to a position for which there was not a realistic possibility of being sustained on its merits,

    2. The preparer of the return or claim knew (or reasonably should have known) of such position, and

    3. Such position was not disclosed or was frivolous.

  5. A penalty is charged for understating a taxpayer's tax liability when the understatement was due to willfulness or any reckless or intentional disregard of rules and regulations.

  6. Examiners will flag cases where there are indications of possible income tax preparer violations by use of Form 3198, Special Handling Notice for Examination Case Processing, and forward to the Examination Return Preparer Coordinator (RPC) for review and forwarding to Area Office RPCs.

Office of Professional Responsibility

  1. The Office of Professional Responsibility (OPR) establishes, communicates and enforces the rules of professional conduct applicable to tax professionals as defined by Treasury Department Circular 230. The OPR may propose disciplinary action against a practitioner for noncompliance issues associated with their personal or business tax returns.

  2. Make a referral to the Office of Professional Responsibility if the non-filer is a tax practitioner (attorney, certified public accountant, enrolled agent, or enrolled actuary). Forward copies of delinquent returns of tax practitioners through supervisory channels to the:

    Internal Revenue Service
    Office of Professional Responsibility
    1111 Constitution Avenue, N. W.
    SE:OPR, Rm. 7238
    Washington, DC 20224

  3. Furnish the following information indicating:

    1. Whether or not penalties have been proposed or invoked.

    2. Whether there has been a fraud referral or a referral for criminal investigation.

    3. The name and telephone number of a contact person.

  4. Sanctions for failure to file will be administered by the Headquarters, Office of Professional Responsibility.

Master File Tax (MFT) Code 31

  1. In January 2001, a Master File process was implemented which allows for the processing of a split spousal account on the Master File rather than creating and subsequently posting the account to the Non-Master File (NMF). These adjustments often result from Innocent Spouse, Offer-In-Compromise, Petitioning/Non-Petitioning, and Bankruptcy issues. The split account will appear as an MFT 31 module on IDRS as well as the Master File and will be "linked" to the MFT 30 account.

  2. See IRM 25.15.15, Mirror Modules for Requests for Relief from Joint and Several Liability, for procedures on creating an MFT 31 account for an Innocent Spouse Case. For instructions on establishing MFT 31 accounts for petitioning and non-petitioning spouses for Exam audits, refer to IRM 21.6.8, Split Spousal Assessments (MFT 31/MFT 65).

  3. Refer to IRM 4.19.13.21.1, Bankruptcy Procedures - Examination Bankruptcy Coordinator Instructions, for instances when a MFT 31 should be created on bankruptcy modules.

Campus Fraud Lead Sheet

The Form 13549, Campus Fraud Lead Sheet, is used for Campus fraud referrals.

Secure email must be used to transfer the Form 13549 between functions.

Instructions for filling out the form, by function, can be accessed using the link under "Other Related Resources", from the Campus Fraud Development Process page on IRS Knowledge Management at https://portal.ds.irsnet.gov/sites/vl019/lists/campusfrauddevelopment/landingview.aspx.

W&I PSP Fraud Memo

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SB/SE PSP Fraud Memo

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Form 886-A 90-Day Overview

The following examples explain the nature of fraudulent information received from a taxpayer under audit. The overview is used with the 90-Day letter. The names shown in the examples are fictitious, chosen at random from the Category Lists of Names for Fictionalizing Taxpayer Names and Addresses. Any references to attachments or documents are for illustrative purposes only.

EXAMPLES OF AN OVERVIEW TO BE USED WITH 90-DAY LETTER:

OVERVIEW EXAMPLE 1
Mary Dove (taxpayer) submitted altered and fictitious documents as support for Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Head of Household (HOH) filing status and dependency exemptions for the 2017 tax year.

ISSUE:
Is assertion of the Civil Fraud Penalty under Internal Revenue Code (IRC) section 6663 applicable?

FACTS:
The taxpayer provided correspondence dated March 30, 2019, as support for EITC, CTC, HOH filing status and dependency exemptions claimed on the 2017 Federal income tax return. The correspondence consisted of the following:

  1. A birth certificate (Exhibit 1) for Baby Mary Dove (XXX-XX-2345) D/O/B June 13, 2004; the mother listed on this form was Mary Dove, which appears to have been altered. Internal research identifies Mary Sparrow as the mother of Baby Mary Dove.

  2. A letter from the New York City Human Resources Administration Administrator/Commissioner that appeared to be altered (Exhibit 2). Third party contact was made to verify the validity of the statement. Mr. R. J. Falcon responded (Exhibit 3) by indicating the letter was a forgery based on the fact that the Commissioner does not respond to individual requests and HRA uses a regular font as opposed to various types of font on all business correspondence.

  3. A letter from T.J. Eagle, M.D.P.C. dated 03/24/2019 that appears to have been altered (Exhibit 4). Third party contact was made with the office of Dr. Eagle, requesting authentication of the letter submitted by the taxpayer. Dr. Eagle responded via fax dated July 7, 2019 (Exhibit 5). Dr. Eagle’s fax states that Baby Mary Dove was a patient in 2013, but there was no record of the child being seen between 2014 and 2018. Dr. Eagle also indicated that the letterhead used was not the official office letterhead and the stamp at the bottom of the letter had not been used since 2013. Additionally, Dr. Eagle verified that the person who signed the letter stopped working in the office in 2013.

  4. A letter from the New York City Housing Authority along with a transcript of rent history (Exhibit 6) that appears to be altered. Third party contact was made to Jane Swan, assistant manager of the department, requesting verification of the validity of the letter and the transcript of rent history. A response was received via fax on August 10, 2019 (Exhibit 7), stating that the documentation was not from their department. Jane Swan stated that the housing official who signed the letter had been transferred to another location in 2013. Moreover, the address shown on the letter is not the correct address; there is no record of Mary Dove or Baby Mary Dove residing within the development; the letterhead used is not the City Housing Authority’s letterhead and the stamp used at the bottom of the letter is not the stamp used by their office. The ledger submitted by Mary Dove was also determined to be false because the transcripts issued by the department prints the date as well as time in military format. The transcript received did not include this feature.

LAW:
In order for the civil fraud penalty to be asserted pursuant to IRC 6663, the government must prove by clear and convincing evidence that: (1) there was an underpayment of tax due for the year at issue; and (2) at least a portion of that underpayment is attributable to fraud. Also, the taxpayer will be banned from claiming EITC for ten years if the EITC adjustment was due to fraud (IRC 7454(a); Rule 142(b)).

  1. Underpayment of Tax:
    In this case, there is an underpayment of tax due for the 2017 tax year. The underpayment of tax is attributable to the taxpayer’s ineligibility to claim EITC, the CTC, the dependency exemption and HOH filing status.

  2. Fraud:
    To prove fraud, the Government must show the taxpayer(s) intent to evade taxes, known to be due and owing. The Government must produce some affirmative act (action to mislead or conceal) of fraud.

The existence of fraud is a question of fact to be resolved upon consideration of the entire record. Since direct proof of taxpayer intent is rarely available, fraud may be proven by circumstantial evidence that will support a finding of fraudulent intent. Also, proof of fraud for one year will not sustain the Government’s burden of proving fraud in another year.

In this case, both oral and written testimony from third parties confirm the taxpayer is not eligible to claim EITC, CTC, the dependency exemption and HOH filing status. The act of altering and falsifying documentation to achieve these tax benefits and/or refundable credits has established the taxpayer’s intent to avoid the correct reporting of tax liability.

ARGUMENT:
The Government has proven that clear and convincing evidence of fraud exists based upon the fact that:

  1. Mary Dove did not establish being the natural parent of Baby Mary Dove.

  2. Mary Dove did not provide a residence for more than 6 months of the tax year for Baby Mary Dove.

  3. Mary Dove did not provide financial support for Baby Mary Dove.

  4. Mary Dove submitted falsified documentation to qualify for tax benefits and refundable credits that she was not entitled to claim. Mary Dove committed affirmative acts of fraud by presenting altered/falsified documentation which demonstrated an intent to deceive the government.

TAXPAYER’S POSITION:
Unknown. The taxpayer failed to respond to a request for information regarding the documentation received on March 30, 2019.

GOVERNMENT’S POSITION:
The taxpayer has not provided a defense to the application of this penalty. Thus, assertion of the civil fraud penalty and imposition of the Ten-Year EITC Ban is in order.

CULPABILITY OF EACH SPOUSE:
Address on jointly filed returns by determining the culpability of each spouse. “As questioned in the 30-Day Letter, the culpability of each spouse could not be determined as neither responded.” On all other returns, annotate “Not applicable, taxpayer did not file a joint return.”

CONCLUSION:
As stated in the above analysis, clear and convincing evidence of fraud is due to the fact that:

  1. There was an underpayment of tax due for the taxable year at issue;

  2. At least a portion of the underpayment is attributable to fraud; and

  3. The EITC adjustment was due to fraud.

Thus, assertion of the Civil Fraud Penalty under IRC 6663 and imposition of the ten-year EITC ban under IRC 32(k) are applicable.

ALTERNATIVE POSITION:
(Include following paragraph on all cases) In the alternative, it has been determined that the underpayment of tax ($_______); for the 2017 tax year is due to negligence or disregard of rules and regulations. Thus, the 20% accuracy related penalty is being asserted under the provisions of IRC 6662(b)(1).

(Include following paragraph if EITC and CTC is involved) In the alternative, the underpayment constitutes a substantial understatement of income tax under the provision of IRC 6662(b)(2). Thus, the two-year EITC and CTC ban is being imposed under the provision of IRC 32(k). The two-year ban will prohibit you from claiming EITC and CTC for the next two years.

OVERVIEW EXAMPLE 2
Mr. Hickory (taxpayer) attached an altered Form W-2 to his filed 2019 Form 1040. He fraudulently changed the federal withholding tax amount to understate the tax due and reduce the tax liability.

ISSUE:
Is the imposition of the civil fraud penalty, as an addition to the tax, pursuant to Internal Revenue Code (IRC) 6663 applicable?

FACTS:

  • Mr. Hickory prepared and filed his 2019 Form 1040 and attached an altered Form W-2 from Balsam Hill, Inc to his return. The amount of the withholding on the form was changed to $20,000. Mr. Hickory included this amount on line 17 of his filed 2019 Form 1040.

  • Payer data reported by Balsam Hill, Inc. to the IRS, per the enclosed IRPTR, shows Mr. Hickory’s federal withholding for tax year (TY) 2019 to be $2,000.

  • Letter 3164-E, (Exam-1) Third Party Contact, was sent to Mr. Hickory, advising of third-party contact.

  • Form 12175, Third-Party Contact Report Form, was filled out and forwarded to the Campus Third-Party Contact Coordinator for recordation of third-party contact to the payer involved.

  • On June 30, 2020, the Internal Revenue Service (IRS) contacted Balsam Hill, Inc. and requested a copy of the Form W-2 issued to Mr. Hickory for TY 2019.

  • The IRS received the Form W-2 copy from Balsam Hill, Inc. on July 16, 2020. The copy showed a federal income tax withholding amount of $2,000, in agreement with IRPTR.

  • On July 26, 2020, the IRS issued a 30-day letter to Mr. Hickory notifying him that Balsam Hill, Inc. had verified an amount of $2,000 in federal income tax withholding for TY 2019.

  • Mr. Hickory did not respond to the letter.

LAW:
In order for the civil fraud penalty to be imposed pursuant to IRC 6663, the government must prove by clear and convincing evidence that: (1) there was an underpayment of tax due for the year at issue, and (2) at least a portion of that underpayment was attributed to fraud.

  1. Underpayment of Tax:
    There is an underpayment of income tax due from Mr. Hickory in TY 2019 due to the altered amount of federal withholding. The federal withholding tax on line 17 of the Form 1040 should have shown $2,000 instead of $20,000.

  2. Fraud:
    To prove fraud the government must show the taxpayer intended to evade taxes he knew to be due and owing, by conduct intended to conceal or mislead. The government must produce some affirmative indication of the required specific intent. If the understatement of tax is caused by a good faith misunderstanding of the tax laws, the understatement is not due to fraud. However, a good faith misunderstanding of the law is different than disagreement with the law or a belief that the law is, or may be, unconstitutional.
    The existence of fraud is a question of fact to be resolved upon consideration of the entire record. Since direct proof of taxpayer intent is rarely available, fraud may be proved by circumstantial evidence that will support a finding of fraudulent intent. Proof of fraud for one year will not sustain the government’s burden of proving fraud in another year.

ARGUMENT:
The government has determined that clear and convincing evidence exists. Mr. Hickory altered the amount of the federal income tax withholding on the Form W-2 that he submitted with his TY 2019 Form 1040, to understate the tax due.

TAXPAYER’S POSITION:
Unknown. The taxpayer failed to respond.

GOVERNMENT’S POSITION:
The taxpayer has not provided a defense to the application of this penalty. The assertion of the civil fraud penalty is in order.

CULPABILITY OF EACH SPOUSE:
Not applicable. Taxpayer did not file a joint return.

ALTERNATIVE POSITION:
In the alternative, if it is determined that the underpayment of tax in the amount of $_____ for the TY ending 2019 is not due to fraud, then it is determined that the underpayment of tax in the amount of $_____ is due to negligence or disregard of rules and regulations under IRC Section 6662(b)(1) of the Internal Revenue code, or the underpayment constitutes a substantial understatement of income tax under the provision of IRC Section 6662(b)(2).