The primary objective of the fraud program is to foster compliance through the recommendation of criminal prosecutions and civil penalties against taxpayers who evade the assessment and payment of taxes known to be due and owing.

Examiners will develop fraud referrals on government entities and/or Fraud Development Leads (FDLs) on related parties, including:

Generally, for fraud to be present, the examiner must show either:

The primary objective of the EO examination program is regulatory, emphasis on continued qualification of exempt organizations (Policy Statement 4-119). IRM 1.2.1.5.36.

IRC 7602 gives examiners the authority to:

During examinations, examiners are responsible for:

Examiners and managers are also responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3).

Examiners should consult the Related Sources listed in IRM 4.75.35.1.6 to ensure accurate case processing and consistent application of the law.

The table lists commonly used acronyms and their definitions.

Related sources that provide guidance on these IRM procedures:

Fraud is deception by misrepresentation of material facts, or silence when good faith requires expression, which results in material damage to one who relies on it and has the right to rely on it. Simply stated, it is obtaining something of value from someone else through deceit.

Specifically, tax fraud is often defined as an intentional wrongdoing, on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing. Tax fraud requires both:

Understanding the requirements of proof is essential in establishing fraud. In all criminal and civil tax fraud cases, the burden of proof is on the Government.

The major difference between civil and criminal fraud is the degree of proof required.

Avoidance of tax is not a criminal offense. Taxpayers have the right to reduce, avoid, or minimize their taxes by legitimate means. One who avoids tax does not conceal or misrepresent, but rather shapes and pre-plans events to reduce or eliminate tax liability within the parameters of the law.

Evasion involves some affirmative act to evade or defeat a tax, or payment of tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are.

Common evasion schemes include:

Willfulness is a common element of tax crimes. Willfulness is defined as a voluntary, intentional violation of a known legal duty. A good faith misunderstanding of the law or good faith belief that one is not violating the law negates willfulness.

The elements necessary for the most common statutes under which criminal prosecution may be recommended by Criminal Investigations (CI) are listed in IRM Exhibit 25.1.1-1, Criminal Violations.

For information on Bankruptcy Fraud, see IRM 25.1.2.6.

For information on Employment Tax Fraud, see IRM 25.1.2.7.

For information on Excise Tax Fraud (other than Internal Revenue Code Section (IRC) 4958), see IRM 25.1.2.8.

If a delinquent return is secured and you determine it is substantially incorrect or incomplete, give the organization an opportunity to submit a correct return, if time permits for the purposes of the ASED.

If the organization insists on filing the incorrect delinquent return and you believe the return to be fraudulent, consult the FTA. See IRM 4.75.22.5, Delinquent Return Secured or IRM 4.75.31.3.1, Converted Tax Return Secured -To Be Further Adjusted, for procedures to process delinquent returns.

For various types of fraudulent scenarios, refer to IRM 25.1.9.5.4.

Examiner: If you believe there may be fraudulent issues, you must first discuss the issues of the case with your manager.

Group Manager: Determine whether FIU involvement is needed. The FIU has designated examiners (assigned by area) available as consultants, to provide advice prior to beginning an examination.

When appropriate, examiners will consult with their designated FIU examiner in pre-planning the audit to develop the potential fraud, including identifying what information should be requested from the taxpayer. This prepares the examiner to successfully plan out their case and be prepared to contact the TFS and the FTA.

Examiner: If you believe there may be fraudulent issues, you must first discuss the issues of the case with your manager

Group Manager: Determine whether FIU involvement is needed. The FIU has designated examiners (assigned by area) available as consultants, to provide advice during the examination.

When appropriate, examiners will consult with their designated FIU examiner throughout the examination to develop potential fraud including identifying information to prepare the agent to successfully develop their case and prepare to contact the TFS and the FTA.

Group Manager: If fraud indicators are confirmed, schedule a conference call with the examiner, the FIU agent and the TFS to determine an action plan for developing fraud in preparation for contacting the FTA.

If a mutual resolution cannot be made during the call, raise the issue to the appropriate area managers for a final disposition.

If the group manager and FTA agree that indicators of fraud exist for a related party, the examiner will prepare an FDL. The FDL consists of:

The group manager forwards the FDL to the appropriate SB/SE Planning and Special Programs (PSP) and gives the FTA group manager a copy.

If the group manager agrees to have another business unit examiner assigned to work with the FSL/ET examiner on the open examination of the government entity:

If the examiner is contacted by an individual or given information asserting allegations of a non-government entity’s or individual’s potential wrong doing, refer to IRM 25.2, Information and Whistleblower Awards. There are different procedures depending on whether an award is requested.

If the information is about a government entity:

If after consultation with the FTA, it is determined that a potential fraud case has firm indications of fraud/willfulness and meets criminal criteria, the examiner will immediately discontinue the examination and collection activity without disclosing to the taxpayer or representative the reason for the discontinuance. When the taxpayer asks if a fraud referral is being considered or whether CI is involved, the examiner or revenue officer must not give a false or deceitful response. Guidance from the courts provides that examiners:

Preparation of Form 2797

The examiner will enter his/her name and grade, and enter the date the referral is being forwarded via secured e-mail to the examiner’s group manager.

The examiner’s group manager will review the referral, and if in agreement, will ensure that the proper Area/Territory/Group is entered, approve the referral and forward it via secured e-mail to the FTA and TFS for consideration. The examiner’s group manager will retain a copy of the referral for the case file.

The FTA will review the referral, and if in agreement, will approve the referral and prepare a one-page narrative (used to describe additional facts or the fraud development process). If necessary, the FTA will embed the narrative in the Form 2797 PDF file, and forward it via secured e-mail to the FTA group manager for consideration.

The FTA group manager will review the referral, and if in agreement, will approve the referral and enter the FTA Management Control Number and forward it via secure e-mail to the appropriate CI Field Office.

Within 10 workdays of receipt of the referral, the SA assigned to evaluate the referral will identify the subject (individual or entity under criminal investigation consideration) as the primary investigation (PI), assign a PI number to the case and set up the initial conference. At that conference, the referring examiner, his/her group manager, the evaluating SA, his/her supervisory special agent (SSA), the FTA (if available), and/or the TFS will meet to discuss the referral and review tax returns, evidence gathered to support the alleged offense, criminal tax computations, etc. Also, discuss the following issues at the initial conference:

Within 30 workdays of receipt of the referral, the same individuals will meet again (disposition conference) to discuss CI’s decision to accept or decline the referral. CI is required to provide written feedback to the referring examiner, as to their decision (see IRM 4.75.35.6.3 and IRM 4.75.35.6.4). Area Counsel will be invited to offer legal advice, if it is deemed necessary. Also, the transfer of original tax returns, the need for a cooperating agent, and civil actions concerning statute and prior/subsequent/related return consideration need to be discussed.

The FTA will monitor the conference dates and response obligations to ensure all actions occur in a timely manner.

The decision to accept or decline a referral may be extended by written agreement of the appropriate field Area Manager. The agreement will specify the reasons for the request (e.g., delay in receiving original tax returns or an opinion from Counsel) and the date the referring office can expect a determination.

If CI accepts the referral, the PI will be elevated as a Subject Criminal Investigation (SCI). CI will provide feedback by completing the "For Criminal Investigation Use Only" portion of item 1c, item 10 and item 11 of Form 2797 and return it via secure e-mail to the FTA group manager.

CI will place Transaction Code (TC) 914 controls in the Master File record. The FTA group manager will forward the accepted referral via secure e-mail to the referring FTA. The FTA will send the accepted referral via secure e-mail to the referring examiner, the TFS, and his/her group manager. If the referral was initiated by EO Exam or FSL/ET, the examiner and/or group manager will update the case to AIMS Status Code 18.

The SA will promptly meet with the referring examiner and determine whether a detailed memorandum is required concerning contacts with the taxpayer, the taxpayer’s representative, or the preparer of the returns (preparer) under criminal investigation. If a memorandum is needed, include the following areas:

IRM 4.75.35.8.1, Administrative Joint Investigation, provides specific guidance to examiners assigned to a joint investigation case as a cooperating agent.

All criminal investigations (administrative and Grand Jury) involving cooperating agents (joint investigations) are subject to mandatory quarterly (four-way) conferences. Four-way conferences are also required for all accepted criminal referrals (administrative and Grand Jury) in which an examiner is not asked to participate (non-joint investigations). In this scenario, the mandatory four-way conferences are designed to inform the referring compliance function of the updated investigation status. A status update for this purpose includes: the SA is writing the special agent’s report (SAR), discontinuing the case, case forwarded to Department of Justice (DOJ) - Tax or the Assistant United States Attorneys (AUSAs) office, case is going to trial, etc.). The SSA and the group manager of the cooperating agent will exercise sufficient control and follow-up to ensure the conferences are conducted and the investigation is promptly completed. The SSA should contact the EO or FSL/ET group manager to schedule the required four-way conference. If the SSA has not contacted the group manager to schedule a mandatory four-way conference when one is due, the group manager may also contact the SA to schedule a four-way conference. However, CI has primary responsibility for scheduling the mandatory four-way conference.

If a taxpayer files a delinquent or amended return during a joint investigation (administrative or Grand Jury), the assigned cooperating agent must discuss the filing with the assigned SA. The assigned SA must provide written guidance to the cooperating agent as to whether or not any tax shown on such return should be immediately assessed. If the SA determines that such an assessment may jeopardize the criminal case, the SA will advise the cooperating agent to not make the assessment at that time. At a minimum, however, the cooperating agent must update the statute for assessment on AIMS to reflect receipt of the delinquent or amended return.

The SA must advise EO or FSL/ET if the case has been accepted by the DOJ for prosecution or the case is now the subject of a Grand Jury. If so, CI must submit a memorandum to EO or FSL/ET advising of such. The memorandum will serve as EO or FSL/ET’s supporting documentation to submit the case to fraud/Grand Jury suspense.

If the referral is declined, CI will complete items 10 and 11 of Form 2797 and return it to the FTA group manager via secure e-mail along with a memorandum explaining the reason(s) for the declination.

The FTA group manager will forward via secure e-mail the declined referral to the referring FTA. The FTA will send the declined referral via secure e-mail to the TFS, the referring examiner, and his/her group manager. The referring examiner will resume the examination once notification of the declination is received. The examiner and FTA will amend the plan of action (Form 11661, Fraud Development Recommendation or Form 11661-A), which will include a schedule of future discussions, if warranted. If additional (new) firm indications of fraud develop, the case may again be referred to CI for criminal investigation consideration, as outlined in IRM 4.75.35.6.

If the FTA group manager disagrees with the decision to decline the referral, the concerns will be addressed with the special agent in charge (SAC)/assistant special agent in charge (ASAC). If an agreement cannot be reached, the FTA group manager will discuss the matter with the FTA, the TFS, the group manager, the initiating examiner and the area manager with group responsibility. If everyone concurs that the decision to decline the referral is inappropriate, the matter will be elevated to the EOE Director and the CI Director of Field Operations for resolution.

The examiner will remove the case from fraud development status if no further actions related to criminal or civil fraud development are anticipated. Examination cases will be returned to AIMS Status Code 12 or another appropriate status code if civil fraud is not being pursued. See IRM 4.75.35.7.1, Procedures; IRM 25.1.7.7.1, Assessment Procedure for the Fraudulent Failure to File (FFTF) Penalty; and, IRM 25.1.7.7, Civil Closure for additional information.

Upon concurrence of the group manager and FTA, update civil fraud development cases on AIMS to Status Code 17, Fraud Development, via Form 11661, Fraud Development Recommendation - Examination.

Determination of the civil fraud penalty is the shared responsibility of the examiner, his/her group manager and the FTA.

Work with the FTA to ensure the fraud penalty narrative does, in fact, substantiate the assertion of the civil fraud or fraudulent failure to file penalties. The FTA will recommend enhancements to the fraud narrative, as needed, to clearly explain the indicators of fraud. Describe the affirmative acts for each case in enough detail so as to leave no doubt as to why assertion of the civil fraud penalty or fraudulent failure to file penalty is justified.

If the FTA concurs with your fraud narrative and no additional information is required, the FTA will indicate his/her concurrence with the assertion of the civil fraud penalty or fraudulent failure to file penalty on Form 11661. The FTA will forward a copy of the Form 11661 to the FTA group manager and forward the original to you for inclusion in the administrative case file.

If the FTA recommends that you develop the case further, the FTA will document the reason(s) why and note the required additional steps in the Plan of Action. If the FTA does not agree that the civil fraud penalty should be asserted, this will also be documented and discussed with you and your group manager. If your group manager disagrees with the FTA recommendation that the civil fraud penalty should not be asserted, keep the AIMS Status Code in status 17. Ultimately, the final decision on such a case rests with the group manager.

For civil disposition of a prosecution case, contact CI to ascertain the criminal statutes under which the taxpayer was convicted before attempting to resolve the related civil fraud penalty. See IRM 25.1.6.4 for additional information. The civil fraud case must be fully developed prior to recommending its assertion, including the amount of the liability and the underpayment upon which the civil fraud penalty is based. Consult the local FTA and Area Counsel for assistance in developing the case. Obtain a copy of the plea agreement or judgement and supporting documentation such as the allocution and sentencing documents, notating the applicable criminal statutes and years. See IRM 4.75.35.11, Federal Grand Juries, for procedures in securing information for use in the civil settlement of cases investigated through grand jury procedures.

In cases where fraud was considered and the civil fraud penalty is not recommended, explain fully in the workpapers your consideration of the penalty and why it was not asserted.

You must assert the civil fraud penalty and/or the fraudulent failure to file penalty if a taxpayer was successfully prosecuted by the Department of Justice under Title 26 (i.e.,IRC 7201, IRC 7203, and IRC 7206(1)) and the prosecution involved additional tax assessments as opposed to payment of existing assessment(s). Area Counsel must approve any exceptions to this rule. In unsuccessful prosecution cases, non-assertion of the civil fraud penalty or the fraudulent failure to file penalty is at the discretion of the group manager. Group managers are encouraged to consult with their local FTA for assistance. This rule also applies in the case of any related taxpayer involved in the same transaction and to any other year or period of the same taxpayer which is related to, or affects, the year or period for which criminal prosecution was successful.

Consider assertion of the civil fraud penalty or fraudulent failure to file penalty when a taxpayer is successfully prosecuted by the Department of Justice under Title 18 and the facts underlying the criminal case directly relate to additional assessments. The nature and scope of the civil action in such cases is at the discretion of the group manager. Group managers are encouraged to consult with their local FTA for assistance, and consult with Area Counsel as appropriate.

Cases returned to the field from Fraud or grand jury suspense for civil disposition are returned in AIMS Status Code 17. Based on the facts and circumstances of the case, if and when a joint determination by the examiner, his/her group manager and the FTA is made to not develop and/or assert the civil fraud penalty, the case will be updated to AIMS Status Code 12. The case must clearly document the reason(s) for such determination. See IRM 25.1.9-1 and Exhibit 4.75.35-1 on how the status code changes in each fraud development situation.

Area Counsel must approve the civil fraud penalty prior to issuance of a statutory notice of deficiency (SNOD).

Since direct proof of fraudulent intent is rarely available, fraud must be proven by circumstantial evidence and reasonable inferences. Fraud generally involves one or more of the following elements:

The courts focus on key badges of fraud in determining whether there was an "intent to evade" tax. A determination of fraud is based on the taxpayer’s entire course of conduct, with each badge of fraud given the weight appropriate to a particular case. An evaluation of fraud is based on the weight of the evidence rather than the quantity of the factors. Some of the common "first indicators (or badges) of fraud" include:

Include in the Facts section of the penalty narrative a detailed description of all applicable badges of fraud. Also include other items of deception or instances where the taxpayer may have misled or misrepresented facts to the government.

For information return penalty case file closing procedures, refer to IRM 4.75.22.13, Information Return Penalties .

This subsection focuses on the procedures that apply to administrative joint investigations.

During the joint investigation, the examiner will secure all prior and subsequent period returns, and returns related to those included in the joint investigation, and will review the return(s) for examination potential.

Examiners must ensure administrative actions on prior or subsequent years or related returns do not imperil a prosecution. Examiners must notify CI of any proposed action such as examining returns, soliciting consents or issuing a notice of deficiency. Use Form 10498-A, Joint Investigations Intent to Commence Civil Action, to notify CI of your intent to examine prior and subsequent years, or related returns. Notification of the proposed action to solicit a consent and/or issue a notice of deficiency is covered below in IRM 4.75.35.9.2., Statute Protection.

The area manager will forward via Microsoft Outlook Secure Messaging, a completed Form 10498-A to the SAC indicating his/her request to examine the prior, subsequent or related tax returns. The form is used to document CI’s concurrence or non-concurrence with the proposed action.

If an agreement to proceed cannot be reached between EO Examination or FSL/ET and CI; the EO/GE Director and the CI Director of Field Operations will make the decision, consistent with Policy Statement 4–26. If an agreement is not reached at this level, the case is elevated to the TEGE Division Commissioner and Chief, CI for resolution.

If civil action is suspended, the suspended years will be periodically reviewed by the TE/GE Fraud Suspense Coordinator (FSC), to protect the Government’s interest.

TEGE employees are responsible for monitoring all civil statute of limitations (SOLs) during joint investigations, including prior and subsequent years, and related tax returns under examination or collection activity. The TEGE FSC monitors all SOLs of cases in fraud suspense. The administrative cooperating agent monitors all SOLs for cases related to an administrative investigation.

Check AIMS periodically to determine if the taxpayer filed tax returns. Protect the SOLs of any subsequent tax return filings in failure to file cases.

You must protect the earliest SOL of each tax return. When multiple periods are involved, protect the most imminent SOL among the tax returns. The IRC 6501(a) statute (three-year statute) expires three years after the date the tax return was due or filed, whichever is later. If the three-year SOL has expired or the taxpayer refuses to extend the period for assessment, consider the six-year SOL (omission of income in excess of 25 percent of reported gross income), under IRC 6501(e). See IRM 25.1.4.3.8.1 and IRM 25.6.22.6.17.2, More Than 25% Omission of Gross Income. All efforts should be made to secure the taxpayer’s consent to extend the period for assessment before either SOL expires. The fraud SOL under IRC 6501(c) should be relied upon only as a last resort.

When fewer than 210 days remain on the SOL for assessment, complete Form 10498-B, Joint Investigations Intent to Solicit Consent to Extend Statute, to request CI’s permission to solicit the taxpayer’s consent to extend the statutory period for assessment or issue a notice of deficiency. Send Form 10498-B via Microsoft Outlook Secure Messaging to the area manager for signature. The area manager forwards the signed Form 10498-B via Microsoft Outlook Secure Messaging to the SAC to request a decision on soliciting the taxpayer’s consent to extend the period for assessment or on the examiner’s intent to issue a notice of deficiency. CI must accept or decline the request within 10 workdays, after receipt of the Form 10498-B.

If CI approves the request to solicit the taxpayer’s consent to extend the period for assessment, solicit the statute extension via Letter 907, Request to Extend Assessment Statute, along with Publication 1035, Extending the Tax Assessment Period. Maintain a copy of Letter 907 in the case file.

Document solicitation of the consent and the required notification of taxpayer’s rights on Form 5464, Case Chronology Record/Form 9984, Examining Officer’s Activity Record, and Form 895, Notice of Statute Expiration.

Inform CI of the results of the solicitation of the taxpayer’s consent. Document this action in the case history. Refer any subsequent inquiries from the taxpayer to the SA assigned to the case.

If CI approves the decision to issue a notice of deficiency, forward the case to Mandatory Review (MR) for notice preparation. MR will obtain Division Counsel’s concurrence prior to issuing the notice of deficiency.

If you cannot secure a consent to extend the period for assessment, and the SAC does not approve the decision to issue a notice of deficiency, a decision must be made whether to rely on the fraud statute, IRC 6501(c)(1), and allow the three and six-year periods for assessment to expire. This decision must be approved by the area manager and documented in the case file on Form 5464/9984 and on Form 895. Refer to IRM 25.6.23.5.7.2, Reliance on IRC Provisions Which Extend Normal Assessment Statute.

Document the decision to allow the three-year and/or the six-year periods for assessment to expire on Form 10498-B with signatures of the area manager, the SSA and the SAC. Attach the properly-executed Form 10498-B to page two of the applicable return. Immediately update the SOL on AIMS using the appropriate alpha code. Also update Form 895 to reflect the correct expiration date using the procedures in IRM 25.6.23.5.8, Completion of Form 895 by Area Office Examiner or Specialist. (IRM 4.75.16 provides requirements when the 895 is needed.)

If agreement cannot be reached, the EO/GE Director and the CI Director of Field Operations will decide. If an agreement is still not reached, the issue will be elevated to the TEGE Commissioner and Chief, CI for resolution.

If Cl withdraws from a joint investigation, the SA will prepare a discontinued investigation report stating the reason(s) for the withdrawal. A copy of the report and the original tax returns will be forwarded to the FIU mailbox at *TE/GE-EO-FIU .

If the examiner’s group manager objects to the proposed withdrawal, the TFS will discuss the objection with the SAC. If agreement cannot be reached, the EO/GE Director and the CI Director of Field Operations will make the decision.

EO Fraud Suspense Coordinator responsibilities include the following:

CI will send a copy of Form 13308, Criminal Investigation Closing Report, to the *TE/GE-EO-FIU mailbox, which was established for such purposes and is monitored by the TE/GE Fraud Specialist. The Form 13308 will then be forwarded to the TE/GE FSC for processing.

The FSC will prepare a memorandum instructing the group manager that the case has been sent back to the originating group for civil resolution.

If the civil fraud penalty and/or the fraudulent failure to file penalty is being pursued, the tax years/periods under penalty consideration will return to AIMS status code 17 (Fraud Development). This will be documented by the FTA on Form 11661.

CI, EO/FSL/ET and Collection would need to closely coordinate their case actions if probation is ordered. See IRM 5.1.5.16, Advisory Responsibilities - Probation and Restitution Cases, for procedures to be followed by Collection Advisory and field collection in probation cases.

The court may order probation for the taxpayer as part of the sentence imposed.

Cl will reverse any posted TC 914/-Z freezes and establish TC 910 controls.

The Area Manager will prepare a response memorandum to the SAC. The response memorandum will include information relative to the taxpayer’s compliance with the conditions of probation listed in the judgment and commitment order, and should indicate any unwarranted actions.

The SAC will recommend legal action if the taxpayer fails to comply with the conditions of probation.

IRC 6103(h)(4) allows for disclosure of returns and return information to a U.S. Probation Officer under the following circumstances:

Any disclosure to a U.S. Probation Officer must be coordinated with the Field Disclosure Manager. See IRM 11.3.22.16.2, Probation Proceedings.

CI and the Department of Justice attorney or the Assistant United States Attorney have complete jurisdiction over grand jury cases. CI completes a Form 6544, Request for Cooperating Examiner, to request the assistance of an examiner(s) in a grand jury investigation and forwards it to TE/GE. The completed Form 6544 is sent to the TFS for processing.

Item 1b of Form 6544 lists entities identified as being related to the taxpayer under grand jury or other criminal investigation.

Great Lakes/FIU Area Manager: Review the Form 6544 received from the TFS. Note the taxpayer which is the subject of the request, and entities identified as related entities. CI and Area Counsel are later consulted regarding whether to suspend examinations of such related entities. Within five business days of receipt, forward Form 6544 to the TFS with a copy to the FIU group manager for the geographic area in which the taxpayer is located.

FIU Group Manager: Within five business days of receipt of the request from the Great Lakes/FIU Area Manager:

Great Lakes/FIU Area Manager:

.

Upon return of the completed Form 6544, CI completes Form 9510, Grand Jury Access List, to add the assigned agent(s) to the list of those authorized to have access to grand jury information.

The Assistant United States Attorney will be consulted if there is any question whether a document contains grand jury information.

When an investigation has been accepted by CI based on a referral from the field or through its own case development and a grand jury investigation has been authorized, CI will send a Form 14584, IRS-Criminal Investigation-Check for and Suspend Civil Activity Notification or memorandum to the *TE/GE-EO-FIU mailbox to cease all civil actions and terminate compliance activity.

The TFS or EO FSC will prepare a memorandum instructing the group manager to immediately suspend all civil actions, terminate compliance activity, and transfer the case to the EO FSC to be held in grand jury fraud suspense. The case will be held in AIMS Status Code 36, Suspense - Grand Jury, until the criminal aspects of the case have been completed. The EO FSC will then return the case to the appropriate group for civil resolution.

When an examiner is notified that the civil examination is now a grand jury investigation, the examiner, and group manager must:

The Field examiner will also prepare Form 4665, Report Transmittal, as explained in IRM 25.1.4.3.10(6), Preparation of the Pre-Prosecution Report, except the transmittal should be labeled "Pre-Prosecution Report."

The Field examiner must prepare a dated status memorandum, establishing a demarcation between the facts existing prior to the grand jury investigation and the facts developed as a result of the grand jury investigation, and include it in the work papers. Otherwise, the Field examiner risks the facts existing prior to the grand jury investigation being deemed tainted and not admissible for subsequent civil purposes.

After notification of the grand jury investigation, the Field examiner should not establish AIMS controls for prior or subsequent periods.

Prior to transferring the case to grand jury suspense, the Field examiner must ensure all open statutes of limitation are protected and a minimum of one year remains on the statute for each open return. The EO FSC must be notified if there is less than one year on the statute.

If the subject of a grand jury investigation is not currently under exam activity, AIMS controls should not be established and statute protection is not the responsibility of the Cooperating Grand Jury TE/GE Agent.

When the group manager transfers the electronic case on RCCMS and mails the physical case files to the EO FSC; the group manager, concurrently, will notify the EO FSC of the RCCMS transfer, and the mailing of the file. The EO FSC’s mailing address can be located on the IRS intranet at the TE/GE Connect, Fraud Coordinators page or by contacting the EO FSC directly. If the case is ready to be placed into suspense, the EO FSC will update the AIMS Status Code to 36 to place the case in grand jury fraud suspense.

The Cooperating Grand Jury Agent is prohibited from gathering information useful only in a civil proceeding.

The quarterly (four-way) conference requirement exists:

There are generally four critical stages of the Cooperating Grand Jury Agent’s involvement in the grand jury investigation and subsequent criminal proceedings.

The first stage of the Cooperating Grand Jury Agent’s involvement is the Pre-Investigation Stage.

Examples of information excluded from the secrecy restrictions of the Federal Rules of Criminal Procedure include:

The second stage of the Cooperating Grand Jury Agent’s involvement is the Indictment Stage. An indictment is the formal document identifying the grand jury’s charges against the defendant. The indictment is a matter of public record (unless sealed).

The third stage of the Cooperating Grand Jury EO Agent’s involvement is the Plea Agreement Stage.

The fourth stage of the Cooperating Grand Jury Agent’s involvement is the Formal Sentencing Proceedings Stage.

The Cooperating Grand Jury Agent is responsible for assembling and forwarding documents and evidence necessary for a civil tax closing of a grand jury investigation to the SA, and for association with Form 13308, Criminal Investigation Closing Report (Tax and Tax related Only).

The Cooperating Grand Jury Agent, in preparing to close the case after the grand jury investigation, should complete the following actions:

Form 5346, Examination Information Report, should include the following non-grand jury information:

CI will notify TS of the formal closing of the criminal case by use of Form 13308 and advise that civil actions on the case should resume.

The completed Form 5666 information item package prepared by the Cooperating Grand Jury Agent must be associated with Form 13308 so that it can be forwarded through the SSA, to the TFS, and to the EO FSC. The EO FSC will identify the group to which the package needs to be forwarded for civil disposition and will send the case to the appropriate group with a memorandum explaining the required procedures for civil resolution.

Upon completion of a grand jury investigation, all examiners who had access to grand jury information are "tainted" for civil case resolution and cannot be assigned to the case.

IRS relinquishes control of a grand jury case to the AUSA.

The field examiner who handles the civil audit cannot handle the grand jury aspects of the case.

Evidence obtained during a grand jury investigation is protected under the secrecy provisions of Rule 6(e) of the Federal Rules of Criminal Procedure. Therefore, in a civil case, the Cooperating Grand Jury Agent cannot disclose any information obtained by the grand jury, unless that grand jury information has been made a matter of public record. See IRM 4.75.35.12, Time Tracking – Fraud/Fraud Related Activities.

The Cooperating Grand Jury Agent assigned to a grand jury investigation is "tainted" for any subsequent civil exam activity. This also applies to a group manager that has access to grand jury information.

The Cooperating Grand Jury Agent’s time should be charged to Activity Code 155, Fraud/Fraud Related Activities, and Project Code 1554, CI Assistance, Grand Jury.

During a grand jury investigation, the Cooperating Grand Jury Agent should be identified as an assistant to the AUSA and not an IRS employee. IRS credentials may only be used for identification purposes.

Grand jury materials should be kept in a separate work area, inaccessible to other IRS personnel not assisting the AUSA.

The Cooperating Grand Jury Agent’s workpapers will be part of the Cl grand jury files.

Upon completion of the grand jury investigation, TE/GE will follow all procedures in IRM 25.1.5.5 Civil Case Resolution. Cases released for civil case resolution will be returned to the field with a memorandum explaining the required procedures by the EO FSC for the EO/FSL/ET Exam cases.

The Field Examiner may use information in public record, including the search warrant, affidavit, indictment, plea agreement and other information in the court file for civil settlement purposes.

Since the taxpayer may not be convicted for all years in the indictment, information available may not be complete.

The touchstone of Rule 6(e)’s applicability is whether the disclosed material would "elucidate the inner workings of the grand jury" . The "inner workings" test would preclude disclosure of evidence, which tended to reveal the identity and/or testimony of witnesses, the direction of the investigation, and the deliberation of the grand jurors.

The Field examiner may need to ask Cl if they have possession of specific documents known to be non-grand jury evidence. A memorandum from the field area manager to the Special Agent in Charge (SAC) should be prepared, providing a brief explanation of the situation and the specific documents requested.

Grand jury evidence cannot be released even when the taxpayer volunteers to execute a waiver authorizing disclosure. However, the taxpayer can furnish records in their possession even though the grand jury subpoenaed the same records.

If a court determines the IRS has improperly used grand jury material, the court may refuse to admit the evidence, reverse the burden of proof and/or require the IRS to proceed with evidence not derived from the grand jury. Further, the court may decide to dismiss the case, due to government misconduct. If the court determines that the IRS intentionally used grand jury material, attorney and legal fees can be awarded to the taxpayer.

For general information concerning activity codes, project codes and naming conventions, refer to IRM 25.1.9-1.

For procedures concerning examiner responsibilities including the securing of tracking numbers, applying case time and apprising examination results, refer to IRM 25.1.9.3.2.

For procedures concerning keeping the TFS updated, proper recording of time, contacting the Fraud Suspense Coordinator, etc., refer to IRM 25.1.9.3.3.