9.8.1 Scheme Development Center

Manual Transmittal

October 29, 2019

Purpose

(1) This transmits revised IRM 9.8.1, Scheme Development Center.

Material Changes

(1) Subsections 9.8.1.1 through 9.8.1.2 reflect the IRS requirement that IR manuals address Internal Controls (ICs). The ICs mandate is outlined in The Heightened Awareness, Sensitivity, and Understanding of Internal Controls memo dated September 14, 2016. Internal Controls are the program manuals policies and procedures. The ICs describe the program manual’s objectives, and officials charged with management and oversight. The ICs ensure the:

  1. Mission and program objectives are clearly delineated and key terms are defined; and

  2. Program operations are in conformance with applicable laws and regulations.

(2) To conform to the new Internal Controls standards:

  1. Former subsection 9.8.1.1, Overview, is retitled to Program Scope and Objectives to properly reflect the information communicated in the subsection. The subsection clearly delineates the program manual’s: mission, objectives, and goals.

  2. New subsection 9.8.1.1.1, Authority, is added to provide the legal authorities for the program manual (Scheme Development).

  3. New subsection 9.8.1.1.2, Acronym, is added as a compiled list of the terms and acronyms used within the program manual (Scheme Development).

(3) Conducting Fraud Awareness Training is no longer a Scheme Development Center (SDC) responsibility; references to that project are removed throughout the manual section. Return Integrity and Compliance Services (RICS) conducts the fraud awareness training.

(4) Subsection 9.8.1.2.2 paragraph (3) is deleted; Campus referrals responsibility resides with RICS. Paragraph (4) is revised and renumbered as (3); paragraph (5) provided the legal authority for the refund fraud program and therefore merged with subsection 9.8.1.1.1, Authority.

(5) Subsection 9.8.1.2.3, Organizational Structure, paragraph (1) is updated to change “26 field offices” to “21 field offices”.

(6) Subsection 9.8.1.3.1, Program Responsibilities, paragraph (2) is revised to update the RAC’s responsibility:

  • Cincinnati and Ogden are deleted from item d because all SDCs now refer Business Master Files (BMFs).

  • Former Items g, i, and j are deleted (referencing restitution, fraud, and referrals); all subsequent items are re-lettered as items g, h, and i.

(7) Subsection 9.8.1.3.1.4 paragraph (3) is added to state that Unpostables are handled by Refund Crimes SDC.

(8) Subsection 9.8.1.3.1.6 is retitled as Questionable Refund Program and revised accordingly. All reference to “Restitution” is deleted; see IRM 25.26.1 for information pertaining to Restitution.

(9) Subsections 9.8.1.3.1.9 and 9.8.1.3.1.9.1 are revised. Information Report Referrals (Form 2797) from IRS Wage and Investment Fraud Hotline Call Sites are routed at time of intake, based on the selections on the form itself (see IRMs 25.1.11, Campus Collection and Fraud Procedures and 9.4.1, Investigation Initiation).

(10) Subsection 9.8.1.5.1, paragraph (1) is revised to update the Information Systems Security manual reference as IRM 10.8.1, Policy and Guidance. The IRM 10.8.1 is part of the Security, Privacy and Assurance policy family, IRM Part 10 series for IRS Information Technology Cybersecurity.

(11) Subsections 9.8.1.5.3, Informants through 9.8.1.5.5, Records and Property, are revised to accurately reflect the various manual references regarding security requirements for:

  • informants;

  • physical security; and

  • records and property.

(12) Subsections 9.8.1.6 through 9.8.1.6.2 are revised. Informant information is documented on Form 3949 and routed at time of intake, based on the selections on the form (see IRMs 9.4.2, Sources of Information; 9.5.11, Other Investigation; and 25.2.3, Reimbursements to State/Local Law Enforcement Agencies).

(13) Subsections 9.8.1.7.1.3, Knowledge Required, paragraph (1) item c is updated to change “Electronic Filing System” to “Electronic Fraud Detection System (EFDS)” and item f is updated to change “IRS Campus Personnel” to “IRS Personnel”.

(14) Subsection 9.8.1.7.2, Field Office Procedures to Request Court Witness, is revised to include the following:

  • Paragraph (1) added Court Witness Requests by field offices are sent by memorandum from the SSA to Director, Operations through the centralized mailbox, courtwitnessmailbox@ci.irs.gov.

  • Paragraph (3) deleted SAC and added SSA may telephonically request a court witness through the centralized mailbox.

  • Paragraph (4) is revised to add that Refund and Cyber Crimes will pay for the travel expenses of a court witness pertaining to CI investigations and travel will typically be 3 days and 2 nights.

  • Paragraph (5) added state and local travel will be paid for by Refund & Cyber Crimes.

(15) Subsection 9.8.1.7.4, Request for Certification, is revised to include the following:

  • Paragraph (1) added “or similar facsimile” will be used by CI personnel to request certified transcripts of account.

  • Paragraph (4) is revised to a minimum of “30 workdays” is required to secure and certify all requested documents.

(16) Subsection 9.8.1.8.1 paragraph 2 is revised to indicate that Special Investigative Techniques will work directly with the Ogden Scheme Development Center to establish Employer Identification Numbers (EIN’s) for undercover operations.

(17) Exhibit 9.8.1-1(10-14-2004) is obsolete and therefore deleted.

Effect on Other Documents

This IRM supersedes IRM 9.8.1 dated May 25, 2012.

Audience

CI

Effective Date

(10-29-2019)

Darrell J. Waldon for Don Fort
Chief, Criminal Investigation

Program Scope and Objectives

  1. This section discusses the mission, structure, duties, and responsibilities of the SDC. Topics include:

    • Scheme Development Center Function and Organizational Structure

    • Role of the Resident Agent in Charge (RAC)

    • Scheme Development Center Training

    • Security

    • Court Witness and Certified Transcript Program

    • Support of Field Operations

Authority

  1. See IRM 9.1.4, Authority for the delegated authority relating to IRM 9.8.1. The Law Enforcement Manual (LEM) provisions of the Refund Fraud program are found in LEM 9.14, Criminal Investigation Official Use Only Procedures, Law Enforcement Manual. For Court Witness authority see IRM 9.8.1.7.1.4 (1).

Acronyms

  1. The table lists commonly used acronyms and their definitions:

    Acronym Definition
    ADP Automatic Data Processing
    BMF Business Master File
    COA Computer Operations Administrator
    COTS Commercial-Off-The-Shelf
    CSR Customer Service Representatives
    EFDS Electronic Fraud Detection System
    EINs Employer Identification Numbers
    Fed. R. Crim. P. Federal Rules of Criminal Procedure
    FOIA Freedom of Information Act
    FRC Federal Records Center
    FRP Frivolous Return Program
    HQ Headquarters
    ICs Internal Controls
    IMF Information or Certified Transcript
    IRC Internal Revenue Code
    IRP Information Reporting Program
    IT Information Technology
    LEM Law Enforcement Manual
    MFTRA Master File Transcript Request
    NOC National Operations Center
    PI Primary Investigation
    QRP Questionable Refund Program
    RAC Resident Agent in Charge
    RICS Return Integrity and Compliance Services
    RPP Return Preparer Program
    SAC Special Agent in Charge
    SBU Sensitive But Unclassified” information
    SCI Subject Criminal investigation
    SDC Scheme Development Center

The Scheme Development Center Functional and Organizational Structure

  1. The following subsections provide a broad spectrum concerning the structure of the SDC. Scheme Development Centers report to Director, Operations who reports to the Director, Refund Crimes. The SDCs are physically located within, or in close proximity to, each IRS Campus.

Mission Statement

  1. To support the CI mission by identifying and developing schemes for the purpose of referring and supporting high-impact criminal tax and related financial investigations. This mission will be achieved through the use of human and artificial intelligence and via collaboration with stakeholders.

Functional Responsibilities

  1. The primary function of the SDC is to identify and develop schemes for the purpose of referring and supporting high-impact criminal tax and related financial investigations.

  2. The SDC assists IRS Campus Directors and field offices in identifying and assembling information on individuals and entities involved in civil and criminal noncompliance with the IRC and other related statutes.

  3. Specific SDC responsibilities include:

    1. maintaining controls on all taxpayer accounts under criminal investigation

    2. coordinating the QRP, RPP and Corporate Refund Fraud (BMF)

    3. developing questionable refund, return preparer fraud and Corporate Refund Fraud (BMF) referrals and submitting them to field offices

    4. providing court witnesses for criminal tax trials

    5. training field office QRP and RPP coordinators in the SDC QRP and RPP processes

Organizational Structure

  1. There are SDCs servicing 21 CI field offices.

  2. Each SDC is staffed by CI employees managed by a RAC.

  3. A SDC is located at or in close proximity to the following IRS Campuses:

    1. Andover Campus

    2. Atlanta Campus

    3. Austin Campus

    4. Cincinnati Campus

    5. Fresno Campus

    6. Kansas City Campus

    7. Memphis Campus

    8. Ogden Campus

  4. IRS Campus locations are structured with at least the following functions:

    1. Submission Processing Center (IMF), Austin, Fresno, and Kansas City

    2. Submission Processing Center (BMF), Cincinnati and Ogden

    3. Accounts Management

    4. Compliance Services

  5. Each SDC works closely with the IRS Campus functions.

Managerial Oversight

  1. The Director, Refund Crimes has line authority over the SDC.

Role of the Resident Agent in Charge

  1. The RAC is responsible for accomplishing the SDC's broad program objectives and procedural guidelines established by the Chief, CI.

Program Responsibilities

  1. The RAC will participate in the IRS Campus Councils to ensure successful SDC program operation.

  2. The RAC’s responsibilities include:

    1. managing SDC employees and programs

    2. field office QRP referrals

    3. field office RPP referrals

    4. field office Corporate Refund Fraud (BMF) referrals

    5. controlling taxpayer accounts under criminal investigation

    6. program reviews

    7. work planning and control tracking system

    8. refund inquiries relating to accounts with CI controls

    9. participating in HQ office task forces

Managing Scheme Development Center Employees and Programs
  1. The RAC's span of control includes the SDC technical and clerical employees. These responsibilities include:

    1. assigning and distributing work to subordinates

    2. providing criminal fraud expertise for field office QRP/RPP referrals

    3. managing the SDC budget

    4. posting vacancies and selecting employees

    5. recommending personnel actions

    6. approving leave

    7. counseling employees

    8. providing necessary training

    9. practicing sound position management policies

    10. taking positive steps in support of affirmative action programs

    11. evaluating completed work and employee performance

Field Office Questionable Refund Program Referrals
  1. The RAC is responsible for the following, relative to QRP referrals:

    1. determining criminal potential on QRP fraud referrals developed by SDC employees

    2. ensuring that an evaluation by the field office conforms with existing time frames and guidelines

    3. when appropriate, referring returns in schemes with a PI or SCI status to the proper business operating division for resolution

Field Office Return Preparer Program Referrals
  1. The RAC is responsible for the following, relative to RPP referrals:

    1. determining criminal potential on RPP fraud referrals developed by SDC employees

    2. ensuring that an evaluation by the field office conforms with existing time frames and guidelines

Controlling Taxpayer Accounts under Criminal Investigation
  1. The RAC is responsible for the quality and timely input of CI transaction freeze codes per existing guidelines.

  2. When appropriate, the CI freeze codes are input by the SDC control function. The freeze codes are discussed individually in LEM 9.14, Official Use Only Procedures, Criminal Investigation.

  3. When appropriate, Unpostables are handled by the Refund Crimes SDC Unpostable program.

Program Reviews
  1. The RAC is responsible for establishing and maintaining a structured internal program review process for the following SDC programs:

    1. QRP

    2. RPP

    3. Corporate Refund Fraud Program (BMF)

    4. Court Witness Program

    5. Control Function

  2. A review of each program will be conducted by the RAC or his/her designee on an annual basis each fiscal year ending September 30.

  3. A report detailing the findings will be prepared for the Director, Refund Crimes, within 45 days following the end of each fiscal year. A copy of the report will be maintained in the SDC administrative files.

Questionable Refund Program
  1. Information on the QRP can be found in IRM 9.4.1, Investigation Initiation.

Work Planning and Control Tracking System
  1. The RAC is responsible for tracking the time of SDC personnel.

  2. Time worked on SDC programs is tracked using the CI Diary Program.

Fraud Awareness
  1. For Fraud Awareness see IRM 9.4.2, Sources of Information.

Referrals from IRS Campus Employees
  1. For information on referrals from IRS Campus Employees see IRM 25.1.11, Fraud Handbook, Campus Collection Fraud Procedures.

Information Report Referrals from IRS Wage and Investment Fraud Hotline Call Sites
  1. See IRM 9.4.1, Investigation Initiation on information report referrals.

Refund Inquiries
  1. Refund Inquiries are received from CSR or Taxpayer Advocate offices on those cases with CI freeze controls. The SDC personnel are responsible for coordinating the resolution of each refund inquiry.

Task Force Participation
  1. At various times throughout the year, issues may arise that require a team approach to resolve. A RAC may be asked to lead or participate in such a task force.

Training

  1. The following sections provide information concerning the training of SDC employees.

Training Requirements For The Resident Agent in Charge

  1. Reserved

Training Requirements For Scheme Development Center Employees

  1. Reserved

Questionable Refund, Return Strategies, Preparer Program and Corporate Refund Fraud (BMF), Fraud Awareness Training, Awareness Training at IRS

  1. For information on QRP and RPP see IRM 9.5.3, Criminal Investigation.

Field Office Visitations

  1. On an annual basis, the RAC should coordinate with the SAC to attend an all-managers meeting and/or field office group meeting to discuss the following:

    1. SDC services to field offices

    2. CI controls maintenance

    3. Questionable Refund Program

    4. Return Preparer Program

    5. Corporate Refund Fraud (BMF)

    6. SDC fraud referrals to the field office

    7. Undercover shopping procedures

  2. Travel expenses related to these meetings will be paid from SDC travel allocations.

Security

  1. This subsection provides an overview of security requirements within the SDC.

Automation

  1. All systems are required to be accredited and certified per the Computer Security Act of 1987 (see IRM 10.8.1, Policy and Guidance). The IRM 10.8.1 is part of the Security, Privacy and Assurance policy family, IRM Part 10 series for IRS Information Technology Cybersecurity (Updated 7/8/2015).

  2. The Internal Revenue Security Certification program is the technical evaluation of computer security, requirements, regulations, and standards used to assist in the accrediting system.

Computer Operations Administrators
  1. Under the direction of the NOC, each SDC is assigned a COA who is responsible for systems administration and customer support. The COA provides day to day support for all of CI’s specialized applications and COTS software and is responsible for:

    1. installing and maintaining hardware and software

    2. installing and maintaining workstations for server images

    3. diagnosis and recovery of failed systems

    4. providing customer support associated with software and utility programs

    5. maintaining CI and IRS security policies

    6. conducting inventory of CI's automation equipment

    7. network installation at new sites or on remodels

    8. they may also be requested to setup CI task force sites outside of the CI network and site

Firearms

  1. Firearms for RACs are to be secured per IRM 9.10.1, Investigative Equipment.

Informants

  1. Protection of informant information and identity is required. This protection includes:

    1. disclosing to only those employees having a need to know

    2. transmitting in double-sealed envelopes bearing instructions "To Be Opened by Addressee Only"

    3. protecting per IRM 10.6.1, Continuity Operations and IRM 10.2.8, Incident Reporting

Physical Security

  1. Physical security in the IRS Campus must conform to IRM Part 10 Security, Privacy and Assurance Chapter 10.2, Physical Security Program.

  2. Criminal Investigation personnel are authorized to control all keys and combinations within their office per IRM Part 10 Security, Privacy and Assurance Chapter 10.2, Physical Security Program.

Records And Property

  1. Records and property are to be secured per IRM Part 10 Security, Privacy and Assurance Chapter 10.2, Physical Security Program.

Sensitive But Unclassified Information

  1. "Sensitive But Unclassified" information is information which, if lost, misused, inappropriately accessed or modified in any way, could adversely affect the national interest or the conduct of Federal programs or the privacy of individuals. For additional information regarding SBU see IRM 10.5.1, Privacy and Information Protection, Privacy Policy and IRM 10.8.1, Policy and Guidance.

Informant Information

  1. For informant information see IRM 9.4.2, Sources of Information.

Processing Informant Information

  1. For processing Informant Information see IRM 9.5.11, Other Investigations.

Request for Reward for Information Provided

  1. For request for reward for information provided see IRM 25.2.3, Examining Process - Information and Informants’ Rewards.

Court Program

  1. The Court Witness Program provides court witnesses, certified returns, certified transcripts, and other certified documents for criminal court and other judicial proceedings.

Court Witness Coordinator

  1. The court witness provides expertise in the area of judicial processes. The Court Witness Coordinator is management’s representative for cross-unit coordination among the various Directors at the IRS Campus sites, Department of Justice, US Attorney’s Office, and State Offices, and must make adjustments to meet the needs of several heads of office within a collaborative environment.

  2. The court witness represents the Commissioner, in the Commissioner’s role as custodian of records in trials, pre-trial proceedings, and other judicial or quasi-judicial proceedings. The court witness testifies and presents evidence as to all matters within the scope of the Commissioner’s custodial responsibility.

Testimony of Court Witness
  1. The quality of court witness testimony is crucial to law enforcement and to voluntary compliance. The expertise, competence, and decorum of the witness contribute significantly to the success of the prosecution case.

Responsibilities
  1. Among others, the duties of the court witness include but are not limited to:

    1. securing all available original tax returns and documents, and obtaining certified copies where appropriate

    2. securing other original documents and correspondence filed by the defendant with the IRS

    3. securing current certified transcripts of accounts, certificates of assessments and payments, or certificates of Lack of Record

    4. researching all IRS Campus areas and FRC for pertinent information to aid in trial (e.g., returns, correspondence, receipts, transcripts, organizational functions, and documentation procedures)

    5. meeting with the attorney for the government prior to trial to discuss points of testimony and to review investigative files, exhibits, and any other documents to be presented as evidence during trial

    6. assisting attorneys for the government and special agents as requested

Knowledge Required
  1. The court witness must have extensive knowledge regarding:

    1. all IRS Campus actions with respect to returns and documents under the custody of the Commissioner or his/her designee

    2. complete processing procedures and functional responsibilities (past and present) of the IRS Campus, Field Office, and FRC.

    3. all types of returns, due dates, filing requirements, and document systems (including the EFDS)

    4. all laws and regulations relating to Disclosure, FOIA, Privacy Act, Fed. R. Crim. P. and the Federal Rules of Evidence

    5. proper introduction of tax returns, certificates of assessments and payments, IRP Records, MFTRA, and certificates of Lack of Record

    6. coordinating and conducting periodic court witness training for IRS personnel as needed

    7. responding to interrogatories and providing depositions or affidavits

    8. reviewing all completed certifications for accuracy and quality control

    9. maintaining a current cadre of court witnesses as needed

Authority
  1. In testifying as a court witness for the IRS, the following procedures must be adhered to:

    1. Delegation Order 11-2

    2. Title 26 USC §6103(h)(1), (h)(4), and (k)(6)

  2. The quality and credibility of a witness' testimony depends on answering only the questions asked and representing the IRS with the highest degree of integrity, efficiency, and fairness.

Field Office Procedures to Request Court Witness

  1. Requests for court witnesses by field offices will be made by memorandum from the SSA to the Director, Operations who will be providing the court witness using the centralized mailbox courtwitnessprogram@ci.irs.gov.

  2. Established guidelines will be followed by the Campus relative to requests received for court witnesses and trial assistance from FO and IRS Campus functional areas.

  3. The SSA or his/her representative may telephonically request a court witness in exigent situations; however, a follow-up memorandum must be submitted to the Director, Operations through the centralized mailbox within two calendar days.

  4. Refund and Cyber Crimes will pay for the travel expenses of a court witness that pertain to criminal investigations (e.g., trials, grand juries, etc.). Travel will typically be 3 days and 2 nights.

  5. If called to testify in a civil trial, funding for civil trials are to be paid from the Division Commissioner’s Office for the area that originated the matter (SB/SE, W&I, LB&I, or TE/GE). The Planning and Analysis Office (or other office, if appropriate) will provide the travel codes for the voucher by working with their Budget Office for funding codes. State and local trial travel will be paid for by Refund and Cyber Crimes. Travel will typically be two days and one night.

Seals And Certification

  1. The primary purpose of certification is to satisfy the requirements of the rules of evidence and civil procedure. This is essential in authenticating a document for admission into evidence.

  2. Certification is accomplished by attaching Form 2866, Certificate of Official Record, with a seal affixed. The court witness coordinator is responsible for ensuring that all records and documents are complete and accurate.

  3. Transcripts and other documents are prepared for use in court per 28 USC §1733(b), Fed. R. Crim. P. R. 44 and Fed. R. Crim. P. R. 27:

    1. 26 USC §7514 - authorizes the seals of office

    2. 26 CFR 301.7514 - governs the use of seals

    3. 26 CFR 301.7622-1 - authorizes the Commissioner to designate persons to issue certifications

    4. Delegation Order 11-5 (Formerly 198 (Rev.5)) - designates the persons who may issue certification and provide delegation of authority

    5. CI Delegation Order 18, Seal of the Office of the Internal Revenue Service and Certification - designates the persons who may issue certifications as redelegated from the Chief, CI

Request For Certification

  1. Forms 4338 and 4338-A, IMF Information and Certified Transcript Request or similar facsimile will be used by CI personnel to request certified transcripts of accounts. Requests will include but are not limited to:

    1. certification of original and copy of returns

    2. certification of MCC and microfilm transcripts

    3. certification of certificates and payments

    4. certification of lack of record

  2. All requests for transcripts of ADP accounts will be forwarded to the SDC servicing the field office requesting the transcript.

  3. Each request should cover the specific tax periods. Only information that is responsive to the request will be certified.

  4. A minimum of 30 workdays is required to secure and certify all requested documents.

  5. The court witness coordinator will establish expedited procedures.

Support of Field Operations

  1. This subsection provides an overview of how the SDC’s can provide support for the field offices.

Undercover Support

  1. Requests for undercover employer identification numbers (EINs) for the field offices must be handled through Special Investigative Techniques (CI:OPS:SIT).

  2. Special Investigative Techniques will work directly with the Ogden Scheme Development Centers to establish EIN’s for undercover operations.

Frivolous Return Program

  1. Taxpayer accounts that have TC 91X controls or a –T Freeze on the module will not have any FRP action taken on them unless the special agent controlling the case gives consent.

  2. A frivolous return/document is defined as being non-compliant based on unfounded legal or constitutional arguments. Internal Revenue Code §6702 contains criteria for determining if a return/document is frivolous.

  3. Taxpayers filing a frivolous tax return and/or documents are assessed a $5,000 Frivolous Return Penalty.