Can’t Wait?

All potential criminal referrals regarding preparers should be discussed with the return preparer coordinator and the fraud referral specialist (FRS). When revenue agents examine clients of a promoter (a person subject to penalty under 6700 - relating to penalty for promoting abusive tax shelters, etc.) or preparer under criminal investigation, they should assert the appropriate tax and penalties against the clients based on the facts in each case, regardless of whether the clients may testify for the government against the preparer or promoter or become a defendant.

When the group manager concurs a return preparer is involved in fraud, Form 2797 will be prepared as described in IRM 25.1.3.4, except four copies are made. The original and two copies of Form 2797 will be forwarded to the FRS. One copy will be retained in the preparer case file in the group. The FRS will forward a copy to the compliance return preparer coordinator (RPC) or TEGE returns classifying officer (RCO) for appropriate action.

The RPC/RCO will notify all group managers, in writing, to assure that all civil actions with regard to the subject preparer are suspended. The coordinator should continue to monitor Form 5808 (Return Preparer-Penalty Follow-up) and Form 5809 (Preparer Penalty Case Control Card) files to assure that no new civil penalties are asserted on the subject preparer until the criminal case is resolved.

Form 2797 should be prepared for the principal individual or legal entity involved in the fraud. Only one Form 2797 is prepared despite having multiple entities involved, i.e., individual, corporate, partnership, employment tax, etc. Only one Form 2797 is prepared for a husband and wife who filed a joint return. A separate Form 2797 is no longer prepared for each type of tax involved nor when there are dissimilar fraudulent acts by the same return preparer. Related entities should be identified and discussed in the body of the referral. Related returns will be associated with the referral if they are false as to a material item. Form 2797 should give specific details relating to the apparent fraudulent act(s) including:

The compliance employee should retain a copy of each taxpayer’s report of examination and relevant workpapers so that after disposition of the criminal case, the civil preparer penalty under IRC Section 6694(b) can be pursued.

If Cl declines a referral of a return preparer or an investigation is discontinued, Cl may provide advice and assistance concerning application of IRC 6694(b), willfulness penalty.