Can’t Wait?

The examiner is primarily concerned with determination of the civil tax liability. The special agent is primarily concerned with gathering the evidence to prove criminal violations.

In general, the following tasks are performed by the examiner:

The criminal aspect is predominant in a joint investigation. To prevent prejudice to the criminal features of such a case, the special agent is responsible for the following:

The examiner and the special agent should work together with the best interests of the Service in mind with the following considerations:

Group managers should ensure a clear delineation of duties and responsibilities are established in the initial stages of the investigation. Consistent with the CI Manager's Handbook (IRM 1.4, Resource Guide for Managers), joint quarterly four-ways should be conducted to review the status of the investigation and plan activities to be accomplished by the cooperating examiner/officer and special agent in the next quarter. The CI SSA should initiate contact with the Compliance manager to schedule required quarterly four-ways. Appropriate follow-up should be made periodically to ensure prompt completion of the investigation and proper utilization of resources. During each four-way, the cooperating examiner should review with CI all entities and tax periods currently numbered. AIMS controls will be established for any periods numbered not currently controlled on AIMS.

Jeopardy assessments will not be made if such action would imperil successful criminal investigation or prosecution. However, if collection of civil liability in the case is in jeopardy, and a jeopardy assessment is recommended, care should be taken to avoid unnecessary disclosures in the deficiency letter and in any accompanying statement that would imperil successful criminal investigation or prosecution.

Due to the urgency in jeopardy assessments, the file will be given the highest priority of handling between various functions. When fraud is an issue, additional approval will be required from the SAC before the deficiency can be assessed. The fraud referral specialist (FRS) will also be consulted regarding the civil fraud penalty on jeopardy assessments.

Recommendations for jeopardy assessments should be made in accordance with IRM 4.15.

In a failure to file case where Master File controls were established using push code 037 prior to the TC 914(Z) freeze being put on the module, a TC 424 record will remain on the module for 26 months or until a return posts. After 26 months, the TC 424 will drop from the system. If the TC 424 drops from AIMS prior to the case being submitted to criminal suspense, the examiner should request Non-Master File controls by submitting Form 5354 (TEGE Non-Master File controls should be requested via Form 5588, TEGE Non-Master File Request). Prior to input of Form 5354, however, the group secretary should contact the local AIMS Coordinator. The local AIMS Coordinator will input TC 421 to reverse the L freeze to enable establishment of non-master file controls.

In a failure to file case where there is no TC 150 or TC 424 record on the module, if CI inputs a TC 914(Z) freeze before Compliance requests controls, the examiner should request Non-Master File controls by submitting Form 5354. The examiner, however, should secure CI's approval prior to establishing the return(s) on AIMS.

In a case where returns are filed and CI has a TC 914(Z) freeze on the module, the examiner should request Master File controls using push code 049. The examiner, however, should secure CI's approval prior to establishing the return(s) on AIMS.

Per IRM 25.1.4.2 (5), the examiner (responsible for all statutes) should request AIMS controls on all years involved in the administrative joint investigation (investigation is not being conducted using grand jury procedures) using push code 049. Project Code 095, Request for Cooperating Officer Based on Examination Referral or Project Code 096, Request for Cooperating Officer not Based on Examination Referral should be used as appropriate.

During a joint investigation involving multiple entities, for example, individual Schedule C, related employment, corporate and partnership returns, the decision may be reached that criminal aspects are not present on all entities.

Consideration should be given to concluding entities civilly after due consideration of any adverse impact on criminal proceedings.

Policy Statement P-4-84, indicates that civil enforcement actions, including collection activity with respect to taxable periods of the same and other types of tax not included in the criminal investigation generally do not imperil successful criminal investigation or subsequent prosecution (see IRM 1.2.1.4.25). The Policy Statement concludes by indicating civil enforcement actions in these cases should proceed concurrently.

During required quarterly discussions involving the CI SSA, special agent, Compliance manager and revenue agent or revenue officer, the Compliance manager should propose concurrent civil enforcement action consistent with P-4-84. If the issue is still unresolved, the decision should be elevated to the next appropriate management level.

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

Examiners must assure that administrative actions on any prior or subsequent year will not imperil successful prosecutions. Compliance must notify CI of any proposed action such as examining or surveying returns, soliciting consents or issuing reports. Notification of CI may be made via Form 10498A, Joint Investigations Intent to Commence Civil Actions (if this form is not available, the examiner will prepare a memorandum requesting approval for proposed civil action).

In cases where CI does not concur, the cooperating agent may utilize Form 10498A (if available) to document CI's dissent to the proposed action. If Form 10498A is not available, the examiner will initiate a memorandum for the signatures of the field territory manager and the SAC with appropriate instructions to withhold civil action, in whole or in part, while the criminal investigation is pending.

If agreement cannot be reached between Compliance and CI, the area director and Director of Field Operations, CI will make the decision consistent with policy statement P-4–84 (IRM 1.2.1.4.25). If agreement is still not achieved, the case will be elevated to the operating division commissioner level and Chief, CI for resolution.

If civil action is withheld, the suspended years will be periodically reviewed to protect the government’s interest.

Examiners are responsible for all civil statutes in administrative joint investigation cases, including prior and subsequent year(s) and related returns.

Examiners must be aware of subsequent filing in failure to file cases to protect the statutes. The examiner should check AIMS periodically to monitor any possible filing.

Examiners should not rely on IRC 6501(c), the fraud statute, to keep the statute open. A consent should be solicited before the three or six-year statute expires (IRC Sections 6501(a) and 6501(e) respectively). All efforts should be made to obtain a consent before the three-year statute expires rather than relying on the six-year statute.

When there are less than 210 days remaining on a statute, the examiner should initiate Form 10498B, Joint Investigations Consent Form Preparation Recommendation (if not available the examiner will prepare a memorandum requesting CI's permission to solicit a consent) and forward to the territory manager for signature. The territory manager will forward Form 10498B to the SAC indicating the intent to solicit a consent to extend the statute. CI will have 10 workdays after receipt of the Form 10498B or memorandum indicating the intent to solicit a consent to extend the statute to accept or decline the request.

If CI approves the request, the consent must be solicited via Letter 907 and Publication 1035. If in person, in the accompaniment of a special agent both Letter 907 and Publication 1035 should be presented to the taxpayer. Per the Statute Handbook (IRM 25.6), solicitation of the consent should be documented on Form 9984 in the case file that the required notification was made (notification of the taxpayer's rights). A copy of the Letter 907 soliciting the consent should be maintained in the case file. See the Statute Handbook (IRM 25.6) for procedures to extend the statute. Any subsequent inquiry received from the taxpayer should be referred to the special agent assigned. CI should be informed of the results of the solicitation.

If CI does not approve the request or a consent cannot be obtained, a decision will be made whether to issue a statutory notice of deficiency or allow the statute to expire. See IRM 25.6 of the Statute Handbook for procedures to follow.

Form 10498B (or memorandum if Form 10498B is not available) should be utilized to document the decision to issue a statutory notice of deficiency. After securing the signatures of the territory manager and SAC via Form 10498B, the case will be forwarded to Area Counsel for concurrence in issuing a statutory notice of deficiency. The properly executed Form 10498B should be attached to the appropriate return.

If the decision is made to allow the statute to expire, Form 10498B will document this decision (or a memorandum as referred to above) and will contain the signatures of the territory manager and SAC. The properly executed Form 10498B should be attached to the applicable tax return. The statute should immediately be updated on AIMS using the appropriate alpha code. The Form 895 should also be updated to reflect the correct statute date.

If agreement cannot be reached at the territory level, the area director and Director of Field Operations, CI will make the necessary decision. If agreement is still not achieved, the case will be elevated to the operating division commissioner level and Chief, CI for resolution.

IRC 6501(e) extends the three-year statute of limitations to six years when the taxpayer has omitted in excess of 25% of the gross income disclosed on the return. The six-year statute is a fixed and determinable statute date and must be protected. Fraud need not be proved for IRC 6501(e) to apply.

The burden of proof for the omission of gross income is on the Government. Only income reportable but omitted from the return is included in the computation. Omitted or overstated deductions and expenses are not considered in the computation. Gross income for IRC 6501(e) computation includes the following (not all-inclusive):

CI should withdraw from all investigations when it is determined that the case no longer has criminal potential. The SSA will communicate the withdrawal with the cooperating examiner’s group manager.

If the examiner’s group manager objects to the proposed withdrawal, the field territory manager will discuss it with the SAC. If agreement cannot be reached at the territory level, as applicable the area director or director of field operations, LMSB industry director and Director of Field Operations, CI will make the necessary decision.

If Cl withdraws from the joint investigation, the special agent 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 field territory manager. The cooperating examiner will continue the civil settlement of the case.

Upon the completion of the joint investigation, the examiner will prepare an unagreed report explaining all civil and criminal adjustments and penalties in detail. The report should be labeled at the top, "Pre-Prosecution Report." Taxpayer’s Position is not necessary.

The civil fraud penalty should be asserted for all applicable years. Accuracy related and/or delinquency penalties should be proposed as an alternative position.

Innocent spouse report writing procedures should be followed when applicable.

The report of civil adjustments should not be provided to Cl until it has been approved by the field territory manager designee.

Upon receipt of the case file, the field territory manager designee will review and approve the pre-prosecution report for technical accuracy. This report will be provided to Cl for use in the Special Agent’s Report.

Form 4665, Report Transmittal, should be attached to the front of the Revenue Agent’s Report. The Report Transmittal should be labeled at the top, "Pre-Prosecution Report," and contain the following information:

The case file should contain sufficient documentation to support the adjustments and penalties in the Revenue Agent’s Report.

Copies of sensitive documents should not be included in the workpapers. The workpapers should make no mention of an informant or specific agencies.

Form 6809, Civil Fraud Penalty Monitoring Form, should be completed and placed in the case file.

Form 3198, Special Handling Notice, should identify the case as a "Fraud Suspense Case."

Form 5348, Examination Update should be prepared updating the case to AIMS Status code 51.

The case file will be forwarded to Tech Support Fraud Suspense until the criminal aspects of the case have been completed.