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25.1.7.8
(01-01-2003)
Civil Closure
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If the criminal criteria are not met, the compliance
employee will complete the investigation and attempt to secure the nonfiled
return(s).
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Compliance employees should contact the FRS, if
necessary, for assistance in developing the civil fraud penalty. Further direction
for the assertion of the penalties is contained in IRM 20.1, Penalties Handbook.
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Penalties under IRC Sections 6651(f) or 6663 should
be proposed only where evidence clearly indicates the non-filer fraudulently
failed to file a return to evade tax. Penalties should not be used as a bargaining
tool.
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In non-filer cases prosecuted under IRC 7203 returned
for civil settlement, a conviction of willful failure to file a federal return
only collaterally estops a taxpayer from denying liability under IRC 6651(a),
the delinquency penalty. The fraudulent failure to file or civil fraud penalty
is not automatic.
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If the non-filer is prosecuted under IRC 7201,
the fraud penalty is automatic. The taxpayer is collaterally estopped from
denying liability for the civil fraud or fraudulent failure to file penalty.
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The mere fact of failing to file a return does
not constitute sufficient evidence to sustain fraud. Other overt acts of evasion
must be identified to impose the fraudulent failure to file or civil fraud
penalty. In addition to the previously listed indications of fraud, the following
examples are specific to failure to file cases:
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Attempts by the non-filer to conceal or transfer
assets to evade collection of tax later assessed;
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Taxpayer furnishes a false W–4 to his employer;
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Experience of taxpayer in tax matters such as law
professor, CPA or tax attorney;
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Taxpayer’s use of dummy business entities,
bank accounts opened under assumed names and false SSNs in an attempt to conceal
the identity of income/owner;
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A prior history of criminal tax prosecutions for
Title 26 violations:
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Taxpayer’s filing of returns with third parties
such as lending institutions with the intent to secure loans when no returns
have been filed.
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Area Counsel must provide written approval for
the non-assertion of the civil fraud or fraudulent failure to file penalty
if criminal prosecution of a taxpayer has been recommended by CI to the Department
of Justice.
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