ROBERT E. MCKENZIE, ESQ.
1. CRIMINAL INVESTIGATION
1.10 Criminal Investigation Unit
IRS Criminal Investigation (CI) is comprised of approximately 4,400 employees worldwide, approximately 2,600 of which are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.
1.20 Recognizing Danger
Even though not many people are prosecuted for tax crimes, the individual tax practitioner must be able to recognize when a client is in danger of prosecution. An EA or a CPA does not have a privilege with respect to criminal conduct of her client. Therefore, on any occasion when one suspects that a client may be subject to a criminal investigation, the matter should be immediately referred to an attorney. There are certain telltale signs of potential criminal investigation and we must be ever vigilant to spot those indicators.
|FY 2010||FY 2009||FY 2008|
|Percent to Prison||81.5%||81.2%||80.9%|
Enforcement Statistics – Criminal Investigation (CI) Enforcement Strategy
October 2010 – June, 2011
|Percent to Prison||81.3%|
|Average Months to Serve||43|
Compliance with the tax laws in the United States relies heavily on self-assessments of what tax is owed. This is called voluntary compliance. When individuals and corporations make deliberate decisions to not comply with the law, they face the possibility of a civil audit or criminal investigation which could result in prosecution and possible jail time. Publicity of these convictions provides a deterrent effect that enhances voluntary compliance.
1.40 Special Agents
As financial investigators, CI special agents fill a unique niche in the federal law enforcement community. Today’s sophisticated schemes to defraud the government demand the analytical ability of financial investigators to wade through complex paper and computerized financial records. Due to the increased use of automation for financial records, CI special agents are trained to recover computer evidence. Along with their financial investigative skills, special agents use specialized forensic technology to recover financial data that may have been encrypted, password protected, or hidden by other electronic means.
1.50 Retention by Attorney
If the client becomes the subject of a criminal investigation, an accountant or EA may gain some of the protection of the attorney/client privilege by having the client retain an attorney and the attorney in turn retaining the accountant to assist him in the defense of the client’s case. The IRC Sec. 7535 practitioner/client privilege does not apply in criminal tax matters. However, there is an attorney/client privilege. Courts have held that an accountant working for an attorney on behalf of a criminal defendant gains the protection of the attorney/client privilege.
1.60 Need for EA and/or Accounting Assistance
When a client becomes subject to a criminal investigation most competent white collar defense attorneys will retain the services of an EA or CPA to assist in the defense of the taxpayer. The EA/CPA role could include reconstructing financial records and determining the extent of any omissions or commissions of the client.
2. ORGANIZATION OF THE CRIMINAL INVESTIGATION DIVISION
2.10 CI Location
The Chief, Criminal Investigation is in the IRS headquarters office located in Washington, DC. The Chief directs the policies and programs for IRS Criminal Investigation nationwide. Those responsibilities include the enforcement of the criminal statutes relative to tax administration and related financial crimes; violations of the Bank Secrecy Act, and the Money Laundering Control Act.
2.20 Strategic Plan
The Criminal Investigation strategic plan is comprised of three interdependent programs: Legal Source Tax Crimes; Illegal Source Financial Crimes; and Narcotics Related Financial Crimes. These three programs are mutually supportive, and encourage utilization of all statutes within CI’s jurisdiction, the grand jury process, and enforcement techniques to combat tax, money laundering and currency crime violations. Criminal Investigation must investigate and assist in the prosecution of those significant financial investigations that will generate the maximum deterrent effect, enhance voluntary compliance, and promote public confidence in the tax system.
2.30 Field Offices
CI divided into thirty-five field offices. Each field office has a Special Agent in Charge to direct, monitor, and coordinate the criminal investigation activities within that office’s area of responsibility. Several smaller posts-of-duty are located within each field office.
2.40 High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces
(Mandated in the National Money Laundering Strategy) HIFCAs occupy the flagship role in the nation’s efforts to disrupt and dismantle large-scale money laundering systems and organizations. The designation of a HIFCA is intended to concentrate law enforcement efforts at the federal, state, and local level on combating money laundering in high-intensity money laundering zones, whether based on drug trafficking or other crimes. The 2001 Money Laundering Strategy announced the designation of two new HIFCA locations: Northern District of Illinois (Chicago) and Northern District of California (San Francisco). The four HIFCAs named in the 2000 strategy were: New York/New Jersey; San Juan/Puerto Rico; Los Angeles; and a “Southwest Border systems HIFCA,” designed to address cross-border currency smuggling in Texas/Arizona to and from Mexico. HIFCAs are composed of all relevant federal, state, and local enforcement authorities; prosecutors; and federal financial supervisory agencies as needed. They work closely with the High Intensity Drug Trafficking Areas (HIDTA) and Organized Crime Drug Enforcement Task Forces (OCDETF) and focus on collaborative investigative techniques. In 2003 The HIFCA Executive Board approved a South Florida HIFCA which is centralized in Miami.
2.50 Fraud Detection Centers
Across the United States there are ten Fraud Detection Centers. The Fraud Detection Centers will detect refund fraud and identify prevention measures. Each Center has a Resident Agent in Charge to direct, monitor, and coordinate operations that support electronic and paper tax filing. The Center activities include educating Submission Processing Center and Customer Service Center personnel on fraud awareness and detection.
2.60 The History of Criminal Investigation
Criminal Investigation began shortly after the Revenue Act of 1913 The Revenue Act of 1913 imposed a modest tax of 1 percent on net incomes of individuals, estates, trusts and corporations. An additional tax, or surtax, graduated from 1 to 6 percent, was applied to income exceeding $20,000. Numerous internal revenue laws since that time have made changes in rates and other aspects of revenue assessment. Tax evasion is not new. As early as 1919, many serious allegations concerning alleged tax frauds were identified by the Internal Revenue Service. It commenced its first narcotics investigation of an opium trafficker in Hawaii in the early 1920’s, obtaining tax evasion charges against the leader of that organization.
2.70 Establishment of Fraud Investigation
On July 1, 1919, the IRS Commissioner created the Intelligence Unit to investigate widespread allegations of tax fraud. To establish the Intelligence Unit, six United States Post Office Inspectors were transferred to the Bureau of Internal Revenue to become the first special agents in charge of the organization that would one day become Criminal Investigation. They formed the nucleus that built the Intelligence Unit into an elite group of highly trained, dedicated professionals, who are recognized as the finest financial investigators in the world.
2.80 Sending Criminal Figures to Prison
It was this first group of agents who were responsible for sending numerous notorious gangsters, racketeers and other criminal figures to prison. Most notably, Public Enemy Number One, Al Capone. Since that time, many under-world leaders have gone to prisons on Federal tax charges including New York Godfather John Gotti and Chicago crime boss Rocco Infelise.
2.90 Intelligence Unit Gains National Prominence
The Intelligence Unit quickly became renowned for the financial investigative skill of its special agents. It attained national prominence in the thirties for the conviction of public enemy number one, Al Capone, for income tax evasion, and its role in solving the Lindbergh kidnapping. From these promising beginnings the Intelligence Unit expanded over the intervening decades, investigating tax evasion by ordinary citizens, prominent businesspersons, government officials, and notorious criminals.
2.100 Name Change to Criminal Investigation Unit
In July 1978, the Intelligence Unit changed its name to Criminal Investigation (CI). Over the years CI’s statutory jurisdiction expanded to include money laundering and currency violations in addition to its traditional role in investigating tax violations. However, Criminal Investigation’s core mission remains unchanged. It continues to fulfill the important role of helping to ensure the integrity and fairness of our nation’s tax system.
2.110 Criminal Investigation Enforcement Activities
Although the investigation of people with illegal income is an important aspect of Criminal Investigation enforcement activities, it is only one part of a balanced enforcement program that attempts to ensure compliance among all groups of taxpayers. Over the years, investigative activity has resulted in individuals being convicted for tax evasion in almost every occupation, profession and segment of the economy, and has also resulted in the convictions of many corporations.
2.120 Conviction Rate
Since CI’s inception in 1919 to the present, the conviction rate for Federal tax prosecutions has never fallen below 90 percent. This is a record of success that is unmatched in Federal law enforcement.
3. IRS CRIMINAL INVESTIGATION MISSION
3.10 CI Serves Public
“Criminal Investigation (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.”
3.20 How Does Criminal Investigation Support the IRS Mission?
The IRS mission is . . . “Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” The Internal Revenue Service is responsible for collecting over 90% of all dollars collected by the United States Government.
3.30 Trying to Corrupt American System of Taxation
When people or businesses try to corrupt the American system of taxation through illegal activities, CI special agents step in to enforce the tax and money laundering laws. The fact is — all income is taxable, even income earned through illegal sources.
3.40 Examples of Types of Crime
Tax evasion, abusive trust schemes, health care fraud, telemarketing fraud, and even drug trafficking are some examples of the types of crime that revolve around money. When a financial crime is committed, a financial investigation is the key to a conviction. In a financial investigation, traditional law enforcement investigative tools such as crime scene analysis and physical evidence can fall short in proving the crime. With no proof, there is no conviction. The techniques used in a financial investigation by CI special agents involve following the movement of money through paper and computerized records. The link between where the money comes from, who gets it, when it is received and where it is stored or deposited, can provide proof of criminal activity. CI special agents have earned the distinguished title, “Accountants with Convictions.”
3.50 The Money Trail:
IRS Criminal Investigation finds the criminal or crime by tracing the money.
3.60 Legal Source Tax Crimes – Criminal Investigation (CI)
Criminal Investigation’s (CI) primary resource commitment is to develop and investigate Legal Source Tax Crimes. The prosecution of these cases is key to supporting the Service’s overall compliance goals, enhancing voluntary compliance with the tax laws, and promoting fairness and equity in our tax system. Legal Source Tax investigations involve taxpayers in legal industries and legal occupations, who earned income legally, but choose to evade taxes by violation of tax laws.
3.70 Threaten the Tax System
The Legal Source Tax Crimes Program includes those cases that threaten the tax system, such as the Questionable Refund Program (QRP) cases, unscrupulous return preparers and frivolous filers/non-filers who challenge the legality of the filing requirement. Additional important elements of the program are excise tax and employment tax investigations. This Program emphasizes the importance of cooperation between Service compliance functions as well as with Chief Counsel’s Office and Department of Justice Tax Division.
3.80 Illegal Source Financial Crimes
The Illegal Source Financial Crimes Program recognizes that money gained through illegal sources, such as dollars obtained through illegal gambling operations, is part of the untaxed underground economy. This untaxed underground economy is a threat to our voluntary tax compliance system and undermines the overall public confidence in our tax system. After all, the Internal Revenue Code states that all income is taxable, from whatever source derived.
3.90 Illegal Sources
When money is derived through illegal sources, the primary concern for the criminal is to legitimize the dollars. This process of “cleaning” the illegally obtained dollars is termed “money laundering.” Money laundering activity is considered to be “tax evasion in progress.”
3.100 Use of Criminal Tax laws
The Illegal Source Financial Crimes Program encompasses all tax and tax-related violations, as well as money laundering and currency violations. In fact, money laundering and currency violations are often intertwined with tax violations. As part of the criminal charges against an individual, Criminal Investigation (CI) makes effective use of the forfeiture statutes. Forfeiture statutes deprive individuals and organizations of their illegally obtained cash and assets.
3.110 Narcotics-Related Investigations
One look at the daily newspaper is proof enough that crimes dealing with or motivated by money make up the majority of current criminal activity in the nation. Tax evasion, public corruption, health care fraud, and even drug trafficking are all examples of the types of crimes that revolve around money. In these cases, a financial investigation often becomes the key to a conviction.
It’s really pretty simple: No matter what the source of income — all income is taxable. And this creates a real problem for drug dealers. What are they going to do with their money — so that IRS won’t find it? For the IRS, money laundering and narcotics investigations are the compliance effort to address criminal violations of the Bank Secrecy Act, the Money Laundering Control Act of 1986 and section 6050(I) of the Internal Revenue Code.
3.130 Why a Financial Investigation?
Financial investigations are by their nature very document intensive. Specifically, they involve records, like bank account information and real estate files, which point to the movement of money. Any record that pertains to, or shows the paper trail of events involving money is important. The major goal in a financial investigation is to identify and document the movement of money during the course of a crime. The link between where the money comes from, who gets it, when it is received and where it is stored or deposited, can provide proof of criminal activity.
4. WHAT TRAINING IS NEEDED TO BECOME A CI SPECIAL AGENT?
4.10 Qualifications to Become CI Special Agent
Candidates for IRS Criminal Investigation special agents must be a U.S. citizen, must not have reached their 37th birthday, and must meet education and/or experience qualifications listed at the end of this brochure. Special agent candidates are required to attend a comprehensive training program at the Federal Law Enforcement Training Center (FLETC) in Glynco, Georgia. Training begins with a one-week orientation program sponsored by the National Criminal Investigation Training Academy. Students then attend a nine-week Criminal Investigation Training Program covering basic Federal criminal investigation techniques including federal criminal law, courtroom procedures, enforcement operations, interviewing and firearms training common to all Federal law enforcement agents. This segment of training includes new Treasury agents from Customs, Alcohol Tobacco and Firearms, Secret Service and others federal law enforcement agencies. After the basic training is completed, the candidates continue on to CI’s 16 week specialized training which includes instruction in tax law, criminal tax fraud, money laundering, and a variety of financial fraud schemes. They are also introduced to agency specific undercover operations, electronic surveillance techniques, forensic sciences, court procedures, interviewing techniques and trial preparation and testifying.
4.20 CI Special Agent Training
The training emphasizes the development of both technical and behavioral skills. It incorporates a highly interactive methodology of course delivery coupled with a high expectation of trainee interaction throughout the program. It is designed to provide new agents with the opportunity to learn and practice progressively more complex tasks required to be performed on the job. This is accomplished through a combination of practical exercises, simulated cases, and classroom facilitated learning.
4.30 Specialized Computer Investigative Skills
With an increase in the automation of financial records, there is a need for CI special agents to be specially trained in recovering computer evidence. Those special agents interested in becoming a Computer Investigative Specialist (CIS) must complete a variety of computer courses which provide the agent with the tools and knowledge to perform forensic data recovery and analysis of electronic data. The training begins with a pre-basic 2-week course, which is followed by a 3-week Computer Evidence Recovery Training course at the Federal Law Enforcement Training Center. A newly trained CIS then attends a 3-week Computer Evidence Analysis Training course at the University of North Texas. Finally, one year after a CIS initial training, the agent attends a 21/2-week Advanced Computer Evidence Recovery Training course to learn about computer network issues and more advanced data recovery.
4.40 Agents Use Investigative Skills
Computer equipment seized for financial records may contain data that has been encrypted, password protected or otherwise hidden. Agents use their investigative skills and specialized equipment to recover this data as substantial evidence to convict individuals on tax law or money laundering violations. Computer Investigative Specialists receive a laptop, two desktop computers and numerous other equipment and software to assist in their investigations.
5. ORIGIN OF CASES
5.10 Gathering Information
Criminal investigations may stem from information discovered by internal revenue agents in the course of their audits and examinations; by special agents who may learn of indications of tax noncompliance and, when authorized, develop such information; by Criminal Investigation through making authorized surveys of selected individuals, groups, or activities; through analysis of cases, special studies, and authorized surveys; and by revenue officers or other employees of the Internal Revenue Service in the performance of their duties. Information of multiple address changes and identical names involved in income tax refunds may be received from a service center. This information may indicate false claims for refund. Information returns may furnish a basis for referrals.
5.20 Other Sources
Investigations may also stem from information received from other Government agencies; from application for the redemption of mutilated currency; from newspapers, magazines, and other publications; and from the general public. Criminal Investigation in districts where local customs officers are maintained may, when authorized, request from such offices information relating to importers who are suspected of substantially undervaluing merchandise. This may be a lead to attempted tax evasion.
5.30 Referrals from IRS Employees
IRS Employees are encouraged to continue to be alert for indications of noncompliance which come to their attention. District Criminal Investigation employees will report such information as provided in IRM 9391.5:(2). Examination, Collection and TE/GE employees will report such information as provided in their respective sections of the IRM. All other IRS employees will report such information via memorandum through channels to Criminal Investigation. Indications of noncompliance identified by service center, and local IRS employees will be forwarded to Criminal Investigation at the appropriate compliance center. Failure on the part of Service employees to report in writing violations or frauds within their knowledge is punishable by dismissal, fine, and imprisonment. (Section 7214(a)(8), Internal Revenue Code of 1954.)
5.40 Referral Procedure
The Internal Revenue manual sets forth the following guidelines for employee referrals:
(1) If, during the course of an examination an examiner/officer discovers firm indications of fraud, he/she will suspend his/her activities at the earliest practicable opportunity without disclosing to the taxpayer, his/her representative, if any, or his/her employees the reason for such suspension.
(2) Any examiner who discovers indications of fraud, and any revenue officer who discovers an indication that a taxpayer’s failure to file a required return is willful (or any other indications of fraud), will prepare a report of his/her findings, utilizing Form 2797, Referral Report of Potential Criminal Fraud Cases. The original and two copies of the referral form (without workpapers, attachments, etc.) will be forwarded to a Criminal Investigation group manager. Referrals from EP/EO will be forwarded to a Criminal Investigation group manager of the district in which the taxpayer is located.
(3) Notification to the appropriate division of the action taken by Criminal Investigation will still be handled in accordance with IRM 9322.2. [IRM 9322.1]
5.50 Whistleblower – Informant Award
The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.
5.60 Who can get an award?
The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer. The IRS is looking for solid information, not an “educated guess” or unsupported speculation. We are also looking for a significant Federal tax issue – this is not a program for resolving personal problems or disputes about a business relationship.
5.70 What are the rules for getting an award?
The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code IRC Section 7623(b) – Whistleblower Rules.
5.80 Other Whistleblowers Award Program
The IRS also has an award program for other whistleblowers – generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. The rules for these cases are found at Internal Revenue Code IRC Section 7623(a) – Informant Claims Program, and some of the rules are different from those that apply to cases involving more than $2 million. If you decide to submit information and seek an award for doing so, use IRS Form 211. The same form is used for both award programs.
5.90 UBS Criminal Charges
On February 18, 2009 UBS AG, Switzerland’s largest bank, has entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service (IRS), the Justice Department announced today.
5.100 Providing Names
As part of the deferred prosecution agreement and in an unprecedented move, UBS, based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), has agreed to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS’s cross-border business. Under the deferred prosecution agreement, UBS has also agreed to expeditiously exit the business of providing banking services to United States clients with undeclared accounts. As part of the deferred prosecution agreement, UBS has further agreed to pay $780 million in fines, penalties, interest and restitution.
A criminal information was unsealed that charged UBS with conspiring to defraud the United States by impeding the IRS. According to court documents, in 2000, after it purchased the brokerage firm Paine Webber, UBS voluntarily entered into an agreement with the IRS that required UBS to report to the IRS income and other identifying information for its United States clients who held United States securities in a UBS account. Court documents allege that the agreement also required UBS to withhold income taxes from United States clients who directed investment activities in foreign securities from the United States. The information further asserts that, in order to evade those new reporting requirements, employees and managers within the cross-border business, with the knowledge of certain UBS executives, helped United States taxpayers open new UBS accounts in the names of nominees and/or sham entities. According to court documents, the assets of the individual’s accounts were then transferred to the newly created accounts, as to which the U.S. taxpayer would not be identified as a beneficiary.
The information asserts that this device was used by UBS to justify evading its reporting obligations and helped United States taxpayers to continue to conceal their identities and assets from the IRS.
The information also alleges that Swiss bankers routinely traveled to the United States to market Swiss bank secrecy to United States clients interested in attempting to evade United States income taxes. Court documents assert that, in 2004 alone, Swiss bankers allegedly traveled to the United States approximately 3,800 times to discuss their clients’ Swiss bank accounts. The information further alleges that UBS managers and employees used encrypted laptops and other counter-surveillance techniques to help prevent the detection of their marketing efforts and the identities and offshore assets of their U.S. clients. According to the information, clients of the cross-border business in turn filed false tax returns which omitted the income earned on their Swiss bank accounts and failed to disclose the existence of those accounts to the IRS.
5.120 Deferred Prosecution Agreement
In light of the bank’s willingness to acknowledge responsibility for its actions and omissions, its cooperation and remedial actions to date, and its promised continuing cooperation and remedial actions, the government recommended dismissal of the charge, provided the bank fully carries out its obligations under the agreement.
In November 2008, UBS executive Raoul Weil was indicted by a federal grand jury in Fort Lauderdale and charged with conspiring to defraud the United States for his alleged role in overseeing the United States cross-border business. The district court recently declared him to be a fugitive.
5.130 Other Charges
In June 2008, former UBS private banker Bradley Birkenfeld pleaded guilty to a charge of conspiring to defraud the United States for similar conduct. Birkenfeld is scheduled to be sentenced on May 1, 2009. Also, in June 2008, the U.S. District Court in Miami authorized the Internal Revenue Service to serve upon UBS a so-called “John Doe” summons seeking records that would identify United States taxpayers with accounts at UBS in Switzerland who have elected to conceal the existence of their accounts from the IRS. He is now serving a 42 month sentence in a federal penitentiary.
5.140 Quotes From Government Officials
“Today’s agreement is but one milestone in an ongoing law enforcement effort to reassure hard-working and law-abiding taxpayers who pay their fair share of taxes that those who don’t will pay a heavy price,” said John A. DiCicco, Acting Assistant Attorney General of the Justice Department’s Tax Division. “The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so.”
“UBS executives knew that UBS’s cross-border business violated the law,” said R. Alexander Acosta, U.S. Attorney for the Southern District of Florida. “They refused to stop this activity, however, and in fact instructed their bankers to grow the business. The reason was money — the business was too profitable to give up. This was not a mere compliance oversight, but rather a knowing crime motivated by greed and disrespect of the law.”
5.150 Settlement Offer Unreported Offshore Income
On March 26, 2008 IRS Commissioner Doug Shulman announced what is in effect a settlement offer for those that voluntarily and timely disclose unreported offshore income. Those meeting the terms of the offer will have to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20% of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. In other words, 20% of the highest asset value of an account anytime in the past six years. However, those who come forward on a timely basis will not face criminal prosecution. The offer was only open until 10-15-09.
5.160 Highlights of the Offer.
As explained in a memorandum written by Linda E. Stiff, Deputy Commissioner for Services and Enforcement and addressed to the Commissioners for the Large and Mid-Size (LMSB) and Small Business/Self-Employed (SBSE) Divisions, the tax liabilities related to offshore issues of taxpayers that make “voluntary disclosure requests’” will be settled as follows:
- Taxes and interest due going back 6 years will be assessed.
- The taxpayer must file or amend all returns, including information returns, and Form TD F 90-22.1 (FBAR).
IRS will assess either an accuracy or delinquency penalty for all years (no reasonable cause exception will be applied).
In lieu of all other penalties that may apply (including FBAR and information return penalties), IRS well assess a penalty equal to 20% of the amount in foreign bank accounts/entities in the year with the highest aggregate account/asset value. The penalty is reduced to 5% if, with respect to the accounts or entities formed: (a) the taxpayer did not open them or cause them to be opened or formed; (b) there has been no activity during the period the accounts/entities were controlled by the taxpayer; and (c) all applicable U.S. taxes have been paid on the funds in the accounts/entities (where only the earnings have escaped U.S. taxes).
5.180 Fully Cooperate
The above terms will apply only to taxpayers that “fully cooperate with the IRS both civilly and criminally,” for all voluntary disclosure requests that are submitted to IRS, and are not yet resolved. The terms will remain in effect only for six months from Mar. 23, 2009 (the date that the Deputy Commissioner for Services and Enforcement released the memorandum on voluntary disclosure requests). IRS Commissioner Doug Shulman says that after that time, IRS would reevaluate all of its options, and warned that for those “who continue to hide their heads in the sand, the situation will only become more dire.”
5.190 Still May Make Voluntary Disclosures
Although the special voluntary disclosure program ended on 10-15-09, taxpayers may still make voluntary disclosures. The IRS has continues to accept such disclosures under it’s general program. The problem that a taxpayer faces is that the IRS has not provided for any specific penalty regime for those making a post 10-15-09 diclosure.
6. THE CI INVESTIGATION
6.10 Taxpayer Interview
SA’s use specific procedure when they interview a taxpayer who is the subject of a CID investigation. Two SA’s (they travel in pairs like nuns) will arrive at your client’s home or business without an appointment. The special agent will then advise the subject of the investigation substantially as follows:
“In connection with my investigation of your tax liability (or other matter), I would like to ask you some questions. However, first I advise you that under the Fifth Amendment to the Constitution of the United States I cannot compel you to answer any questions or to submit any information if such answers or information might tend to incriminate you in any way. I also advise you that anything which you say and any documents which you submit may be used against you in any criminal proceeding which may be undertaken. I advise you further that you may, if you wish, seek the assistance of an attorney before responding.”
6.20 Taxpayer Asked to Waive Rights
The SA’s will then ask your client to waive her rights. If the taxpayer waives her constitutional rights the SA’s will immediately begin the interview. Many times the Special Agents will assure the taxpayer that the investigation may be easily resolved if the taxpayer cooperates and tells her side of the story. (It probably will be easier to resolve the case if the TP talks because she will make admissions against interest.) If your client calls you when the SA’s arrive tell her to decline the interview and immediately refer the matter to a criminal tax attorney. No taxpayer should ever consent to a CID interview without first consulting a lawyer.
6.30 Special Agent Guidelines
Special agents are given the following guidelines for conducting taxpayer interviews:
“(1) The investigating officers should attempt to hold discussions or interviews with the principal during the course of an investigation for the purpose of obtaining all available information and, at the same time, giving the principal every opportunity to explain his/her participation in the alleged criminal violation. At every such discussion or interview, it is desirable that there be present at least two investigating officers, or one officer and an IRS stenographer. A record or summary shall be made of such proceedings pursuant to the instructions in IRM 9353.
(2) Care must be taken to avoid making statements of any kind in discussion with a principal or his/her representatives which might be construed as a compromise of any criminal features of the investigation.”
6.40 Report of Interrogation
SA’s prepare written report of taxpayer interrogations and witness interviews. The IRM sets forth the following specific guidelines:
(1) Facts pertinent to an investigation developed during an interrogation or conference should be reduced to writing. This can be done in the following manner:
a) the interrogator may prepare and sign a memorandum of information obtained;
b) a formal affidavit may be prepared for the signature of the person making the statements, incorporating the pertinent facts; or
c) the questions asked by the interrogator and the answers given under oath may be recorded verbatim.
(2) The officer who administers the oath should complete the jurat on the affidavit or transcribed questions-and-answer statement. Any other officer present during the interrogation or conference should also sign the memorandum, affidavit, or statement as a witness. Any apparent differences of recollection between the officers of the interrogation or conference as to what was said should be resolved as soon after the interrogation or conference as possible, before completion of the memorandum thereof.
(3) An interrogation or conference may be recorded only by a stenographer who is an employee of the IRS. This rule may be waived by the agent’s immediate superior. At the request of the Service or witness, which includes a principal, the superior may authorize the use of a stenographer employed by the United States Attorney, a court reporter of the United States District Court, a reporter licensed or certified by any State as a court reporter or to take depositions, or an independent reporter known to the Service to be qualified to take depositions for use in a United States District Court. The use of this procedure may be permissible under IRC 6103(n) where the Service contracts with a non-Service reporter or stenographer; under IRC 6103(c), taxpayer waiver; or under IRC 6103(k)(6) where a disclosure is necessary for investigative purposes. When no stenographer is readily available, mechanical recording devices may be used to record statements by advising the witness, in advance, of the use of the device (implied consent). If the witness objects, the interrogator will refrain from mechanically recording the statement. If the witness elects to mechanically record the conversation, the Service will make its own recording.
(4) A witness or principal will be permitted to engage a qualified reporter as described in (3) above to be present at his/her expense to transcribe testimony, provided that the Service may secure a copy of the transcript at its expense or record the testimony using a mechanical recording device or its own stenographer or reporter. However, the Service retains the right to refuse to permit verbatim recording by a non-Service reporter or stenographer on the grounds that disclosure would “seriously impair Federal tax administration” (see text 212:(2) and 317:(7) of IRM 1272, Disclosure of Official Information Handbook, and Delegation Order No. 156 (as revised)).
(5) Upon request, a copy of an affidavit or transcript of a question and answer statement will be furnished a witness promptly, except when it is determined by the District Director that release should be delayed until such time as it will not interfere with the development or successful prosecution of an investigation. (See text 343.3 of IRM 9781, Handbook for Special Agents, and 26 CFR 601.107(b)(1).)
7. THE INVESTIGATION
7.10 Special Agent Interview
Although the special agent interview is the most stressful part (and perhaps most important in element in determining whether the taxpayer will be prosecuted) of the CID process for the taxpayer, it constitutes only a small part of the total investigation.
7.20 Purpose of the Investigation
The purpose of a special agent’s investigation is to obtain facts and evidence. His primary aim is to determine whether the person under investigation has committed a criminal violation, and, if the facts disclose violations subject to criminal or civil penalties within the jurisdiction of the Criminal Investigation Division, to obtain whatever evidence is required to sustain criminal proceedings or the assertion of civil penalties. Special Agents begin their investigation assuming that the taxpayer has committed a tax crime,. They view their job as a mere matter of developing the evidence.
7.30 Determining the Tax Crime
The special agent will first determine what he/she is attempting to prove. This involves an evaluation and analysis of the allegation to ascertain whether the available facts indicate a violation within Criminal Investigation Division jurisdiction and what evidence must be obtained to establish the elements of the crime. A work chart or other plan of procedure may then be developed. This essentially involves a determination of listing of information and evidence required and the probable source thereof.
7.40 Lack of Evidence
Investigations are terminated when sufficient evidence to convict has been accumulated and there are no reasonable grounds to expect that further investigation may produce significant results in relation to the available evidence and to the additional investigative time and effort involved. The special agent will seek out all who are implicated in the crime and obtain definitive evidence as to their implication.
7.50 Prosecution Recommendation
When the special agent has made a determination, concurred in by the Special Agent in Charge, that the facts in the investigation warrant a prosecution recommendation against the taxpayer, a letter is sent (via certified mail, return receipt requested) to the principal notifying him/her that prosecution is being recommended and that the investigation is being referred to Area Counsel . A similar letter will also be prepared in those situations after a Special Agent in Charge conference is held and it is forward the investigation to Area Counsel. A copy of the letter is mailed to the principal’s enrolled representative (agent or attorney) if a power of attorney or tax information authorization has been filed in the investigation.
7.60 Criminal Investigation Conference
A local conference is not to be conducted as a matter of course. However, a taxpayer who may be the subject of a criminal prosecution recommendation is allowed a Criminal Investigation conference when he requests one or where the Special Agent in Charge, Criminal Investigation, determines that such a conference will be in the best interest of the Government. No district conference is held if the taxpayer is the subject of a grand jury investigation in which special agents of the Criminal Investigation are assisting the Attorney for the Government. The conference is held at the headquarters office of the the Special Agent in Charge, Criminal Investigation or at some other location convenient for both the principal, or her representative, and the Government.
7.70 Conference Procedure
The conference is held before the special agent’s report is typed in final form, the IRS representative is required to inform the taxpayer by a general oral statement of the alleged fraudulent features of the investigation, to the extent consistent with protecting the Government’s interests, and, at the same time, making available to the taxpayer sufficient facts and figures to acquaint him/her with the basis, nature, and other essential elements of the proposed criminal charges against him. However, no information is disclosed to the principal which might reveal or indicate the identity of confidential informants, endanger prospective witnesses, or be detrimental to subsequent prosecution of the investigation. When a taxpayer’s representative attends a district Criminal Investigation conference without the taxpayer, she is entitled to receive the same information that would be furnished if the taxpayer were present. The taxpayer may be accompanied at the conference by an attorney, certified public accountant, enrolled agent or any individual who has knowledge of the facts or who can give information which will assist in establishing the facts in the investigation. However, the Special Agent in Charge, Criminal Investigation may deny a conference if the taxpayer insists upon the attendance of any person, other than those listed above, whose presence the Special Agent in Charge believes would serve no useful purpose.
7.80 Counsel’s Conference
If the matter is forwarded to Counsel the taxpayer may then meet with the attorney. At that time the taxpayer’s defenses can be presented to the attorney. If the attorney sustains the SA the case is forwarded to the Justice Department where the TP’s attorney may make a new presentation. After all the conferences the matter is sent back for prosecution by the local U. S. Attorney and plea bargaining begins anew.
8. VOLUNTARY DISCLOSURE
8.10 Criminal Penalties Applicable to Fraud and Miscellaneous Investigations
It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended. This voluntary disclosure practice creates no substantive or procedural rights for taxpayers, but rather is a matter of internal IRS practice, provided solely for guidance to IRS personnel. Taxpayers cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution.
8.20 Prosecution Not Recommended
A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended. This practice does not apply to taxpayers with illegal source income.
8.30 Elements of a Voluntary Disclosure
A voluntary disclosure occurs when the communication is truthful, timely, complete, and when:
a) the taxpayer shows a willingness to cooperate (and does in fact cooperate) with the IRS in determining his or her correct tax liability; and
b) the taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable.
8.40 Timely Disclosure
A disclosure is timely if it is received before:
a) the IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation;
b) the IRS has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance;
c) the IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer; or
d) the IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena).
8.50 CI Evaluation
Any taxpayer who contacts the IRS in person or through a representative regarding voluntary disclosure will be directed to Criminal Investigation for evaluation of the disclosure. Special agents are encouraged to consult Area Counsel, Criminal Tax on voluntary disclosure issues.
8.60 Voluntary Disclosure
Examples of voluntary disclosures include:
a) a letter from an attorney which encloses amended returns from a client which are complete and accurate (reporting legal source income omitted from the original returns), which offers to pay the tax, interest, and any penalties determined by the IRS to be applicable in full and which meets the timeliness standard set forth above. This is a voluntary disclosure because all elements of (3), above are met.
b) a disclosure made by a taxpayer of omitted income facilitated through a barter exchange after the IRS has announced that it has begun a civil compliance project targeting barter exchanges; however the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intention to do so. In addition, the taxpayer files complete and accurate amended returns and makes arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. This is a voluntary disclosure because the civil compliance project involving barter exchanges does not yet directly relate to the specific liability of the taxpayer and because all other elements of (3), above are met
c) a disclosure made by a taxpayer of omitted income facilitated through a widely promoted scheme regarding which the IRS has begun a civil compliance project and already obtained information which might lead to an examination of the taxpayer; however, the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so. In addition, the taxpayer files complete and accurate returns and makes arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable. This is a voluntary disclosure because the civil compliance project involving the scheme does not yet directly relate to the specific liability of the taxpayer and because all other elements of (3), above are met.
d) A disclosure made by an individual who has not filed tax returns after the individual has received a notice stating that the IRS has no record of receiving a return for a particular year and inquiring into whether the taxpayer filed a return for that year. The individual files complete and accurate returns and makes arrangements with the IRS to pay the tax, interest, and any penalties determined by the IRS to be applicable in full. This is a voluntary disclosure because the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so and because all other elements of (3), above, are met.
8.70 Not Voluntary Disclosures
Examples of what are not voluntary disclosures include:
a) a letter from an attorney stating his or her client, who wishes to remain anonymous, wants to resolve his or her tax liability. This is not a voluntary disclosure until the identity of the taxpayer is disclosed and all other elements of (3) above have been met.
b) a disclosure made by a taxpayer who is under grand jury investigation. This is not a voluntary disclosure because the taxpayer is already under criminal investigation. The conclusion would be the same whether or not the taxpayer knew of the grand jury investigation.
c) a disclosure made by a taxpayer, who is not currently under examination or investigation, of omitted gross receipts from a partnership, but whose partner is already under investigation for omitted income skimmed from the partnership. This is not a voluntary disclosure because the IRS has already initiated an investigation which is directly related to the specific liability of this taxpayer. The conclusion would be the same whether or not the taxpayer knew of the ongoing investigation.
d) a disclosure made by a taxpayer, who is not currently under examination or investigation, of omitted constructive dividends received from a corporation which is currently under examination. This is not a voluntary disclosure because the IRS has already initiated an examination which is directly related to the specific liability of this taxpayer. The conclusion would be the same whether or not the taxpayer knew of the ongoing examination.
e) a disclosure made by a taxpayer after an employee has contacted the IRS regarding the taxpayer’s double set of books. This is not a voluntary disclosure even if no examination or investigation has yet commenced because the IRS has already been informed by the third party of the specific taxpayer’s noncompliance. The conclusion would be the same whether or not the taxpayer knew of the informant’s contact with the IRS.
9. TAX CRIMES
9.10 Criminal Penalties Applicable to Fraud and Miscellaneous Investigations
IRC 7201. Attempt to Evade or Defeat Tax: “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.” With respect to offenses committed on or before September 3, 1982, the fine is not more than $10,000 for individuals and corporations. (The maximum fines for this offense have been raised by the Criminal Fine Enforcement Act of 1984.
9.20 IRC 7202. Willful Failure to Collect or Pay Over Tax
“Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
9.30 IRC 7203. Willful Failure to File Return, Supply Information, or Pay Tax
“Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, shall, in addition to other penalties provide by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under Section 6654 or 6655 with respect to such failure.” With respect to offenses committed on or before September 3, 1982, the fine is not more than $10,000 for individuals and corporations.
9.40 IRC 7204. Fraudulent Statement or Failure to Make Statement to Employees
“In lieu of any other penalty provided by law (except the penalty provided by section 6674) any person required under the provisions of section 6051 to furnish a statement who willfully furnishes a false or fraudulent statement or who willfully fails to furnish a statement in the manner, at the time, and showing the information required under section 6051, or regulations prescribed thereunder, shall, for each such offense, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.”
9.50 IRC 7205. Fraudulent Withholding Exemption Certificate or Failure to Supply
“(a) Withholding on Wages.–Any individual required to supply information to his employer under Section 3402 who willfully supplies false or fraudulent information, or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld under Section 3402, shall in addition to any other penalty provided by law, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.”
“(b)Backup Withholding on Interest and Dividends.–If any individual willfully makes
“(1) any false certification or affirmation on any statement required by a payer in order to meet the due diligence requirements of section 6676(b), or
“(2) a false certification under paragraph (1) or (2)(C) of section 3406(d),Part-9781 then such individual shall in addition to any other penalty provided by law, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.”
9.60 IRC 7206. Fraud and False Statements
“Any person who—
(1) Declaration Under Penalties of Perjury.–Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or
(2) Aid or Assistance.–Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; or
(3) Fraudulent Bonds, Permits, and Entries.–Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the internal revenue laws, or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently executed, or advises, aids in, or connives at such execution thereof; or
(4) Removal or Concealment With Intent to Defraud.–Removes, deposits, or conceals, or is concerned in removing, depositing, or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by section 6331, with intent to evade or defeat the assessment or collection of any tax imposed by this title; or
(5) Compromises and Closing Agreements.–In connection with any compromise under section 7122, or offer of such compromise, or in connection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully—
- Concealment of Property.–Conceals from any officer or employee of the United States any property belonging to the estate of a taxpayer or other person liable in respect of the tax, or
- Withholding, Falsifying, and Destroying Records.–Receives, withholds, destroys, mutilates, or falsifies any book, document or record, or makes any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax; shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation) or imprisoned not more than 3 years, or both, together with the costs of prosecution.” With respect to offenses committed on or before September 3, 1982, the fine is not more than $5,000 for individuals and corporations.
9.70 IRC 7207. Fraudulent Returns, Statements, or Other Documents
“Any person who willfully delivers or discloses to the Secretary or his delegate any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.” With respect to offenses committed on or before September 3, 1982, the fine is not more than $1,000 for individuals and corporations.
9.80 IRC 7210. Failure to Obey Summons
“Any person who, being duly summoned to appear to testify, or to appear and produce books, accounts, records, memoranda, or other papers, as required under sections 7602, 7603, and 7604(b), neglects to appear or to produce such books, accounts, records, memoranda, or other papers, shall, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both, together with costs of prosecution.”
9.90 IRC 7212. Attempts to Interfere With Administration of Internal Revenue Laws
“(a) Corrupt or Forcible Interference.–Whoever corruptly or by force or threats of force (including any threatening letter or communication) endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly or by force or threats of force (including any threatening letter or communication) obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both, except that if the offense is committed only by threats of force, the person convicted thereof shall be fined not more than $3,000, or imprisoned not more than 1 year, or both. The term “threats of force,”
as used in this subsection, means threats of bodily harm to the officer or employee of the United States or to a member of his family.
“(b) Forcible Rescue of Seized Property.–Any person who forcibly rescues or causes to be rescued any property after it shall have been seized under this title, or shall attempt or endeavor so to do, shall, excepting in cases otherwise provided for, for every such offense, be fined not more than $500, or not more than double the value of the property so rescued, whichever is the greater, or be imprisoned not more than 2 years.”
9.100 IRC 7215. Offenses With Respect to Collected Taxes
“(a) Penalty.–Any person who fails to comply with any provision of section 7512(b) shall, in addition to any other penalties provided by law, be guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than one year; or both, together with the costs of prosecution.
“(b) Exceptions.–This section shall not apply–
“(1) to any person, if such person shows that there was reasonable doubt as to (A) whether the law required collection or tax, or (B) who was required by law to collect tax, and
“(2) to any person, if such person shows that the failure to comply with the provisions of section 7512(b) was due to circumstances beyond his control.
“For purposes of paragraph (2), a lack of funds existing immediately after the payment of wages (whether or not created by the payment of such wages) shall not be considered to be circumstances beyond the control of a person.”
9.110 IRC 7512. Separate Accounting for Certain Collected Taxes, Etc.
“(a) General Rule. -Whenever any person who is required to collect, account for, and pay over any tax imposed by subtitle C, by chapter 33, or by section 4986–
“(1) at the time and in the manner prescribed by law or regulations (A) fails to collect, truthfully account for, or pay over such tax, or (B) fails to make deposits, payments, or returns of such tax, and
“(2) is notified, by notice delivered in hand to such person of any such failure, “then all the requirements of subsection (b) shall be complied with. In the case of a corporation, partnership, or trust notice delivered in hand to an officer, partner, or trustee, shall, for the purposes of this section, be deemed to be notice delivered in hand to such corporation, partnership, or trust to all officers, partners, trustees, and employees thereof.
“(b) Requirements.–Any person who is required to collect, account for, and pay over any tax imposed by subtitle C, by chapter 33, or by section 4986, if notice has been delivered to such person in accordance with subsection (a), shall collect the taxes imposed by subtitle C, chapter 33, or by section 4986, which become collectible after delivery of such notice, shall (not later than the end of the second banking day after any amount of such taxes is collected) deposit such amount in a separate account in a bank (as defined in section 581), and shall keep the amount of such taxes in such account until payment over to the United States. Any such account shall be designated as a special fund in trust for the United States, payable to the United States by such person as trustee.
“(c) Relief From Further Compliance With Subsection (b).–Whenever the Secretary or his delegate is satisfied, with respect to any notification made under subsection (a), that all requirements of law and regulations with respect to the taxes imposed by subtitle C, chapter 33, or by section 4986, as the case may be, will henceforth be complied with, he may cancel such notification. Such cancellation shall take effect at such time as is specified in the notice of such cancellation.”
10. TITLE 18, UNITED STATES CODE
The following penal sections of Title 18 apply to violations that may be encountered in connection with Criminal Investigation Division investigations.
“(a) Whoever commits an offense against the United States, or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.
“(b) Whoever willfully causes an act to be done, which if directly performed by him or another would be an offense against the United States, is punishable as a principal.”
10.30 Accessory After the Fact
“Whoever, knowing that an offense against the United States has been committed, receives, relieves, comforts or assists the offender in order to hinder or prevent his apprehension, trial or punishment, is an accessory after the fact.
“Except as otherwise expressly provided by any Act of Congress, an accessory after the fact shall be imprisoned not more than one-half the maximum term of imprisonment or fined not more than one-half the maximum fine prescribed for the punishment of the principal, or both; or if the principal is punishable by death, the accessory shall be imprisoned not more than ten years.”
10.40 Misprision of Felony
“Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined not more than $500 or imprisoned not more than three years, or both.”
10.50 Section 111. Assaulting, Resisting, or Impeding Certain Officers or Employees
“Whoever forcibly assaults, resists, opposes, impedes, intimidates, or interferes with any person designated in section 1114 of this title while engaged in or on account of the performance of his official duties, shall be fined not more than $5,000 or imprisoned not more than three years, or both
“Whoever, in the commission of any such acts uses a deadly or dangerous weapon, shall be fined not more than $10,000 or imprisoned not more than ten years, or both.”
10.60 Section 201. Offer to Officer or Other Person
“Whoever promises, offers, or gives any money or thing of value, or makes or tenders any check, order, contract, undertaking, obligation, gratuity, or security for the payment of money or for the delivery or conveyance of anything of value, to any officer or employee or person acting for or on behalf of the United States, or any department or agency thereof, in any official function, under or by authority of any such department or agency or to any officer or person acting for or on behalf of either House of Congress, or of any committee of either House, or both Houses thereof, with intent to influence his decision or action on any question, matter, cause, or proceeding which may at any time be pending, or which may by law be brought before him in his official capacity, or in his place of trust or profit, or with intent to influence him to commit or aid in committing, or to collude in, or allow, any fraud, or make opportunity for the commission of any fraud, on the United States, or to induce him to do or omit to do any act in violation of his lawful duty, shall be fined not more than three times the amount of such money or value of such thing or imprisoned not more than three years, or both.” “This section shall not apply to violations of section 212 of this title.” (Section 212 relates to an offer or threat to a customs officer or employee.)
10.70 Section 285. Taking or Using Papers Relating to Claims
“Whoever, without authority, takes and carries away from the place where it was filed, deposited, or kept by authority of the United States, any certificate, affidavit, deposition, statement of facts, power of attorney, receipt, voucher, assignment, or other document, record, file, or paper prepared, fitted, or intended to be used or presented to procure the payment of money from or by the United States or any officer, employee, or agent thereof, or the allowance or payment of the whole or any part of any claim, account, or demand against the United States, whether the same has or has not already been so used or presented, and whether such claim, account, or demand, or any part thereof has or has not already been allowed or paid; or
“Whoever presents, uses, or attempts to use any such document, record, file, or paper so taken and carried away, to procure the payment of any money from or by the United States, or any officer, employee, or agent thereof, or the allowance or payment of the whole or any part of any claim, account, or demand against the United States–”
“Shall be fined not more than $5,000 or imprisoned not more than five years, or both.”
10.80 Section 286. Conspiracy to Defraud the Government With Respect to Claims
“Whoever enters into any agreement, combination, or conspiracy to defraud the United States, or any department or agency thereof, by obtaining or aiding to obtain the payment or allowance of any false, fictitious or fraudulent claim, shall be fined not more than $10,000 or imprisoned not more than ten years, or both.”
10.90 Title 18 USC 287. False, Fictitious or Fraudulent Claims
“Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, factious, or fraudulent, shall be fined not more than $10,000 or imprisoned not more than five years, or both.”
10.100 Title 18 USC 371. Conspiracy to Commit Offense or to Defraud United States
“If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both.”
“If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.”
10.110 Section 372. Conspiracy to Impede or Injure Officer
“If two or more persons in any State, Territory, Possession, or District conspire to prevent, by force, intimidation, or threat, any person from accepting or holding any office, trust, or place of confidence under the United States, or from discharging any duties thereof, or to induce by like means any officer of the United States to leave the place, where his duties as an officer are required to be performed, or to injure him in his person or property on account of his lawful discharge of the duties of his office, or while engaged in the lawful discharge thereof, or to injure his property so as to molest, interrupt, hinder, or impede him in the discharge of his official duties, each of such persons shall be fined not more than $5,000 or imprisoned not more than six years, or both.”
10.120 Section 495. Contracts, Deeds, and Powers of Attorney
“Whoever falsely makes, alters, forges, or counterfeits any deed, power of attorney, order, certificate, receipt, contract, or other writing, for the purpose of obtaining or receiving, or of enabling any other person, either directly or indirectly, to obtain or receive from the United States or any officers or agents thereof, any sum of money; or”
“Whoever utters or publishes as true any such false, forged, altered, or counterfeited writing, with intent to defraud the United States, knowing the same to be false, altered, forged, or counterfeited; or”
“Whoever transmits to, or presents at any office or officer of the United States, any such writing in support of, or in relation to, any account or claim, with intent to defraud the United States, knowing the same to be false, altered, forged, or counterfeited–”
“Shall be fined not more than $1,000 or imprisoned not more than ten years, or both.”
10.130 Title 18 USC 1001. Statements or Entries Generally
“Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than five years, or both.”
10.140 Section 1002 – Possession of False Papers to Defraud United States
“Whoever, knowingly and with intent to defraud the United States, or any agency thereof, possesses any false, altered, forged, or counterfeited writing or document for the purpose of enabling another to obtain from the United States, or from any agency, officer or agent thereof, any sum of money, shall be fined not more than $10,000 or imprisoned not more than five years, or both.”
10.150 Section 1510. Obstruction of Criminal Investigations
“(a) Whoever willfully endeavors by means of bribery to obstruct, delay, or prevent the communication of information relating to a violation of any criminal statute of the United States by any person to a criminal investigator shall be fined not more than $5,000 or imprisoned not more than five years, or
“(b) As used in this section, the term “criminal investigator” means any individual duly authorized by a department, agency, or armed force of the United States to conduct or engage in investigations of or prosecutions for violations of the criminal laws of the United States.”
10.160 Section 1956. Laundering of Monetary Instruments
“(a)(1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity
(A) (i) with the intent to promote the carrying on of specified unlawful activity; or
(ii) with intent to engage in conduct constituting a violation of Section 7201 or 7206 of the Internal Revenue Code of 1986;
(B) knowing that the transaction is designed in whole or in part
(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or
(ii) to avoid a transaction reporting requirement under State or Federal law,
shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than 20 years, or both.”
10.170 Section 1957 – Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity
“(a) Whoever, in any of the circumstances set forth in subsection (d), knowingly engages or attempts to engage in a monetary transaction in criminally derived property that is of a value greater than $10,000 and is derived from specified unlawful activity, shall be punished as provided in subsection (b).
(b)(1) Except as provided in paragraph (2), the punishment for an offense under this section is a fine under title 18, United States Code, or imprisonment for not more than ten years or both.”
11. PERIODS OF LIMITATION ON CRIMINAL PROSECUTION
11.10 Period of Limitation
“No person shall be prosecuted, tried, or punished for any of the various offenses arising under the internal revenue laws unless the indictment is found or the information instituted within 3 years next after the commission of the offense, except that the period of limitation shall be 6 years
“(1) for offenses involving the defrauding or attempting to defraud the United States or any agency thereof, whether by conspiracy or not, and in any manner;
“(2) for the offense of willfully attempting in any manner to evade or defeat any tax or the payment thereof;
“(3) for the offense of willfully aiding or assisting in, or procuring, counseling, or advising, the preparation or presentation under or in connection with any matter arising under, the internal revenue laws, of a false or fraudulent return, affidavit, claim, or document (whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document);
“(4) for the offense of willfully failing to pay any tax, or make any return (other than a return required under authority of part III sub-chapter A of chapter 61) at the time or times required by law or regulations;
“(5) for offenses described in sections 7206(1) and 7207 (relating to false statements and fraudulent documents);
“(6) for the offense described in section 7212(a) (relating to intimidation of officers and employees of the United States);
“(7) for offenses described in section 7214(a) committed by officers and employees of the United States; and
“(8) for offenses arising under section 371 of Title 18 of the United State Code, where the object of the conspiracy is to attempt in any manner to evade or defeat any tax or the payment thereof.
“The time during which the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States Code, shall not be taken as any part of the time limited by law for the commencement of such proceedings. (The preceding sentence shall also be deemed an amendment to section 3748(a) of the Internal Revenue Code of 1939, and shall apply in lieu of the sentence in section 3748(a) which relates to the time during which a person committing an offense is absent from the district wherein the same is committed, except that such amendment shall apply only if the period of limitations under section 3748 would, without the application of such amendment, expire more than 3 years after the date of enactment of this title, and except that such period shall not, with the application of this amendment, expire prior to the date which is 3 years after the date of enactment of this title.) Where a complaint is instituted before a magistrate of the United States within the period above limited, the time shall be extended until the date which is 9 months after the date of the making of the complaint before the magistrate of the United States. For the purpose of determining the periods of limitation on criminal prosecutions, the rules of section 6513 shall be applicable.”
11.20 IRC 6513. Time Return Deemed Filed and Tax Considered Paid
“(a) Early Return or Advance Payment of Tax.–For purposes of section 6511, any return filed before the last day prescribed for the filing thereof shall be considered as filed on such last day. For purposes of section 6511(b)(2) and (c) and section 6512, payment of any portion of the tax made before the last day prescribed for the payment of the tax shall be considered made on such last day. For purposes of this subsection, the last day prescribed for filing the return or paying the tax shall be determined without regard to any extension of time granted the taxpayer and without regard to any election to pay the tax in installments.
“(b) Prepaid Income Tax.–For purposes of section 6511 or 6512, any tax actually deducted and withheld at the source during any calendar year under chapter 24 shall, in respect of the recipient of the income, be deemed to have been paid by him on the 15th day of the fourth month following the close of his taxable year with respect to which such tax is allowable as a credit under section 31. For purposes of section 6511 and 6512, any amount paid as estimated income tax for any taxable year shall be deemed to have been paid on the last day prescribed for filing the return under section 6012 for such taxable year (determined without regard to any extension of time for filing such return).
“(c) Return and Payment of Social Security Taxes and Income Tax Withholding.–Notwithstanding subsection (a), for purposes of section 6511 with respect to any tax imposed by chapter 21 or 22
“(1) If a return for any period ending with or within a calendar year is filed before April 15 of the succeeding calendar year, such return shall be considered filed on April 15 of such succeeding calendar year; and
“(2) If a tax with respect to remuneration paid during any period ending with or within a calendar year is paid before April 15 of the succeeding calendar year, such tax shall be considered paid on April 15 of such succeeding calendar year.
“(d) Overpayment of Income Tax Credited to Estimated Tax.–If any overpayment of income tax is, in accordance with section 6402(b), claimed as a credit against estimated tax for the succeeding taxable year, such amount shall be considered as a payment of the income tax for the succeeding taxable year (whether or not claimed as a credit in the return of estimated tax for such succeeding taxable year), and no claim or refund of such overpayment shall be allowed for the taxable year in which the overpayment arises.”
11.30 Title 18, USC – General Statute of Limitations–Section 3282. Offenses Not Capital
“Except as otherwise expressly provided by law, no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within five years next after such offense shall have been committed. (June 25, 1948, Ch. 645, Sec. 1, 62 Stat. 828 and September 1, 1954, Ch. 1214, 2d. session, 68 Stat. 1142.)”
11.40 Patriot Act
A new law, Title 31, Section 5331 of the United States Code, was passed in 2001 as a result of the USA Patriot Act and duplicates the reporting provisions of IRC, Section 6050(i). Dual reporting of this information will now be made to both the IRS and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
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PORTIONS REPRINTED WITH PERMISSION OF
REPRESENTATION BEFORE THE COLLECTION DIVISION OF THE IRS
ROBERT E. McKENZIE
ARNSTEIN & LEHR LLP
120 SOUTH RIVERSIDE PLAZA, SUITE 1200
CHICAGO, ILLINOIS 60656