SR019 ALI-ABA 729 American Law Institute - American Bar Association Continuing Legal ...

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SR019ALI-ABA729
AmericanLawInstitute-AmericanBarAssociationContinuingLegalEducation
ALI-ABACourseofStudy
October1-2,2009
InternationalTrustandEstatePlanning
DEVELOPMENTSINOFFSHORETAXCOMPLIANCE:PRACTITIONERVIEW
AndrewH.Weinstein
Holland&KnightLLP
Miami,Florida
Copyright(c)2009TheAmericanLawInstitute;AndrewH.Weinstein
I.VoluntaryDisclosure
a)InternalRevenueManual—IRM9.5.11.9.
b)DepartmentofJusticeManual—DOJ—CTM§4.01[2];6-4.000.
c)IRSOffshoreIncomeReportingInitiative
i.57DTRGG—1-(3/26/09announcement).
ii.IRSSBSE,LMSBMemorandumregardingDevelopmentofOffshoreExaminationCases,etal.(3/23/09).
iii.IRSSBSE,LMSBMemorandumonRoutingofVoluntaryDisclosureCases(3/23/09).
iv. IRS Deputy Commissioner Memorandum on Authorization to Apply Penalty Framework to Voluntary Disclos-
ureRequestsRegardingUnreportedOffshoreAccounts,Entities(3/23/09).
v.IRSDeputyCommissionerShulmanStatement(3/26/09).
vi. 71 DTR G-4 IRS offers guidance on How to Voluntarily Disclose Offshore Assets Under New Program
(telephonecontacts);IRSwebsite(IRS.gov/compliance/enforcement/article/O,id=205909.00.html(4/16/09).
vii.Frequentlyaskedquestions
(1)Unofficialdraft(undated)
(2)Officialquestions(5/6/09and6/24/09)
•Practitionerhotline#[phone].
(3) Criminal Investigation-Offshore Voluntary Disclosures-Optional Format for Submission to IRS (IRS Web-
site).
viii. Staff Report, Joint Committee on Taxation, Tax Compliance and Enforcement Issues With Respect to Off-
shoreAccountsandEntities.(3/30/09,JCX-23-09).
ix.CriminalInvestigationPreliminaryApprovalLetter
d)FederalSentencingGuidelines,Departures,Sec5K2.16,VoluntaryDisclosureofOffense(PolicyStatement).
e)GAOReportonPenaltiesandVoluntaryCompliance,127DTRG-4(7/7/09).
f) Treasury Report-Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance (BNA DTR,
7/9/09).
g)TEPMeetingMaterials,August13,2009
II.ForeignBankAccountReporting
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a)TDF90-22.1(10/08).
b)CCA200603026(willfulnessstandard).
c)IRMExaminingProcess.
i.4.26.7(Penalties)
ii.4.26.16(Reports)
iii.4.26.17Reports/Procedures).
d)FBAR—ForeignBankAccountReporting:Obligations:APrimerforthePractitioner(J.Tax,Jan.2007).
e)UpdateonFBARDevelopments—NewEnforcementsEffortsLikely(J.Tax,May2007).
f)SignificantNewFBARDevelopmentsfromIRSandtheTaxCourt(J.Tax,Nov.2008).
g)FBARQuestionsSB/SECounselApproved10/22/07(phoneforum).
i. Updates to General Filing Requirements, Definition of Financial Account and of US Person (IRS Website,
7/14/09).
h)FBARPowerPoint.
i)CommentsofBernardVischer,Esq.re:SwisssituationasofApril,2009.
j)CommentsonSwisslawbyMarkusZwicky,Esq.asofApril,2009.
k)EthicalIssues
i.ABAStandardsofTaxPracticeonSec.10.22ofC.230(May,2009).
ii.ABAStandardsofTaxPracticeonModelRulesofProfessionalConduct(May2009).
l)Privileges,Sec.7525,WorkProduct,ABASurvey,J.D.AugustABAStandardsofTaxPractice(May,2009).
m)BoulwareandSec.301,2009TNT94-11(5/18/09).
n)OPRStatementonPractitionerResponsibilitiesandFBAR(OPRWebsite,6/5/09).
o) Fifth Amendment FBAR. See Michel, Advising a Client With Secret Offshore Accounts-Current Filing and Re-
portingProblems,J.Tax.,Sept.2009.
p)FBARResources(ResearchLinks),JournalofAccountancy(6/25/09).
q)NYSBAMembersSeekGuidanceonFBARFilingRequirements(2009TNT137-13(7/21/09).
r)ExtendedFilingDatere:SignatureAuthorityandre:ForeignCommingledFunds
III.Forfeiture
a) 18 USC Sec. 981 — Civil forfeiture of funds used in “specified unlawful activities.” Civil seizure and forfeiture
powers under 18 USC Sec. 981 available to IRS — use of postal service or of electronic fraud means to file a fraudu-
lentreturngivesrisetomail,wireorbankfraud(specifiedunlawfulactivities).
b)18USCSec.1956—Specifiedunlawfulactivitieslisted.
c)18USCSec.1957—Criminaloffensesinvolvingspecifiedunlawfulactivities.
d)18USCSec.982—Criminalforfeitureincidenttoconvictionofoffensesinviolationof18USCSec.1956.
e) Senate Bill 386 to apply the International Money Laundering Statute to tax evasion amends 18 USC Sec. 1956
(A)(2) [transportation money laundering] so that any transportation of funds into or out of the U.S. for the purpose of
evading U.S. tax is a money laundering offense [a 20 year felony and civil or criminal forfeiture of the entire amount,
plusafine].Note:taxesarestilldue,too.
f)BNA94DTRG-2—internationaltaxevasionstruckfromSenatebilltoconformtoHouseversion.
g) ABA Tax Section Committee on Civil and Criminal penalties letter dated May, 2009 opposing inclusion of inter-
nationaltaxevasionasamoneylaunderingoffense.52DTRG-7.
i.26USCSec.7321-powertoseizeassetsthatmaybeforfeitablepursuanttoanyprovisionoftheCode.
(1) 26 USC Sec. 7301 — property intended to be sold, removed, concealed or deposited to defraud the U.S. of
taxortoavoidpaymentoftax.
(2)26USCSec.7302—propertyusedorintendedtobeusedinviolationoftheInternalRevenuelaws.
h) U.S. v. Greenstein, Indictment (BNA 6/8/09) re: wire fraud, money laundering and forfeiture in addition to tax
©2013ThomsonReuters.NoClaimtoOrig.USGov.Works.
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evasionindictment.
i)U.S.v.Madoff,OrderofForfeiture,6/26/09(BNADTR6/30/09).
j)U.S.v.Daugerdas,SupersedingIndictment(6/23/09).
k)USAM6-4.210(WireFraudinTax-RelatedProsecutions)
i.TaxDivisionDirectiveNo.128(10/29/04)
IV.StatutesofLimitation
a)DOJCriminalTaxManualSecs.7.01-7.06.
b)Primer,StevenM.Harris,BNADoc.2005-4011,TaxNotesVol.106,No.10(3/7/05)
th th
c)U.S.v.LarryF.Anderson,319F.3d1218(10 Cir.2003);seealsoU.S.v.JamesThompson,518F.3d(10 Cir.
2008)
V.Assessment&Collection-NRA's
a)Rubinger&Weinstein,TaxNotes(6/6/05).
b)PowerPoint.
VI.ComplexInternationalIDR's
a)IRSStrategicPlan.
b)IRSForm4564.
c)IRSInterviewQuestions.
d)PowerPoint.
DailyTaxReport:AllIssues>2009>March>03/27/2009>TaxCore®-IRSDocuments>Miscellaneous>IRSVol-
untaryDisclosurePractice,TaxCrimes-General,IRM9.5.11.9
IRSVoluntaryDisclosurePractice,TaxCrimes-General,IRM9.5.11.9
RelatedTerms
Topics:
TaxReporting
IRSVoluntaryDisclosurePractice
TAXCRIMES—GENERAL
IRM9.5.11.9
VoluntaryDisclosurePractice
(1) 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
beenrecommendedforcriminalprosecution.
(2) A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclos-
ure may result in prosecution not being recommended. This practice does not apply to taxpayers with illegal source in-
come.
(3)Avoluntarydisclosureoccurswhenthecommunicationistruthful,timely,complete,andwhen:
a. the taxpayer shows a willingness to cooperate (and does in fact cooperate) with the IRS in determining his or her
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correcttaxliability;and
b. the taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determ-
inedbytheIRStobeapplicable.
(4)Adisclosureistimelyifitisreceivedbefore:
a.theIRShasinitiatedacivilexaminationorcriminalinvestigationofthetaxpayer,orhasnotifiedthetaxpayerthatit
intendstocommencesuchanexaminationorinvestigation;
b.theIRShasreceivedinformationfromathirdparty(e.g.,informant,othergovernmentalagency,orthemedia)alert-
ingtheIRStothespecifictaxpayer'snoncompliance;
c. the IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of
thetaxpayer;or
d.theIRShasacquiredinformationdirectlyrelatedtothespecificliabilityofthetaxpayerfromacriminalenforcement
action(e.g.,searchwarrant,grandjurysubpoena).
(5)AnytaxpayerwhocontactstheIRSinpersonorthrougharepresentativeregardingvoluntarydisclosurewillbedir-
ected to Criminal Investigation for evaluation of the disclosure. Special agents are encouraged to consult Area Counsel,
CriminalTaxonvoluntarydisclosureissues.
(6)Examplesofvoluntarydisclosuresinclude:
a. a letter from an attorney which encloses amended returns from a client which are complete and accurate (reporting
legalsourceincomeomittedfromtheoriginalreturns),whichofferstopaythetax,interest,andanypenaltiesdetermined
bytheIRStobeapplicableinfullandwhichmeetsthetimelinessstandardsetforthabove.Thisisavoluntarydisclosure
becauseallelementsof(3),abovearemet.
b.adisclosuremadebyataxpayerofomittedincomefacilitatedthroughabarterexchangeaftertheIRShasannounced
that it has begun a civil compliance project targeting barter exchanges; however the IRS has not yet commenced an ex-
amination 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 in-
volving barter exchanges does not yet directly relate to the specific liability of the taxpayer and because all other ele-
mentsof(3),abovearemet
c. a disclosure made by a taxpayer of omitted income facilitated through a widely promoted scheme regarding which
theIRShasbegunacivilcomplianceprojectandalreadyobtainedinformationwhichmightleadtoanexaminationofthe
taxpayer; however, the IRS has not yet commenced an examination or investigation of the taxpayer or notified the tax-
payerofitsintenttodoso.Inaddition,thetaxpayerfilescompleteandaccuratereturnsandmakesarrangementswiththe
IRStopayinfull,thetax,interest,andanypenaltiesdeterminedbytheIRStobeapplicable.Thisisavoluntarydisclos-
ure because the civil compliance project involving the scheme does not yet directly relate to the specific liability of the
taxpayerandbecauseallotherelementsof(3),abovearemet.
d. A disclosure made by an individual who has not filed tax returns after the individual has received a notice stating
thattheIRShasnorecordofreceivingareturnforaparticularyearandinquiringintowhetherthetaxpayerfiledareturn
for that year. The individual files complete and accurate returns and makes arrangements with the IRS to pay the tax, in-
terest, 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
becauseallotherelementsof(3),above,aremet.
(7)Examplesofwhatarenotvoluntarydisclosuresinclude:
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)
abovehavebeenmet.
b.adisclosuremadebyataxpayerwhoisundergrandjuryinvestigation.Thisisnotavoluntarydisclosurebecausethe
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taxpayer is already under criminal investigation. The conclusion would be the same whether or not the taxpayer knew of
thegrandjuryinvestigation.
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
specificliabilityofthistaxpayer.Theconclusionwouldbethesamewhetherornotthetaxpayerknewoftheongoingin-
vestigation.
d.adisclosuremadebyataxpayer,whoisnotcurrentlyunderexaminationorinvestigation,ofomittedconstructivedi-
videndsreceivedfromacorporationwhichiscurrentlyunderexamination.Thisisnotavoluntarydisclosurebecausethe
IRShasalreadyinitiatedanexaminationwhichisdirectlyrelatedtothespecificliabilityofthistaxpayer.Theconclusion
wouldbethesamewhetherornotthetaxpayerknewoftheongoingexamination.
e. a disclosure made by a taxpayer after an employee has contacted the IRS regarding the taxpayer's double set of
books.ThisisnotavoluntarydisclosureevenifnoexaminationorinvestigationhasyetcommencedbecausetheIRShas
already been informed by the third party of the specific taxpayer's noncompliance. The conclusion would be the same
whetherornotthetaxpayerknewoftheinformant'scontactwiththeIRS.
4.01VOLUNTARYDISCLOSURE
4.01[1]PolicyRespectingVoluntaryDisclosure
Prior to 1952, it was the policy of the Treasury Department not to recommend criminal prosecution where a taxpayer
voluntarily revealed his commission of a tax crime to an appropriate IRS official before any investigation of his affairs
hadcommenced.
Due to the controversy which ensued in the courts over what constituted a true “voluntary disclosure,” and because it
was difficult, “and sometimes impossible” to ascertain administratively whether the taxpayer had made a voluntary dis-
closure or had merely discovered he was under investigation, the Treasury Department abandoned this policy on January
10, 1952. Treasury Department Information Release No. S-2930; 1952 C.C.H., ¶ 6079. See United States v. Shotwell
ManufacturingCo.,355U.S.233,235n.2(1957).
In 1961, the Internal Revenue Service adopted an “informal” policy regarding voluntary disclosure, under which it
consideredvoluntarydisclosure,alongwithotherfactsandcircumstances,onacase-by-casebasisindeterminingwheth-
er or not to recommend prosecution. See Statement of Commissioner Mortimer M. Caplin, News Release IR-432, Dec.
13,1961;IRMPartIX,§9781-342.14andCCDMPart(31)134.
InDecember1992,theIRSclarified,butdidnotchange,its“informal”policy,notingthat,inthepast,ithadnotgener-
allyrecommendedprosecutionifthetaxpayer:
1.InformedtheIRSofthefailuretofileforoneormoretaxableyears;
2.Hadonlylegalsourceincome;
3. Made the disclosure prior to being contacted by the IRS in the form of a telephone call, letter, or personal visit in-
formingthetaxpayerthatheisundercriminalinvestigation;
4.FiledatrueandcorrecttaxreturnorcooperatedwiththeIRSinascertaininghiscorrecttaxliability;and
5.Madefullpaymentofamountsdue,orinthosesituationswherethetaxpayerwasunabletomakefullpayment,made
bonafidearrangementstopay.
“Peterson[IRSCommissionerShirleyD.Peterson]FormalizesPracticeofNotProsecutingNon-FilersWhoComeFor-
ward.” BNA Daily Tax Report (Dec. 7, 1992). See United States v. Knottnerus, 139 F.3d 558, 559-560 (7th Cir. 1998)
(holdingthatpriorvisitbyspecialagentdisqualifieddefendantfromvoluntarydisclosureprogram).
However, the 1992 clarification by the Service created confusion as to the application of the voluntary disclosure
policywithrespecttononfilers.
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SeeUnitedStatesv.Tenzer,127F.3d222,226-28(2dCir.1997),vacatedinpartandremandedonothergrounds,213
F.3d 34, 40-41 (2d Cir. 2000). Thus, in 1995, the Service reinstated its former voluntary disclosure practice, eliminated
thelanguagerelativetononfilers,andmodifiedthetriggeringeventexample.
Currently, the Service's voluntary disclosure practice is that a voluntary disclosure will be considered along with all
otherfactorsinacaseindeterminingwhethercriminalprosecutionwillberecommended.UndertheService'spractice,a
voluntarydisclosureoccurswhenthecommunicationis:(1)truthful;(2)timely;(3)complete;and(4)thetaxpayershows
awillingnesstocooperate,and,infactcooperates,withtheServiceindetermininghisorhertaxliability.Adisclosureis
timely if received before: (1) the Service has initiated an inquiry that is likely to lead to the taxpayer and the taxpayer is
reasonably thought to be aware of that activity; or (2) some event known by the taxpayer occurred which event is likely
to cause an audit into the taxpayer's liabilities. The Service tests voluntariness by the following factors: (1) actual status
of the Service's awareness of the taxpayer as to specific tax investigation potential; (2) taxpayer's knowledge or aware-
nessoftheService'sinterest;and(3)taxpayer'sfearofa“trigger”or“potentialtrigger”tomaketheServiceawareofvi-
olations (where the disclosure is ‘triggered’ by an event which would have led the Service to the fraud, the disclosure is
not considered to be voluntary). See United States v. Knottnerus, 139 F.3d at 559-560; United States v. Tenzer, 127 F.3d
at226-228.
At present, the Department of Justice continues to give consideration to a “voluntary disclosure” on a case-by-case
basis in determining whether to prosecute but such disclosure is not conclusive on the issue. See United States v. Hebel,
668 F.2d 995 (8th Cir. 1982). Specifically, the Tax Division considers the timeliness of the disclosure and whether the
taxpayerfullycooperatedwiththeGovernmentindecidingwhetheradisclosurewasvoluntary.
4.01[2]TimelinessofDisclosure
There are two elements to a voluntary disclosure: (1) it must be made timely and (2) the taxpayer must thereafter fully
cooperate with the government. There has been considerable debate among practitioners as to the meaning of “timely.”
Some argue that the test for timeliness should be strictly objective, hat is, a disclosure is timely if the disclosure is made
before the taxpayer's return is selected by the Internal Revenue Service for audit regardless of the taxpayer's motivation
formakingthedisclosure.Underthisapproach,adisclosurewouldnotbetimelyifthereturnhadbeenselectedforaudit,
evenifthetaxpayerdidnotknowthatthereturnhadalreadybeenselectedforauditatthetimeofthedisclosure.
The objective test does have simplicity of application in its favor. On the other hand, if all of the circumstances are
considered,thenwhetherornotareturnhasbeenselectedforauditatthetimeofdisclosureisnotnecessarilyconclusive.
For example, if the disclosure followed closely upon an IRS inquiry directed to a third party which reasonably could be
anticipated to lead to selection of the taxpayer's return for audit, then the disclosure reasonably could be described as
“triggered,”ratherthanas“voluntary.”
Although not yet subject to audit, the taxpayer was obviously attempting to place himself or herself in the best light
possibleafterconcludingthatanauditwasinevitable.
UnitedStatesv.McCormick,67F.2d867,868(2dCir.1933).
Conversely, if the taxpayer was in fact clearly unaware that his or her return had been selected for audit at the time of
the disclosure and “triggering” circumstances are absent, then seemingly consideration should be given for having come
forward voluntarily. Cf. United States v. Levy, 99 F. Supp. 529, 533 (D.Conn. 1951). Similarly, there may be situations
where an audit is already in progress, and the taxpayer discloses a transaction that almost certainly would not have been
foundbytheauditingagent.Onastrictlyobjectivetest,thedisclosureoftheunknowntransactionwouldnotbea“timely
disclosure”sincethereturnwasunderaudit.
Because the objective test is essentially arbitrary, the Department has rejected it, and, instead, favors an “all events”
testinassessingwhetheradisclosurewastimely.Thatis,adisclosureisnottimelyif:
1. The IRS has already initiated an inquiry that is likely to lead to the taxpayer and the taxpayer is reasonably thought
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tobeawareofthatactivity;or
2. Some event occurred before the disclosure which the taxpayer probably knew about and which event is likely to
cause an audit into the taxpayer's liabilities, e.g., a newspaper article high-lighting commercial bribery in a particular in-
dustryorcorruptioninagovernmentaloffice.Cf.UnitedStatesv.McCormick,67F.2d867(2dCir.1933).
4.01[3]CooperationofTaxpayer
If it is concluded that the disclosure was timely, a second point of inquiry is whether the taxpayer has fully cooperated
with the IRS in ascertaining and paying the taxes owed. Thus, the Department's position on cooperation is that the tax-
payer must make a full disclosure of all facts and cooperate with the Service in determining the proper amount of taxes
owed. If the taxes are not paid because of a claim of inability to pay, then full and accurate disclosure must be made by
thetaxpayerofhisfinancialposition.
At bottom, application of the “voluntary disclosure” policy is an exercise of prosecutorial discretion that does not, and
legallycouldnot,conferanylegalrightsontaxpayers.Whetherthereisorisnotavoluntarydisclosureisonlyafactorin
evaluating a case, and even if there has been a voluntary disclosure, prosecution and conviction may still result. In short,
avoluntarydisclosureisnotabartoprosecution,butmerelyafactortobeconsidered.
SeeUnitedStatesv.Hebel,668F.2d995(8thCir.1982).
SeeFebruary17,1993,TaxDivisionmemorandumonTaxDivisionVoluntaryDisclosurePolicyfromActingAssistant
AttorneyGeneralJamesA.Bruton,TaxDivision.AcopyofthismemorandumiscontainedinSection3.00ofthisManu-
al.
USAttorneys>USAM>Title6>USAMChapter6-4.000prev|next|TaxResourceManual
6-4.000CRIMINALTAXCASEPROCEDURES
6-4.010FederalCriminalTaxEnforcement
6-4.011CriminalTaxManualandOtherTaxDivisionPublications
6-4.110IRSAdministrativeInvestigations
6-4.120GrandJuryInvestigations—Generally
6-4.121IRSRequeststoAuthorizeGrandJuryInvestigations
6-4.122UnitedStatesAttorney'sGrandJuryInvestigationsandProsecutions
6-4.123JointUnitedStatesAttorney—IRSRequesttoExpandTaxGrandJuryInvestigation
6-4.125 IRS Transmittal of United States Attorney's Recommendation, Special Agent's and Criminal Tax Counsel's
Reports,andExhibitsfromGrandJuryInvestigation
6-4.126RestrictiononDisclosureofGrandJuryMatterstoIRSforCivilUse
6-4.130SearchWarrants
6-4.200TaxDivisionJurisdictionandProcedures
6-4.210Tax-RelatedMail,Wire,orBankFraud,RICO,orMoneyLaunderingCharges
6-4.211StandardsofReview
6-4.212CategoriesofMattersReviewed
6-4.213ReviewofDirectReferrals
6-4.214Conferences
6-4.217On-SiteReview
6-4.218TaxDivisionAuthorizationsandDeclinations
6-4.219AssistanceofCriminalEnforcementSectionPersonnel
6-4.240UnitedStatesAttorney'sResponsibilities
6-4.242RecommendationFollowingaGrandJuryInvestigation
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6-4.243ReviewofDirectReferralMatters
6-4.244ReviewofNon-complexMatters
6-4.245RequesttoDeclineProsecution
6-4.246RequesttoDismissProsecution
6-4.247UnitedStatesAttorney'sProtestofDeclination
6-4.248StatusReports
6-4.249ReturnofReportsandExhibits
6-4.270CriminalDivisionResponsibility
6-4.310MajorCountPolicyinPleaAgreements
6-4.320NoloContenderePleas
6-4.330AlfordPleas
6-4.340Sentencing
6-4.350CostsofProsecution
6-4.360CompromiseofCriminalLiability/CivilSettlement
6-4.370Restitution
6-4.400ParallelProceedings
6-4.010FederalCriminalTaxEnforcement
The Government helps to preserve the integrity of this Nation's self-assessment tax system through vigorous and uni-
form criminal enforcement of the internal revenue laws. Criminal prosecutions punish tax law violators and deter other
persons who would violate those laws. To achieve maximum deterrence, the Government must pursue broad, balanced,
and uniform criminal tax enforcement. Uniformity in tax cases is necessary because tax enforcement potentially affects
moreindividualsthananyotherareaofcriminalenforcement.Broadandbalancedenforcementisessentialtoeffectively
deter persons of varying economic and vocational status, violators in different geographic areas, and different types of
taxlawviolations.
To achieve uniform, broad, and balanced criminal tax enforcement, the Attorney General has authorized the Tax Divi-
sion to oversee all federal criminal tax enforcement and to authorize or decline investigations and prosecutions in tax
matters. See USAM 6-4.200. For a map reflecting the geographical assignments of the Tax Division Criminal Enforce-
ment Sections, see Tax Resource Manual 1. For contact information, including mailing addresses and telephone and fax
numbers,seeTaxResourceManual2.
[updatedSeptember2007][citedinUSAM6-4.211]
6-4.011CriminalTaxManualandOtherTaxDivisionPublications
The Tax Division's Criminal Tax Manual (2001) contains comprehensive discussions of statutes, methods of proof,
various specialized areas, and policies and procedures pertaining to criminal tax prosecutions. The Manual also contains
indictment and information forms and jury instructions. All prosecutors involved in federal criminal tax cases should
consult the Manual for guidance on handling criminal tax cases. The Criminal Tax Manual may be accessed in at ht-
tp://www.usdoj.gov/tax/readingroom/foia/tax.htm. The Tax Division also compiles other resources useful in criminal tax
prosecutions.ShouldthoseresourcesconflictwiththisTitleoftheUSAM,thisTitleoftheUSAMcontrols.
[updatedSeptember2007]
6-4.110IRSAdministrativeInvestigations
The special agents of IRS Criminal Investigation conduct the administrative investigations into allegations of criminal
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violations arising under the internal revenue laws and related provisions of Title 18, U.S.C. (e.g., 18 U.S.C. §§ 286, 287,
371,1341).SeeTaxResourceManual5and6.
After an administrative investigation is completed, the special agent must prepare a special agent's report (SAR), to-
gether with exhibits, in order to recommend that the Government prosecute the matter. The SAR contains a detailed ac-
count of the investigation and the special agent's recommendations, and is reviewed by both the special agent's super-
visors and the Chief Counsel, Criminal Tax Division (CT). CT then prepares a Criminal Enforcement Memorandum
(CEM)thatdiscussesthenatureofthecrime(s)forwhichtheagentrecommendsprosecution,theevidencerelieduponto
prove the crime(s), technical or legal issues, anticipated difficulties in prosecution, and the special agent's specific re-
commendation. Thereafter, if CI concludes that the Government should prosecute the matter, the CI Special Agent-
in-Charge(SAC)refersthemattertotheTaxDivisionor,insomecases,theUnitedStatesAttorney.SeeUSAM6-4.243.
When the IRS directly refers a matter to the United States Attorney, it simultaneously forwards a copy of the transmittal
lettertotheTaxDivision.
Duringanadministrativeinvestigationofacriminaltaxcase,theIRSmayreferthecasedirectlyandsimultaneouslyto
boththeUnitedStatesAttorneyandtheTaxDivisionforanexpeditedguiltyplea,ifonlylegalsourceincomeisinvolved
(i.e., neither narcotics nor organized crime), and the taxpayer's counsel states that the taxpayer wishes to enter such a
guiltyplea.ThepleamustbeconsistentwiththeTaxDivision'smajorcountpolicy.SeeTaxResourceManual7.
WhentheIRSrefersacriminalmattertotheDepartmentofJustice,itmaysharereturnsorreturninformationwiththe
Department of Justice (see 26 U.S.C. § 6103(h)(2)). Once a criminal referral is made, the IRS, including CI, may not is-
sue or commence an action to enforce an administrative summons with respect to the taxpayer for the same tax and the
sametaxableperiod.See26U.S.C.§7602(d),TaxResourceManual8.
[updatedSeptember2007]
6-4.120GrandJuryInvestigations—Generally
Althoughafederalgrandjuryisempoweredtoinvestigatebothtaxandnon-taxviolationsoffederalcriminallaws,the
TaxDivisionmustfirstapproveandauthorizetheUnitedStatesAttorney'suseofagrandjurytoinvestigatecriminaltax
violations (see 28 C.F.R. § 0.70). The Tax Division has delegated to the United States Attorneys, however, the authority
to approve grand jury investigations of certain false and fictitious claims for tax refunds in violation of 18 U.S.C. § 286
and 18 U.S.C. § 287 (other than those investigations involving a professional tax return preparer). See Tax Division Dir-
ectiveNo.96(December31,1991),TaxResourceManual9.
[updatedSeptember2007][citedinUSAM6-2.000]
6-4.121IRSRequeststoAuthorizeGrandJuryInvestigations
In addition to using administrative process to secure evidence in an investigation, CI also may request that the Tax Di-
vision authorize a grand jury investigation when CI either cannot complete its investigation or otherwise determines that
it cannot feasibly gather evidence through the administrative process. The IRS's request to authorize a grand jury invest-
igationconstitutesareferralofthemattertotheDepartmentofJustice.Onceacriminalreferralismade,theIRS,includ-
ing CI, may not issue or commence an action to enforce an administrative summons with respect to the taxpayer for the
sametaxandthesametaxableperiod.See26U.S.C.§7602(d).
[updatedSeptember2007]
6-4.122UnitedStatesAttorney'sGrandJuryInvestigationsandProsecutions
A. Tax Division Referrals for Prosecution. The Tax Division authorizes the United States Attorney to conduct
grand jury investigations into matters arising under the internal revenue laws to the extent necessary to perfect those
©2013ThomsonReuters.NoClaimtoOrig.USGov.Works.
Page10
taxchargesthattheTaxDivisionrefersforprosecution.
B. Tax Division Referrals for Grand Jury Investigation. The Tax Division authorizes the United States Attorney
to conduct grand jury investigations into matters arising under the internal revenue laws to the extent necessary to 1)
perfect the tax charges for which the Tax Division authorizes an investigation or 2) determine whether the Tax Divi-
sionshouldauthorizeprosecution.SeeUSAM6-4.242.
C. Expansion of Non-tax Grand Jury Investigation to Possible Federal Criminal Tax Violations. The Assistant
Attorney General, Tax Division, has delegated limited authority to the United States Attorney to expand non-tax in-
vestigations in order to inquire into possible federal criminal tax violations, designate targets (subjects), determine the
scope of the expanded investigation, and terminate such proceedings. Before a United States Attorney may file an in-
formationorseekthereturnofanindictmentonmattersarisingundertheinternalrevenuelawsinanexpandedinvest-
igation, however, the Tax Division must first authorize the specific tax charges. See Tax Division Directive No. 86-59
(October1,1986),TaxResourceManual10.
D. IRS Direct Referrals for Prosecution. In limited categories of cases, the Tax Division authorizes the IRS to refer
certain matters arising under the internal revenue laws directly to the United States Attorney for prosecution. See USAM
6-4.243. In turn, the Tax Division authorizes the United States Attorney to conduct grand jury investigations into these
matters,totheextentnecessarytoperfectthechargesthattheIRShasdirectlyreferred.
[updatedSeptember2007][citedinUSAM6-4.212]
6-4.123JointUnitedStatesAttorney—IRSRequesttoExpandTaxGrandJuryInvestigation
The United States Attorney may not, without Tax Division approval, expand grand jury investigations into matters
arising under the internal revenue laws to include targets that the Tax Division did not previously authorize. The United
States Attorney, together with the IRS, must submit a written request to obtain Tax Division approval. The request must
establishthebasisfortheTaxDivisiontoauthorizeexpansionoftheinvestigation.SeeUSAM6-4.211(B).
[updatedSeptember2007][citedinUSAM6-2.000;6-4.212]
6-4.125 IRS Transmittal of United States Attorney's Recommendation, Special Agent's and Criminal Tax Coun-
sel'sReports,andExhibitsfromGrandJuryInvestigation
When a grand jury investigation is complete and the United States Attorney concludes that the Government has
gatheredsufficientevidencetoproceedwithprosecution,theUnitedStatesAttorneyshouldrequestthatthespecialagent
assigned to the matter prepare a SAR. After the SAR is completed, the special agent should request that CT Counsel re-
view the SAR and prepare a CEM. Then, the SAC must forward the SAR, with copies of the relevant exhibits, and the
CEM to the Tax Division for review and authorization. At the same time, the United States Attorney or the SAC must
forwardtotheTaxDivisiontheUnitedStatesAttorney'swrittenrecommendationregardingprosecutionofatarget(s)for
tax violations. See USAM 6-4.200. Whenever possible, the Tax Division will complete its review of the prosecution re-
commendationwithinthirty(30)daysofreceivingthetransmittalletter,reports,andexhibits.SeeUSAM6-4.242.
The IRS also must transmit a recommendation against prosecution resulting from a grand jury investigation to the Tax
Division for evaluation. Alternatively, the IRS must advise the Tax Division that it has no recommendation. See IRM
9.5.14.12.2(3); see also USAM 6-4.242. The Tax Division will complete its evaluation of the matter and authorize decli-
nationorotheractionswithinthirty(30)daysofreceivingtherecommendation.
[updatedSeptember2007][citedinUSAM6-4.242]
6-4.126RestrictiononDisclosureofGrandJuryMatterstoIRSforCivilUse
Federal Rule of Criminal Procedure 6(e)(3)(C)(i) prohibits the United States Attorney from disclosing “matters occur-
©2013ThomsonReuters.NoClaimtoOrig.USGov.Works.