Part 9. Criminal Investigation

1. The purpose of the QRP is to detect and stop fraudulent and fictitious claims for refunds on income tax returns. These investigations often involve returns filed with fictitious or stolen identities.
2. The goal of the QRP is to investigate and prosecute promoters and conspirators to foster confidence in the tax system and enhance voluntary compliance. Investigative priorities are the responsibility of the SAC based upon the local prosecution standards. Emphasis should be given to investigations with the greatest potential for preventing continued loss.
3. Special agents, working in conjunction with FDC personnel at the appropriate IRS Campus, should take reasonable steps to ascertain the magnitude of the scheme and the number of participants involved.
4. Investigative steps should include the following:
   1. contacting the preparer or transmitter
   2. identifying the person controlling the refund address
   3. determining the existence of mail forwarding instructions
   4. contacting lending institutions and establishing the falsity of wage and income documents

9.5.3.2.5.1 (02-09-2005) Procedures for Fraud Detection Center Identified Questionable Refund Program Schemes

1. All QRP schemes referred to a field office will be inputted as PIs into the CIMIS database by personnel in the FDC at the IRS Campuses.
2. The Form 4930 will be prepared at the IRS Campus and entries will be made in items 1-10, 12-18, 23, 24, 27, 29, and 71. The original Form 4930 will accompany the referral to the field office. A copy of the Form 4930 will be retained in the scheme file maintained at each FDC.
3. The investigation number for each of these investigations will contain a specific identifier for each FDC.
4. The first two digits, normally the field office number, will identify the IRS Campus where the investigation was initiated.
5. After the PI is initiated, the investigation will be placed in the field office’s QRP group investigation pool. Each field office is assigned a group pool number for QRP referrals and this number will appear in the Lead SSN field (Item 1) of the Form 4930 (see IRM 9.9, Criminal Investigation Management Information System).
6. The QRP assigned pool number is 9999. For example, the group pool number for Los Angeles will be 000-95-9999.
7. Questionable Refund Program PIs will appear in the field office’s inventory and on their CIMIS reports and statistical summaries as with any other open PI.
8. All QRP schemes developed by the FDCs must be linked to one national GI. The GI number (009910003) is assigned to all FDCs.

9.5.3.2.5.1.1 (02-09-2005) Field Office Procedures for IRS Campus Identified Questionable Refund Program Schemes

1. Upon receipt of the QRP scheme referral from the FDC, the receiving field office will promptly assign a special agent to evaluate the referral, and he/she will update the Form 4930 to reflect the investigation assignment and the due date of the evaluation of the referral.
2. The due date is 90-days from the receipt of the referral by the field office.
3. The name of the PI is the scheme number and should not be changed. If a SCI is initiated as a result of the evaluation of the QRP PI, the Form 4930 initiating the SCI should reflect the name of the subject of the investigation. This will not be consistent with the name on the PI. Even though they are not consistent, the PI will still be linked to all SCIs initiated.
4. During the course of the investigation, identities identified as part of the QRP scheme should be linked to the PI in CIMIS as Associate Identities (AI).
5. The field office is responsible for closing QRP PIs, as well as any SCI initiated as a result of the evaluation of the QRP scheme referral. These investigations should be closed in a manner consistent with all other PI and SCI investigations (see IRM 9.5.14, Closing Procedures).
6. At the conclusion of the criminal aspects of a QRP investigation, the SAC will forward a Criminal Investigation Closing Report with attachments to the RAC. The RAC will forward the Closing Report to the Territory Manager, Technical Services, for notification and initiation of civil action. This process is the same for declined or discontinued investigations (see IRM 9.5.14, Closing Procedures).

1. In the event the field office, rather than the FDC, opens a QRP PI, the special agent will contact the QRP field office coordinator. The QRP field office coordinator will call the FDC at the appropriate IRS Campus to request a scheme number. This will help to prevent duplicating open PIs on schemes the FDC is already tracking.
2. The field office is responsible for closing all QRP PI and SCI investigations in a manner consistent with all other PI and SCI investigations (see IRM 9.5.14, Closing Procedures).
3. The PI initiated by the field office is not to be associated with the national GI for QRP investigations.

9.5.3.2.6 (02-09-2005) Return Preparer Program

1. This program involves claims on Federal income tax returns prepared by unscrupulous return preparers who knowingly claim excessive deductions and exemptions on returns prepared for clients. The clients may or may not have knowledge of the excessive deductions and exemptions claimed.
2. These preparers may have one or more of the following characteristics:
   1. The preparer develops a large clientele through a reputation for saving clients' money.
   2. The preparer often charges exorbitant fees.
   3. The fee may be based on a percentage of the refund.
   4. The refund check is mailed to the preparer's office or deposited into the preparers account.
      Note:

      In legitimate Refund Anticipation Loan (RAL) processes, the client often receives a check from the preparer for the refund he/she is entitled to less preparation and processing fees. The IRS refund is then automatically deposited into an account specifically set up to receive refunds. Some fraudulent preparers, however, submit a return to IRS with inflated figures that the client is unaware of in order to receive a significantly larger refund. Some even prepare and file amended returns and keep the refunds from prior years as well.

   5. The preparer forges the endorsement and negotiates the refund check without the client's knowledge.
   6. The preparer fails to sign the return as the preparer.
3. Investigations in this group originate from a variety of sources, such as:
   1. Letters of complaint from the public and information from informants concerning return preparers.
   2. Complaints from ethical practitioners and professional societies.
   3. Screening of returns by IRS Campus personnel.
   4. Identification of suspect preparers by CI and other IRS personnel.

9.5.3.2.6.1 (02-09-2005) Procedures for IRS Campus Identified Return Preparer Program Schemes

1. All RPP schemes referred to a field office will be inputted as PIs into the CIMIS database by personnel in the FDC at the IRS Campuses.
2. The Form 4930 will be prepared at the FDC and entries will be made in items 1-10, 12-18, 23, 24, 27, 29, and 71. The original Form 4930 will accompany the referral to the field office. A copy of the Form 4930 will be retained in the scheme file maintained at each FDC.
3. The investigation number for each of these investigations will contain a specific identifier for each FDC.
4. The first two digits, normally the field office number, will identify the IRS Campus where the investigation was initiated.
5. After the PI is initiated, CIMIS will place the investigation in a RPP group investigation pool. Each field office is assigned a group pool number for RPP referrals and this number will appear in the Lead SSN field (Item 1) of the Form 4930 (see CIMIS User Guide).
6. The RPP has been assigned pool number 8888. For example, the group pool number for Los Angeles will be 000-95-8888.
7. Return Preparer Program PIs will appear in the field office inventory and on in the CIMIS reports and statistical summaries as with any other open PIs in the field office.
8. All RPP schemes must be linked to the national GI for RPP. The GI number (009910005) is assigned to all FDCs.

9.5.3.2.6.1.1 (02-09-2005) Field Office Procedures for Return Preparer Program Scheme Referrals

1. Upon receipt of the RPP scheme referral from the FDC, the receiving field office will promptly assign a special agent to evaluate the referral, and he/she will update the Form 4930 to reflect the investigation assignment and the due date of the evaluation of the referral.
2. The due date is 90-days from the receipt of the referral by the field office.
3. The name of the PI should not be changed. If an SCI is initiated as a result of the evaluation of the RPP PI, the Form 4930 initiating the SCI should reflect the name of the subject of the investigation. This will not be consistent with the name on the PI. Even though they are not consistent, the PI will still be linked to all SCIs initiated.
4. The field office is responsible for closing RPP PIs, as well as any SCIs which are initiated as a result of the evaluation of the RPP scheme referral. These investigations should be closed in a manner consistent with all other PI and SCI investigations (see IRM 9.5.14, Closing Procedures).
5. During the course of the investigation, returns identified as part of the RPP scheme should be updated to show an association with the PI in CIMIS as Associate Identities (AI).
6. At the conclusion of the criminal aspects of a false refund investigation, the SAC will forward a Criminal Investigation Closing Report with attachments to the RAC. The RAC will forward the Closing Report to the Territory Manager, Technical Services, for notification and initiation of civil action. This process is the same for declined or discontinued investigations (see IRM 9.5.14, Closing Procedures).

9.5.3.2.6.1.1.1 (02-09-2005) Procedures for Field Office Identified Return Preparer Program Schemes

1. In the event the field office, rather than the FDC, opens a RPP PI, the special agent will contact the RPP field office coordinator. The RPP field office coordinator will call the FDC at the appropriate IRS Campus to request a scheme number. This will help to prevent duplicating open PIs on schemes the FDC is already tracking.
2. The field office is responsible for closing all RPP PI and SCI investigations in a manner consistent with all other PI and SCI investigations (see IRM 9.5.14, Closing Procedures).
3. The PI initiated by the field office is not to be associated with the national GI for RPP investigations.

9.5.3.2.6.2 (02-09-2005) Controls for Return Preparer Investigations

1. Controls should be placed on client returns that are part of the criminal investigation (see LEM 9.14.5, Automated Data Processing Account Controls).
2. Controls should be placed on the preparer's accounts while the criminal investigation is being conducted (see LEM 9.14.5, Automated Data Processing Account Controls).

9.5.3.2.6.3 (02-09-2005) Return Preparer Program Investigative Techniques

1. The investigative techniques used in RPP investigations are different from those used in QRP investigations. Return Preparer Program investigations are directed toward:
   1. determining the responsibility for the overstatement of the deductions and exemptions claimed
   2. establishing whether such overstatements were made with corrupt intent

9.5.3.2.6.3.1 (02-09-2005) Investigation of Multiple Fraudulent Returns

1. The returns in this group of investigations usually report income of authentic origin but are fraudulent because of overstated deductions or exemptions.
2. Some of the most flagrant violations are committed by unscrupulous return preparers who have illiterate, trusting clientele.
3. Occasionally, it is established that a preparer has conspired with the client to file a false and fraudulent return.

9.5.3.2.6.4 (02-09-2005) Developing the Return Preparer Investigation

1. Consideration should be given to using an undercover operation to learn the practitioner’s modus operandi and obtain evidence. Keep in mind that if the practitioner prepares a correct return for the undercover agent it does not necessarily mean he/she is an honest preparer.
2. Unless there is a good reason not to, the special agent should contact the civil return preparer coordinator. The return preparer coordinator can assist the special agent in determining what audit path is best for the particular preparer. Client audit results can be used to identify witnesses in the criminal investigation. Great care should be taken to avoid even the appearance that the special agent is directing aspects of the civil audit function other than referring the preparer.
3. Multiple refund investigations involving unscrupulous preparers are developed by patient and painstaking interviews of the clientele to determine responsibility for fraudulent returns.
4. If the client interview discloses information or records material to the investigation, consideration should be given to obtaining a sworn affidavit from the client.
5. The investigation should establish if the fraud is attributable to the preparer, the client, or both. An interview will, therefore, be designed to ascertain:
   1. The name of the person that recommended the preparer and the identity of others known to have used the preparer's services. It is advisable to obtain prior years' returns filed by the client. Prior year returns not prepared by the subject can be used for comparison.
   2. Information and records used in the preparation of the return.
   3. Any memorandum or notes the preparer made of information furnished.
   4. Any discussion between the preparer and client regarding the amount of deductions and exemptions to be claimed.
   5. Any suggestions made by the preparer that more deductions should be claimed. These suggestions should be fully explained.
   6. If each deduction claimed is the same amount furnished to the preparer by the client, obtain documents and statements concerning the amounts claimed. If the amount claimed is different than that which was furnished to the preparer, obtain the client's explanation.
   7. If the client knew that an excessive amount was claimed, determine why he/she permitted it and, if the client was unaware of the actual amount claimed, how it escaped his/her attention.
   8. The circumstances surrounding the client's execution of the return, including: was the return signed before or after it was completed; if the return was completed before the client signed it, did the client review the contents, and how did excessive amounts escape him/her.
   9. Did the client know a refund was claimed? If so, how much was the refund? (Some preparers have claimed significantly higher refunds and kept the difference without the client’s knowledge.)
   10. Why the client believed he/she was to receive a refund.
   11. The client's literacy, knowledge, or training in tax matters.
   12. The amount of the preparer's fee and whether the fee was based on the amount of the refund to be obtained?
   13. Where the refund check was to be mailed/deposited; if to the preparer's address/account, why?
   14. Did the client cash the refund check?
   15. Obtain a full statement (who, what, where, etc.) relative to the cashing of the check. If it was cashed by the preparer, determine if the preparer took a fee from the proceeds and if possession of the check by the preparer was used to coerce payment of an exorbitant fee?
   16. Did the preparer endorse the client's name to the check? If so, did the client authorize it?
6. The items above should assist in the preparation of an outline for preparer and client interviews. Other pertinent questions may be necessary to meet the facts of each case and follow-up questions may arise as the interview proceeds. If possible, during the preparer interview, obtain copies of:
   1. any memorandums or notes made during interviews with clients
   2. any memorandums, documents, and data furnished to the preparer by the client for use in preparing the client's return
   3. any list of fees charged, list of clients, retained copies of returns filed, or other pertinent material that the preparer maintains
7. The preparer's employees should be interviewed to establish procedures for the preparation of returns. The outline for the interview of the subject preparer should also be used for all employees preparing returns.
8. Investigations which most often lead to successful criminal prosecutions are those which involve:
   1. returns having claims that are completely without basis
   2. clients who testify that deductions were listed without their knowledge and/or undercover tape recordings clearly demonstrating the preparer’s knowledge that expenses were fabricated
   3. the actions of the practitioner corroborate the testimony of his/her clientele
9. Special agents should not use possibly legitimate deductions as evidence.
10. Special agents should keep in mind that the clients might be as culpable as the practitioner. Client culpability should be resolved as soon as possible.

9.5.3.2.6.5 (02-09-2005) Embezzlement of the Client's Tax Payment

1. These are investigations in which the unscrupulous preparer accepts payment for the tax liability of the client at the time the return is prepared but does not file the return or pay the tax. In these investigations, it is recommended the preparer be charged with violation of 26 USC §7201.
2. InUS vs. Mesheski, the court held that such acts involve only the crime of embezzlement under state law and do not come within the definition of attempt to evade or defeat tax.
3. Other courts have disagreed with the US vs. Mesheski conclusion, and have found that the defendant intended to cheat not only his/her clients by embezzling their money but also the government by evading the clients' taxes, see US vs. Charles L. O. Edwards.

9.5.3.2.6.6 (02-09-2005) Coordination of Criminal Investigations Requiring Compliance Support

1. Full development of a refund fraud investigation often requires that audits be conducted on the questionable returns. The civil operating divisions conduct the audits. Requests for a large number of audits are to be forwarded to the Area Planning and Special Programs (PSP) Office. If a mass correspondence audit would be appropriate, the field office QRP/RPP coordinator will contact the FDC RAC to coordinate the request. Coordination with the SB/SE return preparer coordinator to determine the correct audit approach is highly recommended. Often, a combination of face to face audits to determine a pattern, then followed up by correspondence audits, is effective and will provide optimal use of resources.
2. Special agents will not be present during the civil audit. Interviews of the potential witnesses will not be conducted until all aspects of the civil audit pertaining to that individual are concluded.
3. Criminial Investigation is prohibited from giving advice or direction to the other operating divisions regarding a specific case under examination. It is imperative that special agents not specifically direct the other operating division concerning the selection of taxpayers for civil examination or the degree of substantiation to be required from these individuals. Any such actions could be regarded as overreaching and manipulative and could potentially jeopardize the success of the investigation. These restrictions, however, do not constrain special agents or the attorney for the government from sharing relevant non-grand jury information with the other operating divisions. Further, these restrictions do not preclude CI from providing the other operating divisions with general (non-case specific) criteria for determining which examinations might be criminally referred as long as the purpose is not to influence the civil examination.
4. Special agents or the attorney for the government should not have a role in determining what civil penalties are asserted against abusive preparers and/or their clients.
5. In the case of a grand jury investigation, Rule 6(e) of the Federal Rules of Criminal Procedure severely limits the exchange of information derived from the grand jury investigation. The attorney for the government should be consulted for specific guidance.
6. It is permissible for the other operating division to share return information and completed revenue agent’s reports (RAR) with special agents conducting both administrative and grand jury investigations. These civil examinations may identify additional individuals who could become witnesses or subjects. The identification of these individuals may be legally shared with special agents by the other operating divisions. The other operating divisions should only turn over reports once a civil examination is completed. This will avoid the appearance that the special agent is either interfering with or directing the civil examination.
7. In order to enhance compliance in these investigations, it is critical that both civil and criminal remedies be fully pursued. This includes the examination of clients, as well as, criminal prosecution recommendations against promoters, preparers, and clients when warranted. When the individual under audit may be culpable in the refund crime, CT Counsel should be consultated.

9.5.3.2.6.7 (02-09-2005) Protection of Civil Statutes

1. A determination must be made regarding the protection of the civil statute on QRP/RPP returns where the civil assessment statute is due to expire within the next ten months, (See LEM 9.14.5, Automated Data Processing Account Controls):
   1. Controls should be placed on all related returns.
   2. On a quarterly basis, the FDC will notify the field office of all returns with approaching assessment statute expirations. Appropriate controls must be established for notification to occur.