The emergence of employee leasing companies that fail to pay over taxes withheld from employees is an area of growing concern. Employee leasing is an industry where companies contract with a business to handle administrative duties, hire all the company's employees, and lease the employees back to the original company.

Another concern in the employment tax area is businesses that "pyramid" employment taxes. This situation occurs when companies retain the taxes withheld from employees, then liquidate the company whenever they encounter any financial difficulties. Criminal Investigation is also actively pursuing bankruptcy investigations where companies are " pyramid" employment taxes and then file bankruptcy in an effort to evade the payment of these liabilities.

Indications of employment tax fraud are typically discovered by the other operating divisions and then referred to CI. See IRM 25.1, Fraud.

Title 26 USC §7512 and 26 USC §7215 are criminal provisions that may be useful in the employment tax area, especially in bankruptcy related tax crimes. See IRM 9.1.3, Criminal Statutory Provisions and Common Law.

The penalty provided by 26 USC §7215 is not limited to the "willful" failure investigations, to which these other penalties are applicable. Title 26 USC §7215 (b) of the new code provides that the penalty provided by 26 USC §7215 (a), is not applicable in two types of situations:

An appropriate investigation will be made in each situation to determine whether the statutory exceptions set forth above are applicable, and the final report will set forth the results of such investigation.

Once a criminal investigation is initiated, the other operating divisions will not contact the subject, his/her representative, or employees about the collection of the amounts due under the notice, or take any other action to enforce collection of those amounts, without the prior concurrence of the Special Agent in Charge (SAC). No part payment or installment agreement covering prior delinquencies will be entered into with the subject after the referral to CI. Voluntary payments by the subject after the referral will be reported to the SAC. This does not preclude issuance of collection first notices, acceptance of voluntary payments, or the filing of notices of lien, if required to adequately protect the government's interests.

Enforced collection action may be taken on delinquencies for periods prior to the time the subject received the notice. In some instances, such action will include the filing of proof of claim in a pending insolvency proceeding because the subject's assets, or at least some portion thereof, will be under the jurisdiction of a court and will not be subject to levy. However, the SAC will be informed of any proposed enforcement action to ensure that it does not jeopardize a potential criminal investigation.

The SAC may concur with the proposed enforced collection action relating to the amounts due under a referred notice, when it appears that such action will result in substantially full payment of the liability covered by such notice.

Concurrence will not be given if the proposed action will result in only a small partial payment.

The probable effect of a proposed action that will likely result in obtaining more than a small partial payment, but less than full payment of the liability, will be determined based on its likelihood of jeopardizing successful prosecution. Proposed enforced collection action involving participation in an insolvency proceeding will be considered to likely result in obtaining more than a small partial payment of the liability but less than full payment.

Trust fund penalty investigations are referred directly to the US Attorney's Office (USAO) by the SAC. Criminal Tax (CT) Counsel should be consulted early in the investigation for advice on potential strengths and weaknesses.

Concurrence of a proposed enforced collection action which is related to the liability due under the notice, will not be given by the SAC in those instances when the investigation was transmitted to the local USAO without the approval of said USAO.

Concurrence requests may be oral or written from the other operating divisions in a proposed enforced collection action which relates to liabilities due under a referred notice. The SAC may also reply orally; however, his/her response should be confirmed in writing as soon as practicable.

Reporting procedures will be followed for "Discontinued Investigations" returned to the Collection function (See IRM 9.5.14, Investigation Closing Procedures).

Information concerning payments made by a subject after the criminal investigation was referred to the attorney for the government, or for any enforced collection action related to prior delinquencies, will be transmitted to the attorney for the government.

Trust fund penalty investigations will be processed in accordance with established procedures. The SAC will notify the other operating divisions promptly of the disposition of the criminal aspects of an investigation (See IRM 9.5.14, Investigation Closing Procedures). The SAC may furnish suggestions to the other operating divisions for future collection action in:

Since the mid-1980s, organized criminal elements have devised elaborate schemes to steal Federal and state motor fuel excise tax revenue. The impact of these evasion schemes went far beyond the substantial revenue loss. These criminal enterprises adversely affected the fuel industry, as well as, eroding the market share of legitimate dealers and forcing some out of business. Since 1991, CI has made a concerted effort to disrupt those organized criminal elements responsible for perpetrating motor fuel evasion schemes across the country. These enforcement efforts provided the impetus for the enactment of important legislative changes to reduce evasion, and materially contributed to dramatic and sustained increases in Federal and state motor fuel tax revenue.

A wagering excise tax is imposed on wagers and is a percentage of the wager. The tax is assessed on the individual who accepts wagers. A special wagering tax also exists and is a flat fee to be paid by each person who is engaged in receiving wagers or employed by such person. Wagering tax investigations are often joint efforts with other agencies. These joint investigations would then become part of the illegal source income program area. For additional information concerning CI’s involvement in the enforcement of the wagering taxes see IRM 9.5.11, Other Specialized Investigations.

There are special disclosure restrictions regarding wagering investigations (See IRM 9.3.1, Disclosure).

Gaming investigations differ from wagering excise tax investigations. In a gaming investigation, a subject is typically under investigation for income tax, money laundering, or currency violations. Similar to wagering tax investigations, gaming investigations can be joint efforts with other agencies. These joint investigations would then become part of the illegal source income program.

Title 18 USC §1955 (Prohibition of Illegal Gambling Businesses) is no longer one of the charges for which CI can recommend prosecution; however, it is one of the specified unlawful activities set forth in 18 USC §1956, money laundering.

A number of states gather and maintain substantial information relating to individuals and/or entities associated with the gaming industry. Much of the information is readily available to law enforcement and may be helpful when conducting an investigation. As an example of the type of information available from local or state regulatory agencies, the State of New Jersey, Department of Law and Public Safety, Division of Gaming Enforcement, completes a financial investigation on all individuals associated with casino operations, See 9.4.4, Request for Information.

When conducting refund fraud investigations, the following violations may be applicable (See IRM 9.1.3, Criminal Statutory Provisions and Common Law):

If there are any indications of substantive tax violations, i.e., the preparation, filing, or assisting in the preparation or filing of false documents or returns by an IRS employee, the Office of the Treasury Inspector General for Tax Administration (TIGTA) is to be notified immediately and the investigation will be conducted jointly by CI and TIGTA.

Investigations involving counterfeiting and forgery statutes are the jurisdiction of the US Secret Service (see IRM 9.3.1, Disclosure).

Investigations involving the use of the mail to defraud the Federal government are within the jurisdiction of the US Postal Service (see 9.3.1, Disclosure).

Early detection of refund fraud enables the IRS to stop the issuance and delivery of refund checks to fraudulent claimants.

A violation of 18 USC §287 occurs upon the filing of a fabricated Federal income tax return wherein a false representation is made that the tax has been overpaid and there is a claim made for a refund of the overpayment.

Special agents should understand the provisions of 18 USC §287 and 18 USC §286 and be prepared to coordinate their investigative activities with investigations conducted by the US Secret Service, the US Postal Service and/or another government agency. It is not unusual for individuals involved in refund fraud investigations to be involved in violations of other Federal statutes.

There are circumstances when grand jury authorization for violations of 18 USC §287 and 18 USC §286 can be directly referred to the attorney for the government. See Department of Justice, Tax Division Directive No 96. Criminal Tax Counsel should be consulted.

False claim investigations are considered tax related investigations and are subject to 26 USC § 6103 disclosure restrictions and the Department of Justice (DOJ), Tax Division, must approve prosecution recommendations.

In the context of tax violations, 18 USC §1028 could be applicable where a subject steals another person's identity for the purpose of falsely representing his/her identity to the IRS. In such investigation(s), the individuals who steal the identities may be different from the individual(s) who actually file the tax return and ultimately obtain the false refund.

Identity fraud must have a direct link to the substantive tax or conspiracy violation which is the focus of the criminal investigation.

These are tax-related investigations and must be referred to DOJ, Tax Division, for authorization.

Characteristics of Social Security numbers (SSN) are:

Employer's Identification Number (EIN) shown on Form(s) W-2 should always appear 00-0000000 with the first two digits being the code number of the IRS field office. For example, a Tennessee Employer's Identification Number should ordinarily begin 62- and the following 7 digits should be within the limits of the numbers assigned thus far.

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the IRS. It is a nine-digit number that always begins with the number 9 and has a 7 or 8 in the fourth digit, example 9XX-7X-XXXX.

The following are characteristics of questionable Schedule Cs:

To identify and compare the subject's handwriting and typewriting to the returns filed, special agents should:

Examine all post office records where the boxes are rented in order to obtain a specimen of the renter's handwriting.

Identify references given by the renter applying for a box and determine, in the investigation of fake references, how the renter arranged to intercept and reply to the postal authorities' inquiry.

Obtain printed, typewritten, and handwritten examples in order to have an expert compare these specimens with the handwriting, printing, and typewriting on tax returns, check endorsements, and forwarding instructions.

Obtain prior and subsequent years' returns, if any.

A decoy refund check is a check made in the name of an individual identified in a refund fraud scheme. The check is used to gather evidence regarding an individual’s participation in a false refund scheme.

Part 232.3d of the US Postal Service Manual instructs postal employees to report to their Inspection Service suspicious activities engaged in by the holders of post office boxes. Should an employee note such suspicious activity, i.e., a quantity of Federal tax refund checks directed to a post office box in the normal course of his/her duties and volunteer this information to a US Postal Inspector, the information would be made available to the IRS, if apparently indicative of criminal activity.

The situation in (1) above is to be distinguished from the process of systematically scanning or watching incoming mail for the purpose of identifying alleged violators of the Internal Revenue Code and notifying the IRS of the names of the alleged violators. This was determined to sufficiently satisfy the definition of a mail cover and, therefore, local US Postal officials should not be requested to have employees institute such a watch on the mail without an official mail cover. See IRM 9.4.10, Miscellanous Investigative Techniques regarding mail cover request.

The special agent will make a request to the local US Postal Inspector for delivery of a refund check to a specific address. The US Postal Inspector will arrange to have an employee of the US Postal Service put the refund check in the post office box or deliver the check to a residence address in a regular delivery. The US Postal Inspector will notify CI of the approximate time the check will be delivered to the desired address.

It has been determined by the Legal Liaison Officer, Chief Inspector's Office, US Postal Service, that a prison mailroom is not part of the US Postal system. Consequently, prison officials can make additions to addresses without violating postal regulations. In this regard, it is possible to request from prison officials that all of a prisoner's mail going to the IRS be directed to the RAC at the FDC of the appropriate IRS Campus. The SAC makes the request to the prison executive. As appropriate, CI should coordinate with the RAC and the local prison officials concerning assistance in redirecting any mail leaving the prison.

Electronic on-line filing fraud can be either a QRP or a RPP Investigation. It is necessary for the special agent to work these on-line investigations expeditiously. It is crucial to timely coordinate with the field office and the FDC. Upon identification of an on-line fraud scheme, it is the RAC's responsibility to initiate a preservation letter for the internet service provider (ISP) to maintain ISP address records. The initial request allows the records to be maintained for 90-days. One extension can be granted for an additional 90-day period. Careful attention must be paid to the expiration date of the preservation letter and a summons or subpoena should be issued prior to the expiration date or the information may be lost. The extension letter can be authorized by either the RAC or special agent. Internet service providers are not considered third party record keepers and, therefore, do not require notice.

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.

The due date is 90-days from the receipt of the referral by the field office.

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.

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).

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).

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).