Internal Revenue Manual - 25.1.9 Tax Exempt and Government Entities (TEGE)

IRS Resources

Part 25. Special Topics
Chapter 1. Fraud Handbook
Section 9. Tax Exempt and Government Entities (TEGE)

This section outlines guidelines which apply to TEGE determination letter applications and returns under the TEGE jurisdiction.
Abuses or fraudulent practices and self dealing in the employee plans and exempt organizations areas jeopardize both employee pensions and the collection of tax revenues.
Coordination with the examination function and the fraud referral specialist (FRS) is required (see IRM 7.6.1.5). IRM Sections 25.1.1 through 25.1.3 provide specific guidelines for developing and referring potential fraud cases.

The Employee Retirement Income Security Act of 1974 (ERISA) provides criminal and civil penalties for specified violations. The IRS (under Title II) and the Department of Labor (under Title I) share jurisdiction over ERISA.
The Secretary of Labor also has authority to investigate Title 29 offenses. These offenses relate to reporting, disclosure, participation, vesting, funding and fiduciary responsibilities. Consequently, the Secretary of Labor and the Secretary of Treasury may be involved in prosecuting the same case.
Qualified employee plans receive favored tax treatment through a deduction for contributions by the employer, tax exemption for the related trust and deferral of income by the employee. These tax advantages can be used in criminal cases to meet the requirements that a tax be due and owing as described in IRC 7201 (Attempt to Evade or Defeat Tax) and that damage inures to the Government as described in IRC 7206 (Fraudulent or False Statement — See IRM 9.5.3.3.2(2).
IRC 6058 governs the filing of Form 5500, Annual Return/Report of Employee Benefit Plan. Cl has jurisdiction over Form 5500 violations.

The Tax Reform Act of 1969 imposed new and stringent requirements with respect to exempt organizations. Penalties were established for:
- Failure to file information returns
- Repeated and willful violations of Chapter 42 provisions
- Willful violation of annual reporting requirements of private foundations
IRC 6033 governs the filing requirements of exempt organizations. IRC 6011 requires the filing of certain returns by exempt organizations.

Health care fraud is an area of noncompliance. Cl participates in the DOJ-mandated Health Care Fraud Task Force under the direction of the United States Attorneys’ offices nationwide. TEGE will also participate, as necessary, in the Health Care Fraud Task Force.
Cl investigations cover a wide range of frauds, including false claims, kickbacks/bribes, durable medical equipment schemes, staged/caused accidents, clinic mills, drug diversion, rolling labs, and psychiatric mills.

The term taxpayer for TEGE purposes is anyone who participates in any way in filing an application for exempt status or determination, preparing required returns, operating a plan, trust or organization.

IRC 7206(1) (Declarations under penalties of perjury) is the criminal provision most useful to TEGE.
1. IRC 7206(1) applies to tax returns as well as other documents. See US v Holroyd, 732 F.2d 1122 for a discussion of application of IRC 7206(1) when the taxpayer filed a false statement as opposed to a false return. A prima facie violation of IRC 7206(1) can be proven in the absence of a provable tax deficiency.
2. Applications for qualification of employee plans and exempt organizations, and information returns and reports are subscribed under the penalty of perjury.
For example, filing a determination letter application containing false statements or submitting falsified documents in support of such an application or submitting a falsified annual return for an employee plan (or exempt organization) would give rise to a potential IRC 7206(1) prosecution if the falsifications are shown to be willful and material.
Under IRC 7201, filing a false determination letter application, annual return or registration statement can also be an act leading to tax evasion.
Under IRC 7203, failure to file any required return/statement dealing with an employee plan may be subject to criminal penalties in addition to civil penalties.
Many return/reports are prepared by third parties. Under IRC 7206(2), preparers of false pension plan documents can be prosecuted.

Use Form 2797 (Referral Report for Potential Criminal Fraud Cases) to refer cases to CI through the FRS. Adapt the form for TEGE’s use by inserting "TEGE" wherever the word " audit" or "examination" appears.
If a case involving a collateral examination results in a fraud referral, TEGE and the examination function will coordinate the referrals.

Part 25. Special Topics