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Part 4. Examining Process

Chapter 26. Bank Secrecy Act

Section 15. General Program

4.26.15  General Program

4.26.15.1  (06-01-2006)
Overview

  1. This section discusses administrative procedures and audit techniques that should be used by the general program income tax examiners working a case related to money laundering.

  2. The general program examiner should be aware of the information available on the Currency and Banking Retrieval System (CBRS), as well as the basic filing requirements of both the Bank Secrecy Act (BSA) and IRC Section 6050I. Examiners should also remember the necessity of keeping Title 31 (BSA) and Title 26 (IRC) activities separate.

  3. Refer to section 4.26.16 for a discussion of Foreign Bank and Financial Accounts Report (FBAR) cases.

4.26.15.2  (06-01-2006)
Required Filing Checks

  1. Title 31 inquiries should not be made during a Title 26 activity. Bank Secrecy Act (BSA) reports are not part of the Required Filing Checks for an examiner conducting an income tax examination. Thus, for example, an examiner conducting an income tax examination of a bank should not inquire as to the bank's Title 31 responsibilities.

  2. See section 4.26.16 of this chapter for information and procedures for the Foreign Bank and Financial Accounts Report (FBAR).

  3. Form 8300 is part of the Required Filing Checks for an examiner conducting an income tax examination. If the trade or business regularly engages in transactions over $10,000 and significant violations are found, a Form 5346 should be prepared and sent to BSA Workload Identification, Selection, Delivery and Monitoring (WISDM) for consideration for a Form 8300 compliance review. See also IRM 4.10.5.7, Required Filing Checks.

4.26.15.3  (06-01-2006)
Contacts with BSA Group Manager

  1. The local Bank Secrecy Act (BSA) group manager is the resource person for questions about BSA program policies and procedures.

  2. A Title 31 matter discovered during an income tax examination cannot be disclosed, even to the local BSA group manager, until a related statute determination has been made. See IRM 4.26.14.2.3

4.26.15.4  (06-01-2006)
CBRS Use in Title 26 Exams

  1. Currency and Banking Retrieval System (CBRS) information is useful in identifying cash activity that may not be accurately reported on the income tax return. In addition, it may lead the examiner to discover sources of unreported income, often derived from criminal activity. CBRS information is a "window" on the underground economy, with invaluable information not obtainable elsewhere.

  2. Examiners should refer to the CBRS User's Guide for guidance in interpreting CBRS prints. See IRM Section 4.26.4

  3. SB/SE Fraud/Bank Secrecy Act analysts located at the Detroit Computing Center (DCC) can produce matching reports available to the PSP or BSA coordinator. These reports may be helpful in workload selection.

  4. Compliance Initiative Project (CIP) procedures must be followed for selection techniques based on industry membership or other " special characteristics."

4.26.15.5  (06-01-2006)
Examination of Information Reports from the BSA Program

  1. A by-product of the BSA program is that information about the financial transactions of businesses and individuals obtained during the course of a BSA examination may have a material Title 26 compliance potential.

  2. The BSA examination program generates leads from sources such as:

    • Bank Secrecy Act (BSA) compliance examinations and Form 8300 compliance reviews

    • Criminal Investigation referrals

    • Detroit Computing Center.

  3. These information leads are forwarded to the field for possible income tax examinations on Form 5346, Examination Information Report or Form 3949, Criminal Investigation Information Item.

  4. The BSA examiner should not be assigned to the income tax examination.

4.26.15.5.1  (06-01-2006)
Project Codes

  1. Income tax examinations resulting from the BSA program are assigned the following project codes:

    • 432 — leads from the Form 8300 program;

    • 441 — leads from the Title 31 program;

    • 643 — leads from the Currency Underreporter Case Selection Program (CASE).

  2. If fraud is discovered as part of an income tax examination and the case is updated to status 17, the project code should be changed to reflect the fraud issue:

    • From 432 to 146 - Form 8300 fraud

    • From 441 to 147 - Title 31 fraud

    • From 643 to 147 - Title 31 fraud.

  3. The examiner should ensure that multiple years and any related pick-ups also reflect the appropriate BSA project codes.

4.26.15.5.2  (06-01-2006)
General Audit Techniques

  1. If, in the course of a BSA examination, the examiner identifies individuals and/or businesses that are conducting questionable transactions in currency and/or monetary instruments indicating possible tax violations, referral for a tax examination may be appropriate.

  2. An income tax examination that is based on a referral from a BSA examination is to be conducted in accordance with established procedures for income tax examinations.

4.26.15.5.3  (06-01-2006)
Examination of CI Referrals

  1. Bank Secrecy Act (BSA) referrals received from Criminal Investigation (CI) may be obtained from information filed by financial institutions on Suspicious Activity Reports (SARs). These reports are confidential and the information must be protected from unauthorized disclosure.

  2. Because disclosure of SAR information is restricted by Section 5318(g) of Title 31, the examiner must not:

    • Disclose that a SAR report has been filed,

    • Propose an adjustment based solely on an amount listed on a Criminal Investigation Information Item (Form 3949),

    • Disclose a source or possible source of the information, or

    • Conduct the examination in a manner in which the taxpayer could reasonably conclude any of the above.

  3. If during the course of an examination, a request is received to identify the source of and/or the information that caused the examination to begin, the examiner should notify the supervisor and Disclosure. In addition, the examiner should immediately inform the BSA group manager and the Special Agent In Charge (SAC) for the local Criminal Investigation office.

4.26.15.6  (06-01-2006)
Uncovering a Money Laundering Violation in a Title 26 case

  1. A potential Bank Secrecy Act violation may be discovered during the course of conducting an income tax compliance activity.

  2. The examiner may not pursue or develop a Bank Secrecy Act violation under the guise of a Title 26 compliance activity.

  3. The most frequent Bank Secrecy Act violations that an income tax examiner may uncover are actions taken by the taxpayer to avoid the filing of a currency transaction report under the Bank Secrecy Act or to avoid the filing of a Form 8300.

  4. For information that may assist in the development of these issues, see IRM 4.26.6 and IRM 4.26.11.

  5. For guidance on protecting return information from a prohibited disclosure see IRM 4.26.14.


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