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Part 4. Examining Process

Chapter 32. Abusive Tax Avoidance Transactions (ATAT)

Section 2. The Abusive Tax Avoidance Transactions (ATAT) Process

4.32.2  The Abusive Tax Avoidance Transactions (ATAT) Process

4.32.2.1  (03-30-2006)
Overview of Abusive Tax Avoidance Transaction (ATAT)

  1. This IRM section provides guidance to Compliance employees for referring potential ATAT promoter leads and outlines procedures for ATAT promoter investigations, participant examinations and other ATAT matters.

  2. The IRS is committed to pursuing investigations of promoters of ATATs to stop these promotions. These investigations are designated as priority work. Widespread use of abusive promotions erodes the voluntary tax compliance system and is responsible for substantial loss of tax revenues. The IRS combats ATAT promotions by:

    • Seeking timely injunctions.

    • Asserting civil penalties against promoters.

    • Providing published guidance.

    • Conducting various participant compliance actions.

    • Criminally prosecuting promoters or participants.

  3. This IRM section is the result of cooperation among all of the Operating Divisions in the IRS. Employees from all the Operating Divisions have contributed their expertise to address the growth of ATAT promoter activity and taxpayer participation.

  4. This IRM section is a compilation of the IRS’s ATAT policy encompassing the operations of the SB/SE Lead Development Center (SB/SE LDC), the Office of Tax Shelter Analysis (OTSA), and the LMSB 6700 Committee. It addresses identification of promoter leads, the promoter investigation process, parallel investigation procedures, investigation outcomes, closing procedures, identification and case building processes for participant cases, and other ATAT matters.

  5. The term "promoter" as used throughout this IRM chapter unless specifically noted, includes promoters, material advisors as defined under IRC §6111 and income tax preparers. Likewise, the term "participant" as used in this IRM chapter includes any and all persons who participated, purchased a product or service or have an interest in a promotion, or received any material aid, assistance or advice with respect to the promotion. Participant includes investors and advisees.

4.32.2.2  (03-30-2006)
Introduction

  1. The term "abusive tax avoidance transaction" is defined in IRM Exhibit 4.32.1–1, Glossary of Terms. It is generally applied to any plan or arrangement having some connection to taxes which includes a false or fraudulent statement concerning the tax benefits of participation, or which is used to prevent the proper administration of the Internal Revenue laws. This general definition includes both tax shelters as defined in various sections of the IRC and other types of abusive tax promotions.

  2. IRC §6662(d)(2)(C) broadly defines a "tax shelter " as a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, if a significant purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of federal income tax.

  3. ATAT promotions include, but are not limited to, programs that rely on:

    1. False statements about the allowability of tax benefits to participants that are contrary to clearly established law.

    2. Misuse of IRC sections to produce clearly unintended results.

    3. Intentional manipulation of potential ambiguities of the tax laws to improperly claim tax benefits.

    4. Sham arrangements having no economic significance or business purpose other than the avoidance or evasion of tax.

    5. Substantial valuation misstatements that ascribe a value to an asset or service that is at least twice the correct value and result in a tax reduction.

    6. Noncompliance with disclosure requirements of IRC §6111, Disclosure of Reportable Transactions.

    7. Noncompliance by material advisors with list maintenance requirements of IRC §6112, Material Advisors of Reportable Transactions Must Keep Lists of Advisees, etc.

    8. Attempts to impede the proper administration of tax laws.

  4. There are a variety of tools available to the IRS to address the promotion of and the participation in ATAT activity:

    • Seek injunctive relief under:
    IRC §7402, Jurisdiction of District Courts
    IRC §7407, Action to Enjoin Income Tax Return Preparers
    IRC §7408, Actions to Enjoin Specified Conduct Related to Tax Shelters and Reportable Transactions., etc.
    • Assessment of civil penalties against promoters under:
    IRC §6700, Promoting Abusive Tax Shelters, etc.
    IRC §6701, Penalties for Aiding and Abetting Understatement of Tax Liability
    IRC §6707, Failure to Furnish Information Regarding Reportable Transactions
    IRC §6708, Failure to Maintain Lists of Advisees with Respect to Reportable Transactions
    • Criminal prosecution of individuals or entities who organize, promote, assist in the organization or promotion of, sell or assist in the sale of interests in an ATAT activity.
    • Issuing pre-filing notification letters (PFNs) to participants in ATAT promotions.
    • Examinations of individuals involved in promotions (i.e. promoters, preparers, participants, etc.).
    • Assessment of civil penalties against participants including IRC §6707A, Penalty for Failure to Include Reportable Transaction Information With Return, and IRC §6662A, Imposition of Accuracy-Related Penalty on Understatements with Respect to Reportable Transactions.
    • Criminal prosecution of participants.
    • Office of Professional Responsibility sanctions for those participants subject to Circular 230.

  5. Successful resolution of ATAT promoter investigations and participant examinations require the combined actions of Appeals, Collection, Counsel, Criminal Investigation (CI), LMSB, SB/SE, TE/GE, W&I and the Tax Division of the Department of Justice (DOJ). See IRM 4.32.3, Coordination and Roles of Cross Functional Units, for additional information.

4.32.2.2.1  (03-30-2006)
Statutory History and Provisions

  1. Statutory tools provided in the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (P.L. 97-248) used to address ATAT promotions include the following:

    • IRC §6700, Promoting Abusive Tax Shelters.

    • IRC §6701, Penalties for Aiding and Abetting Understatement of Tax Liability.

    • IRC §7408, Action to Enjoin Specified Conduct Related to Tax Shelters and Reportable Transactions.

  2. The Tax Reform Act of 1984 (P.L. 98-369), sections 141 and 142, added additional statutory provisions to the IRC imposing penalties for failure to register a tax shelter or to maintain the required list of investors.

    • IRC §6111, Registration of Tax Shelters, requires organizers of certain tax shelters to register their tax shelter promotions with the Service no later than the first day the shelter is offered for sale to the public.

    • IRC §6112, Organizers and Sellers of Potentially Abusive Tax Shelters Must Keep Lists of Investors, requires organizers and sellers of potentially abusive tax shelters to maintain lists of investors.

    • IRC §6707, Failure to Furnish Information Regarding Tax Shelters, provides penalties for failures to timely file an information return or for filing false or incomplete information regarding tax shelters.

    • IRC §6708, Failure to Maintain Lists of Investors in Potentially Abusive Tax Shelters, provides penalties for failures to maintain lists of investors in potentially abusive tax shelters.

  3. The Tax Reform Act of 1976 (P.L. 94–455) added IRC §7407, Action to Enjoin Income Tax Return Preparers.

  4. The AJCA of 2004, sections 811 through 822 and 838, added additional statutory provisions to the IRC and amended some existing code sections as follows:

    IRC §6111
    Disclosure of Reportable Transactions
    IRC §6112
    Material Advisors of Reportable Transactions Must Keep Lists of Advisees, etc.    		 Amended to require material advisors of reportable transactions to file informational returns identifying certain tax shelter transactions and the potential tax benefits expected to result from the transactions. These provisions also require material advisors to maintain a client list of investors/advisees.
    IRC §6707
    Failure to Furnish Information Regarding Reportable Transactions    		 Amended to impose a penalty for failing to timely file an information return or for filing false or incomplete information as required by IRC §6111 for reportable transactions.
    IRC §6707A
    Penalty for Failing to Disclose Reportable Transactions    		 Imposes a penalty for failing to report tax shelter transactions that have a potential for tax avoidance or evasion (reportable transactions as defined in IRC §6011 and the regulations thereunder) and transactions specifically identified as tax avoidance transactions (listed transactions).
    IRC §6708
    Failure to Maintain Lists of Advisees with Respect to Reportable Transactions    		 Amended to impose a daily penalty of $10,000 on material advisors of reportable transactions who fail to make a list of investors/advisees available within 20 business days from an IRS written request for the list.
    IRC §6662A
    Imposition of Accuracy-Related Penalty on Understatements with Respect to Reportable Transactions    		 Imposes a 20 percent penalty for understatements of tax resulting from listed transactions and reportable transactions if a significant purpose of the transaction is the avoidance or evasion of tax and increases the penalty to 30 percent for undisclosed tax shelter transactions.
    IRC §6662(d)(1)(B)
    Imposition of Accuracy-Related Penalty - Substantial Understatement of Income Tax    		 Revised to define substantial understatement of tax for corporations other than an S Corporation or a personal holding company to mean the lesser of 10 percent of the tax required to be shown on the return (or, if greater, $10,000) or $10 million.
    IRC §6700
    Promoting Abusive Tax Shelters, etc.     		Amended to increase the penalty applicable to a person who knowingly makes, or causes another to make, a false or fraudulent tax benefit statement for any material matter pertaining to a tax shelter plan or arrangement to 50 percent of the gross income derived or to be derived from the abusive plan or arrangement.
    IRC §7408
    Action to Enjoin Specified Conduct Related to Tax Shelters and Reportable Transactions    		 Expanded to allow injunctions to be sought for actions subject to penalty under IRC §6707 or IRC §6708, or violating Treasury Department Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service.
    IRC §6501(c)
    Limitations on Assessments and Collection    		 Amended to add an exception to the applicable statute of limitations for assessing underpayments of tax resulting from undisclosed listed transactions. The exception ensures that the limitation period is open at least one year after the required disclosures are made.
    IRC §163(m) and (n)
    Interest    		 Revised to disallow any deduction for interest paid or accrued on any portion of an underpayment attributable to an undisclosed reportable transaction.
    IRC §7525(b)
    Confidentiality Privileges Relating to Taxpayer Communications    		 Amended to extend the denial of privilege for written communications between a tax practitioner and a corporate client to include any individual engaged in a tax shelter activity.
    AJCA of 2004 section 821 Amended §5321(a)(5) of Title 31, United States Code, to increase the penalty for failing to report interests in foreign financial accounts.
    AJCA of 2004 section 822 Amended §330(b) of Title 31, United States Code, to authorize the Secretary to censure and fine an incompetent or disreputable tax advisor who practices before the Department of the Treasury.

4.32.2.3  (03-30-2006)
Lead Identification and Investigation Authorization

  1. This material provides guidance to all IRS employees for referring potential ATAT promoter leads and describes the process for authorizing promoter investigations.

4.32.2.3.1  (03-30-2006)
Identification of Promoter Leads

  1. All potential ATAT promoter investigation leads must first be sent to the SB/SE LDC or OTSA for development and evaluation. SB/SE investigations are authorized by the SB/SE LDC and LMSB investigations are authorized by the LMSB 6700 Committee.

  2. The following is a list of the types of promoter leads reviewed by SB/SE LDC and OTSA. The list is not all-inclusive.

    • Domestic abusive trust promotions.

    • Offshore compliance promotions.

    • Abusive business entity and deduction promotions.

    • Refund and tax credit promotions.

    • Anti-tax and constitutional arguments.

    • Exempt organization promotions.

    • Corporate tax shelter promotions.

    • Arrangements designed to illegally reduce or eliminate employment taxes.

    • Compliance issues relating to IRC §6111

    • Compliance issues relating to IRC §6112

    • Collection promotions.

  3. Before receiving authorization from the SB/SE LDC or the LMSB 6700 Committee to begin a promoter investigation, examiners may only conduct passive research on any lead. This research should be limited to sources other than contacts with the promoter or third parties for the purposes of an inquiry to either obtain information or check facts. Any research should be included with the referral package. Examples of passive research include:

    • Securing marketing or promotional materials from internal or public sources.

    • Researching IDRS to identify the promoter's TIN.

  4. Active research of leads relating to a promoter is strictly forbidden until appropriate approval is obtained from the SB/SE LDC or the LMSB 6700 Committee. Active research includes:

    • Forwarding promotional materials to Counsel for a formal opinion outside the realm of an ongoing income tax examination.

    • Ordering the promoter's tax return.

    • Initiating an income tax examination of the promoter.

    • Making direct contact with the promoter or third parties.

    • Ordering a return of a participant not currently under examination or directly related to a return currently under examination.

  5. Promoter lead packages should contain sufficient background information to make the referral useful, but examiners making referrals should not take actions that would begin the actual promoter investigation itself. Examples of information that may be useful include:

    1. Marketing or promotional materials, including legal opinions, that may be secured during an examination or from third parties unrelated to an examination.

    2. A brief overview of the examination results (if applicable) to show harm to the government.

    3. Participant interview information regarding the promoter’s marketing strategy and network that provides perspective on the overall impact on compliance.

    4. A list of any known participants.

    5. An estimate of the scope and potential harm to the government.

    6. Copies of tax returns used in the promotion.

    7. Affidavits, correspondence or statements from witnesses or participants.

    8. Names, addresses, and EINs for sub-promoters.

    9. Copies of any correspondence between sub-promoters.

  6. Promoter lead packages are forwarded to the SB/SE LDC or OTSA as appropriate. For standard forms and details on how to forward lead packages to the SB/SE LDC or OTSA see:

    • For SB/SE - See IRM 4.32.2.3.2, SB/SE Lead Development Center (SB/SE LDC).

    • For LMSB - See IRM 4.32.2.3.3.1, Role of OTSA.

  7. Time charged to SB/SE promoter investigations are non-case specific until the SB/SE LDC formally approves an investigation. Time spent by SB/SE examiners preparing a referral to the SB/SE LDC should be charged as follows:

    Activity Code Activity
    593 Promoter activity under IRC §6700.
    594 Aiding and abetting promoter activity under IRC §6701.


    Once the SB/SE LDC authorizes an investigation, activity code 593 or 594 charges should be made directly to the investigation.

  8. LMSB examiners and Technical Advisors must use activity code 529 for time spent developing information on lead referrals and for providing assistance to examiners in developing promoter leads before LMSB 6700 Committee approval. When a promoter investigation is approved by the LMSB 6700 Committee, LMSB examiners use activity code 593.

  9. SB/SE examiners forward a copy of promoter referrals to the Area Planning and Special Procedures (PSP) ATAT Coordinator.

4.32.2.3.2  (03-30-2006)
SB/SE Lead Development Center (SB/SE LDC)

  1. SB/SE Delegation Order 4.60, Functions Related to Potential Promoters/Tax Shelters Cases, delegates authority to approve and refer all SB/SE ATAT promoter investigations to the SB/SE LDC Program Manager, in consultation with the Director, Abusive Transactions, Counsel and CI.

  2. The SB/SE LDC was established to centralize receipt and development of SB/SE ATAT promoter leads, conduct research, build promoter cases, and authorize the initiation of promoter investigations in coordination with Counsel, CI and other Operating Divisions.

  3. Leads to the SB/SE LDC are submitted using the referral sheet found in IRM Exhibit 4.32.2-1, SB/SE LDC Referral Sheet.

  4. The SB/SE LDC contacts the referring IRS employee on every promoter lead that is being developed for investigation.

  5. After completing the research and development, each promoter lead is evaluated for promoter investigation potential. Multiple factors are considered in determining whether the SB/SE LDC examiner submits a recommendation for a civil investigation. Some of the factors are:

    • Type of promotion being promoted.

    • Past activity of the promoter.

    • The size of the promotion.

    • Tax impact of the promotion.

    • Possible tax law violations.

    • Favorable public impact or compliance impact.

  6. If the SB/SE LDC examiner determines a promoter is subject to Circular 230 and has violated any of its provisions, a referral is forwarded to the Office of Professional Responsibility (OPR). A copy of the referral is included in the investigation case file.

  7. Once a referral is authorized, the administrative investigation case file is sent to the field for investigation and developed for potential ATAT promoter penalties and/or injunctions. The file includes:

    • Investigation Authorization Memorandum.

    • Recommendation Memorandum describing the promoter's background and history, description of the promotion, potential First Amendment concerns, summary of products or services, any criminal investigation information, the scope of the promotion and recommendation for investigation.

    • Any background information and documentation obtained that may assist in the investigation.

  8. See the flow chart found in IRM Exhibit 4.32.2-2, SB/SE Lead Development Center (SB/SE LDC) Process Chart.

4.32.2.3.2.1  (03-30-2006)
Primary/Secondary Promoters

  1. When a specific ATAT promotion involves multiple promoters, each person who is part of the promotion is designated as either a "primary " or "secondary" promoter.

  2. The principle behind the ATAT promotion, if known, is designated as the primary promoter.

  3. If the Area where the primary promoter resides is not able to coordinate the investigation, the Issue Management Team (IMT) selects the primary investigative office. If an IMT has not been established, then an ATAT Technical Advisor (TA) should be consulted.

4.32.2.3.3  (03-30-2006)
Office of Tax Shelter Analysis (OTSA), LMSB Tax Shelter Committee and LMSB 6700 Committee

  1. OTSA was created as part of the Pre-Filing and Technical Guidance (PFTG) function in LMSB. (Announcement 2000-12, 2000-1 C.B. 835, Corporate Tax Shelters: Registration Requirements: Promoters: Disclosure Requirements: Regulations). OTSA provides information and services to all IRS Operating Divisions and functions as well as other interested parties, including Treasury and Congress.

  2. For a copy of the LMSB Promoter Penalty Audit Flowchart see IRM Exhibit 4.32.2-3, LMSB Promoter Penalty Audit Flowchart.

4.32.2.3.3.1  (03-30-2006)
Role of OTSA

  1. OTSA is the focal point for tax shelter activity in LMSB, but serves the entire IRS through the collection, analysis and dissemination of information regarding tax shelter activity.

  2. OTSA is responsible for making recommendations to the LMSB 6700 Committee regarding tax shelter promoters.

  3. OTSA works with Treasury, Counsel, headquarters, field personnel and others, including the Operating Divisions and CI.

  4. OTSA collects information from many sources to support and implement the IRS’s tax shelter strategies, including:

    • Disclosures of Reportable Transactions/Registrations

    • Investor Disclosures

    • Promoter Investigations

    • Tax Shelter Hotline

    • LMSB Referrals

    • Emerging Issues

4.32.2.3.3.1.1  (03-30-2006)
Disclosures of Reportable Transactions/Registrations

  1. OTSA is responsible for:

    • Monitoring all transactions reported by material advisors as required by IRC §6111, as amended by AJCA of 2004.

    • Reviewing and analyzing reportable transactions to detect patterns as well as identifying new promoters/promotions.

    • Maintaining a database of reportable transactions and providing information as necessary within the IRS.

    • Assigning unique material advisor numbers to each reportable transaction.

4.32.2.3.3.1.2  (03-30-2006)
Investor Disclosures

  1. OTSA collects and evaluates Form 8886, Reportable Transaction Disclosure Statements, which are filed by investors who participate in listed transactions or other reportable transactions.

  2. After reviewing the Form 8886, OTSA determines if field notification is necessary and forwards this recommendation to its support unit for case building and letter issuance.

4.32.2.3.3.1.3  (03-30-2006)
Promoter Investigations

  1. OTSA serves as a centralized collection point for all leads involving technical tax shelters. OTSA is responsible for the assessment of leads, completion of referral packages, and submissions to the LMSB 6700 committee for consideration of a LMSB promoter investigation.

  2. Advisee/investor lists are secured through promoter investigations under the authority of IRC §6112, Material Advisors of Reportable Transactions Must Keep Lists of Advisees, etc.

  3. These lists are routed through OTSA to the Tax Shelter Support Unit (TSSU) in Ogden for input into a database and case building. After input, the TSSU forwards the investor or advisee names to the appropriate Operating Division for examination consideration.

4.32.2.3.3.1.4  (03-30-2006)
Tax Shelter Hotline

  1. OTSA receives information on potentially improper tax shelter activity from both internal and external sources.

  2. OTSA is responsible for the evaluation of these leads.

  3. The IRS internet website contains contact information for the hotline as follows:

    Mailing address: Internal Revenue Service
    Office of Tax Shelter Analysis
    LM:PFTG
    1111 Constitution Ave., NW
    Washington, D.C. 20224
    Telephone Number: 866-775-7474
    (toll free)
    Fax Number: 202-283-8406
    (not toll free)
    E-Mail Address: irs.tax.shelter.hotline@irs.gov

4.32.2.3.3.1.5  (03-30-2006)
Emerging Issues

  1. OTSA evaluates information on new and emerging tax shelters and takes various compliance actions such as issuing notices, pronouncements, or seeks to designate the issue as a listed transaction.

  2. See IRM 4.32.1.3.2, Presentation at Emerging Issue Meeting .

4.32.2.3.3.1.6  (03-30-2006)
Communications & Guidance

  1. OTSA provides technical guidance to LMSB examiners on tax shelter issues.

4.32.2.3.3.2  (03-30-2006)
LMSB Tax Shelter Committee

  1. The LMSB Tax Shelter Committee makes key decisions in implementing LMSB’s strategic initiative pertaining to abusive tax shelters. Some areas of focus include:

    • Oversight of the LMSB 6700 Committee which approves LMSB tax shelter promoter investigations.

    • Coordinating and developing consistent approaches addressing abusive tax shelters in LMSB.

    • Sharing information with other Operating Divisions.

    • Formulating strategies to deal with abusive tax shelter promotions and investors including allocation of resources to these activities in LMSB.

    • Supporting coordination of legislation and published guidance.

    • Establishing studies and task teams.

4.32.2.3.3.3  (03-30-2006)
LMSB 6700 Committee

  1. The LMSB 6700 Committee is a sub-committee of the LMSB Tax Shelter Committee. Its purpose is to ensure consistency and uniformity in selecting promoters for investigation within LMSB. OTSA submits referrals to the LMSB 6700 Committee for investigation consideration.

  2. The LMSB 6700 Committee has sole authority to approve LMSB tax shelter promoter investigations. No contact may be made with a promoter by an LMSB examiner unless approved by the LMSB 6700 Committee.

  3. The LMSB 6700 Committee is comprised of the following:

    • Industry Director, Financial Services (Chairperson).

    • Industry Director, Field Operations, Financial Services (designated by the Industry Director).

    • LMSB Counsel, Area One.

    • LMSB Senior Legal Counsel, Corporate Tax Shelters.

    • Manager, OTSA.

  4. Representatives from other Operating Divisions and OPR may be invited to participate in LMSB 6700 Committee discussions.

4.32.2.3.3.4  (03-30-2006)
Referrals to the LMSB 6700 Committee

  1. OTSA analyzes information received on promoters to make an initial determination as to whether a formal investigation is warranted.

  2. OTSA coordinates with other Operating Divisions to determine if the promoter is already under investigation. In determining if a promoter should be recommended for investigation, OTSA considers many factors such as:

    • Past activity of the promoters or material advisors.

    • Type of shelter.

    • Number of investors.

    • Size of the promotion.

    • Gross income derived from the promotion.

    • Amount of tax benefits claimed.

    • National impact.

    • Specific issues.

  3. If OTSA determines a formal investigation is warranted, the information is presented to the LMSB 6700 Committee.

  4. Contact the OTSA Senior Program Analysts for tax shelter promotions for questions regarding referrals to the LMSB 6700 Committee. All referrals to the LMSB 6700 Committee must be made through OTSA.

4.32.2.3.3.5  (03-30-2006)
Criteria for Authorization

  1. This section provides guidance on the type of information considered by the LMSB 6700 Committee in determining whether to approve an investigation.

4.32.2.3.3.5.1  (03-30-2006)
Entities

  1. The following types of information are considered by the LMSB 6700 Committee in reaching a determination regarding promoter activity. This list is not exclusive:

    • Returns filed by material advisors regarding any reportable transaction under IRC §6111 (post AJCA of 2004).

    • Registration of, or failure to, register a tax shelter under IRC §6111 (pre AJCA of 2004).

    • Disclosure statements filed by investors/advisees under IRC §6011,

    • Evidence obtained from investor income tax examinations or other promoter investigations, including interview statements.

    • Information received from the OTSA Tax Shelter Hotline.

    • Written promotional materials or prospectuses discussing the tax benefits of a transaction.

    • Confidentiality or nondisclosure agreements between investors and promoters.

    • Evidence that a known promoter created a new entity to continue a tax shelter promotion.

    • Evidence of fees received for a tax shelter promotion.

    • News articles or evidence of seminars, conferences, etc.

    • Internet research

    • IDRS or other internal research.

4.32.2.3.3.5.2  (03-30-2006)
Law Firms

  1. When considering a law firm for the promotion of tax shelters, all of the above are considered.

  2. Evidence which may tend to show a law firm was "selling a product" and not providing independent legal advice includes:

    1. Copies of written opinions discussing the tax implications of participating in a particular transaction, including evidence of multiple " cookie cutter" legal opinions.

    2. Copies of fee schedules, particularly those including fees tied to the amount of tax savings derived by investors.

    3. Evidence showing that the client and the law firm are not geographically close together.

    4. Information showing that the opinion/legal advice was part of a prepackaged tax shelter product or service.

    5. Written opinions/legal advice that fail to discuss applicable law.

4.32.2.3.3.5.3  (03-30-2006)
Individuals

  1. The LMSB 6700 Committee must approve IRC §6111 and IRC §6112 investigations of individuals. Whether an individual is a material advisor depends on the specific facts and circumstances of each promoter investigation. Examiners should carefully review the facts to determine if an individual is a material advisor.

  2. IRC §6111 and IRC §6112 were amended by the AJCA of 2004 and the IRC §6111 and IRC §6112 regulations have been modified several times. It is imperative that examiners carefully consider which rules apply to their investigation and they should contact Area Counsel for guidance.

  3. There are two compelling situations where individuals have been referred to the LMSB 6700 Committee and approved for investigation.

    1. Where evidence shows that the individual promoted in their individual capacity.

    2. Where evidence tended to show that the promoter entity was a shell with the intent to avoid or evade the provisions of IRC §6111, IRC §6112, IRC §6707, or IRC §6708.

  4. Appropriate referrals of individuals with other persuasive facts are encouraged. All the factors listed under IRM 4.32.2.3.3.5.1, Entities, are also considered in determining whether an individual should be subject to a promoter investigation.

4.32.2.3.3.6  (03-30-2006)
LMSB 6700 Committee Procedures

  1. After reviewing the information provided by OTSA, the LMSB 6700 Committee may:

    1. Approve the lead for investigation.

    2. Reject the lead.

    3. Send the lead back to OTSA for further development.

    4. Refer the lead to the LMSB Tax Shelter Committee for guidance if the LMSB 6700 Committee cannot agree on a course of action.

  2. All decisions by the LMSB 6700 Committee/LMSB Tax Shelter Committee are documented on a Promoter Investigation Checksheet.

  3. Approval of a promoter investigation encompasses all promotions conducted by that promoter.

  4. Promoter investigations may be conducted simultaneously with an income tax examination of the promoter and/or investor(s).

  5. Approved promoter investigation cases are forwarded to the Promoter Issue Champion for assignment. See IRM 4.32.1.4.1, Membership in the Issue Management Team, for more information on Issue Champions.

4.32.2.3.4  (03-30-2006)
Tax Exempt and Government Entities (TE/GE) Referrals

  1. If a TE/GE examiner identifies a potential ATAT or emerging issue involving a TE/GE entity during the course of an examination they are to contact one of the following committees:

    • Tax Exempt Organizations (EO) – EO ATAT Committee.

    • Employee Plans (EP) – Tax Shelter Coordinator.

    • Tax-Exempt Bonds (TEB) – TEB IRC LMSB 6700 Committee.

    • Indian Tribal Governments (ITG) – Abuse Detection and Prevention Team (ADAPT).

    • Federal, State & Local Governments (FSLG) – FSLG Outreach, Planning & Review.

  2. If the applicable Committee determines a referral warrants further development, the information is forwarded to the SB/SE LDC or OTSA for consideration and authorization.

4.32.2.3.5  (03-30-2006)
Coordination with CI

  1. The SB/SE LDC and OTSA submit memorandums to the CI Lead Development Center (CI LDC) advising of their intent to authorize a civil promoter investigation.

  2. CI queries their database, Criminal Investigation Management Information System (CIMIS), to identify any ongoing CI investigations of the promoter or associates.

  3. Based on the query the investigation falls into one of three categories:

    1. No CI Activity.

    2. CI Activity - No Conflict ("Green Flag" Category).

    3. CI Activity - Conflict ("Yellow Flag" Category) and LMSB for status updates.

  4. See also IRM 4.32.3.5, Criminal Investigations (CI), for further information.

4.32.2.3.5.1  (03-30-2006)
No CI Activity

  1. If the CI database search fails to disclose any open investigations of the primary subject or any related party, CI will send a " no conflict" memorandum advising the SB/SE LDC or OTSA to proceed with the authorization.

  2. If the CI LDC believes the package has criminal potential, the lead is forwarded to the local CI office where the subject resides for criminal consideration.

  3. If CI decides to conduct a criminal investigation after the civil promoter investigation has been authorized, CI is responsible for initiating a six-way conference within 10 days of receiving the case. See IRM 4.32.2.6.3, Six-Way Conference.

  4. CI is allowed 30 days to complete a primary investigation, with a provision for a 30-Day extension.

  5. CI can initiate a criminal investigation but the decision to stop an authorized civil investigation rests with the field compliance managers. If agreement cannot be reached, the issue(s) will be elevated. See IRM 4.32.2.6.3.4.4, Resolving Conflicts.

4.32.2.3.5.2  (03-30-2006)
Open CI Investigation

  1. If there is an ongoing criminal investigation, the CI LDC issues a memorandum to the local CI Special Agent in Charge (SAC) requesting a determination as to whether there would be a conflict between the proposed civil action and the criminal investigation. The determination should be made within 10 days of receiving the memorandum by CI.

4.32.2.3.5.2.1  (03-30-2006)
No Conflict with Parallel Investigation ("Green Flag " Category)

  1. A no conflict determination means concurrent civil and criminal promoter investigations (referred to as a parallel investigation) may be pursued. See IRM 4.32.2.6, Parallel Investigations.

  2. If CI determines that a civil investigation does not pose significant harm to the criminal investigation, the civil investigation will be authorized and sent to the field compliance.

  3. A six-way conference is required before initiating the investigation. See IRM 4.32.2.6.3, Six-Way Conference.

4.32.2.3.5.2.2  (03-30-2006)
Conflict with Parallel Investigation ("Yellow Flag " Category)

  1. Conflict means a civil investigation would greatly harm an ongoing criminal investigation. The mere existence of a criminal investigation, including a grand jury investigation, does not alone present a conflict and should NOT automatically delay or forestall a civil investigation.

  2. If CI believes a conflict exists that warrants a halt to a civil investigation, the SAC forwards a narrative summarizing the nature of the conflict to the SB/SE LDC or OTSA. The SAC should fax the original memorandum to the SB/SE LDC or OTSA.

  3. The SB/SE LDC or OTSA may either suspend these investigations or, in some limited cases, forward the investigation to the field (without being authorized) for a six-way conference. See IRM 4.32.2.3.5.3, Conflict Investigation Sent to the Field.

  4. All conflict determinations not sent to the field are suspensed and monitored by SB/SE, LMSB and CI LDC in coordination with CI Financial Crimes. The CI LDC routinely contacts SB/SE and LMSB for status updates.

4.32.2.3.5.3  (03-30-2006)
Conflict Investigations Sent to the Field

  1. Occasionally, a conflict investigation may be forwarded to the field to provide the civil Operating Division and CI an opportunity to reconsider the initial conflict determination. This generally would impact SB/SE investigations rather than LMSB investigations.

  2. A six-way conference is required to be held to discuss specifics of the investigation and address concerns arising from conducting simultaneous civil and criminal investigations. See IRM 4.32.2.6.3, Six-Way Conference.

  3. See IRM 4.32.2.5.1.2, Investigations Not Yet Authorized , for the procedures to be followed by the field for these cases.

  4. If the decision from the six-way conference is to proceed with a parallel investigation, a joint CI and civil memorandum is prepared and sent to the SB/SE LDC or OTSA to request an authorization memorandum. This memorandum also describes any restrictions or limitations on the civil investigation.

  5. The process for resolving disagreements is described in IRM 4.32.2.6.3.4.4, Resolving Conflicts.

4.32.2.3.6  (03-30-2006)
SB/SE Coordination with Return Preparer Program (RPP)

  1. Besides leads on tax shelter promoters, the SB/SE LDC also evaluates abusive return preparer leads for investigation. These cases generally fall into one of two categories:

    1. Return preparers sent out for an IRC §6701 investigation.

    2. Return preparers who have been the subject of a preparer project and who have not corrected their misconduct.

  2. Return preparers can violate both IRC §6694 and IRC §6701, so coordination between the Return Preparer Program Coordinators (RPC) and the SB/SE LDC is important.

  3. Before the RPC submits a Program Action Case (PAC) request (see IRM 20.1.6.1.6), they contact the SB/SE LDC to determine if an IRC §6700/6701 investigation has been considered. See IRM 20.1.6, Preparer/Promoter Penalties, for more information on PACs.

    1. If an IRC §6700/6701 investigation is already approved, or approval is pending, a PAC will not be requested.

    2. If an IRC §6700/6701 investigation on the preparer is not already approved or pending approval, the  SB/SE LDC will evaluate the lead. If there is no indication of promoter activity, the SB/SE LDC will add the preparer’s name to the database to reflect the preparer penalty investigation. The RPC may then initiate a PAC request.

    3. If an IRC §6700/6701 investigation on the preparer is not already approved or pending approval, but there is indication of promoter activity, the SB/SE LDC will review the lead on an expedited basis to determine if a promoter investigation is warranted. If so, the SB/SE LDC will notify the RPC that the promoter will be approved for an IRC §6700/6701 investigation and the RPC will not proceed with the PAC.

  4. During the PAC, the RPC monitors the examinations of the preparer's clients and the assessment of preparer penalties. If applicable, consideration should be given for a subsequent formal referral back to the SB/SE LDC to initiate an investigation.

  5. If the RPC determines that an injunction may be appropriate, they should consult the Area PSP ATAT Coordinator. The ATAT Coordinator and the RPC jointly prepare a formal referral to the SB/SE LDC requesting approval of an IRC §7407 injunction investigation.

  6. If appropriate, the SB/SE LDC Program Manager approves the investigation. Approved return preparer injunction investigations will be assigned to the SB/SE Area PSP in the same manner as IRC §6700/6701 investigations. Upon receipt of the investigation, the Area ATAT Coordinator discusses assignment of the investigation with the RPC.

  7. See IRM 20.1.6, Preparer/Promoter Penalties, for more information on the RPP program.

4.32.2.3.7  (03-30-2006)
Joint International Tax Shelter Information Centre (JITSIC)

  1. The IRS and the national taxing agencies of the United Kingdom, Canada and Australia have created the Joint International Tax Shelter Information Centre (JITSIC) to identify, develop and share information and expertise about abusive tax avoidance transactions (ATATs), particularly those that cross borders. Participation in JITSIC enables each country to better target compliance and enforcement efforts to combat abusive tax avoidance transactions.

  2. The purpose of JITSIC is to:

    • Provide support to the parties through the identification and understanding of ATATs and those who promote them.

    • Share expertise, best practices and experience in tax administration to combat ATATs.

    • Exchange information on ATATs, in general, and on specific promotions, their promoters, and investors consistent with the provisions of bilateral tax conventions.

    • Enable the parties to better address ATATs promoted by firms and individuals who operate without regard to national borders.

  3. The objectives of JITSIC are to deter promotion of, and investment in, ATATs. Through information exchange and knowledge sharing, the parties:

    • Increase public awareness of the potential civil and criminal risks of promoting and investing in ATATs.

    • Share best practices among the parties' tax administrations for identifying and addressing ATATs.

    • Enhance each party's compliance and enforcement efforts through coordinated and "real time" exchanges of tax information consistent with the provisions of bilateral tax conventions.

    • Develop new internet search and other techniques for early identification of promoters and investors involved in ATATs.

    • Identify emerging trends and patterns to anticipate new ATATs.

    • Improve parties' knowledge of techniques used to promote abusive tax avoidance transactions cross-border.

  4. JITSIC representatives have been designated Competent Authorities for purposes of their JITSIC work and may exchange information per bilateral tax treaties and disclosure rules.

  5. JITSIC is headquartered in Washington, D.C. and is staffed by representatives of the four tax agencies.

  6. Examiners that identify cross-border ATATs that involve the United States, the United Kingdom, Canada and/or Australia should make referrals to JITSIC through the SB/SE LDC or OTSA. For example, a transaction involving a United Kingdom taxpayer, promoter, accommodating party, or involving the potential abuse of laws of the United Kingdom would be of interest to JITSIC. Examiners may consult with the appropriate technical advisor or field specialist as needed to determine if an identified issue is potentially abusive. All referrals to JITSIC should be clearly referenced with "JITSIC" .

  7. Referrals from outside the IRS can be made to JITSIC through OTSA.

    IRS
    Office of Tax Shelter Analysis
    Mint Building M-3-320
    1111 Constitution Avenue NW
    Washington, DC 20224

  8. Examiners should refer to their respective Operating Division's Guidance Memorandum for individuals to contact for further guidance.

4.32.2.4  (03-30-2006)
Frivolous Return Program (FRP)

  1. This section describes the coordination of the Campus FRP with ATAT investigations. A complete description of the FRP is contained in IRM 4.19.1, Liability Determination—Campus Examination Operations.

  2. All frivolous documents are forwarded to, and processed at, the Ogden Compliance Services Campus.

  3. IRC §6702, Frivolous Income Tax Return, imposes a $500 penalty on any taxpayer who furthers a frivolous position or intends to delay or impede the administration of tax laws by filing a purported return. Any individual who purports to file a return which does not contain sufficient information to determine the substantial correctness of the self-assessment or contains information on its face that indicates the self-assessment is substantially incorrect, may be subject to the penalty.

  4. The FRP identifies individuals and/or promoters filing or promoting frivolous returns, claims, or documents and educates them on their tax responsibilities. Campus examination is responsible for detecting, controlling, processing and examining frivolous activities.

  5. Campus examination conducts orientations to campus functions involved in processing and/or examining returns or correspondence to emphasize recognition of frivolous documents and provide appropriate referral instructions.

  6. The FRP takes a proactive approach to frivolous non-compliance by providing outreach education through stakeholders on pertinent program data such as geographic trends of frivolous filings and common frivolous arguments.

  7. The program participates in coordinating new systemic identification of frivolous filings wherever possible and makes referrals to affected stakeholders such as the OPR, CI, SB/SE LDC, OTSA and Communications and Government Liaison.

4.32.2.4.1  (03-30-2006)
Detecting Frivolous Filings

  1. Identification of frivolous filings can be made by any IRS employee. They are identified during original return processing, amended return or claim processing, examinations, or with any contact with a taxpayer or their representative.

  2. Frivolous filings not related to an open examination should be routed to the Ogden Examination Frivolous Return Program. See the Transshipping Frivolous Filings to FRP section of IRM 4.19.1, Liability Determination—Campus Examination Operations. These filings include returns and amended returns or claims identified in Customer Account Services (CAS) and Compliance in the Campuses, field offices, and other IRS offices.

  3. Frivolous return filings should be associated with an open examination if one exists.

4.32.2.4.1.1  (03-30-2006)
Responses to Frivolous Filings

  1. Employees are responsible for replying to frivolous filings associated with an open case using Letter 3175, Response to Frivolous Documents/Returns Rec'd from Taxpayers, or Letter 3176, Response to Frivolous Documents/Returns Rec'd from Taxpayers, using appropriate paragraphs in IRM 4.19.1, Liability Determination—Campus Examination Operations, to notify taxpayers of frivolous positions.

  2. Any reply associated with an open case should be documented in the case file and on IDRS via Command Code ACTON.

  3. If the document contains valid requests (e.g., FOIA, transcripts, or taxpayer advocate issues) the request should be forwarded to the appropriate function.

  4. Frivolous returns, claims, or correspondence unrelated to an open case should be forwarded to the Ogden Compliance Campus Frivolous Return Program at:

    Internal Revenue Service
    105 23rd Street
    Ogden, UT 84401
    ATTN: FRP M/S 4450

4.32.2.4.1.2  (03-30-2006)
Field Identification of New Frivolous Positions

  1. Examiners may discover new frivolous positions not previously detected by the FRP. A Servicewide Electronic Research Program (SERP) alert can be prepared to notify the campuses and field compliance of frivolous positions. See IRM 1.11.7, Guide for IRM Authors Utilizing SERP, for additional information on the process for preparing SERP alerts.

  2. The government’s position with respect to new FRPs should be coordinated with FRP management and Counsel.

4.32.2.4.2  (03-30-2006)
FRP Promoter/Preparer investigations

  1. The FRP Master database is used to track and monitor frivolous filings. The database includes current inventory and historical data on accounts not in compliance for two consecutive years filing and paying. It provides a means to identify new ATAT promotions to make referrals for injunctive actions, civil and criminal investigations, and follow-up monitoring on violations of existing court orders on abusive promoters and preparers.

  2. FRP Master reports are created on a regular basis to proactively provide data to SB/SE Communications and Liaison and other affected parties on:

    • Emerging promotions.

    • Promoters and/or preparers involved in ATAT promotions.

    • Trends in geographic locations of frivolous filings or specific business affiliations.

    • The need for outreach education on specific promotions.

    • Any data pertinent to the overall compliance objectives of the IRS.

  3. FRP Master reports should also be used to fulfill requests made by examiners conducting promoter/preparer investigations. Requests should be coordinated and approved through the Ogden FRP Technical Advisor and Examination Operations Manager for Campus Support.

4.32.2.4.2.1  (03-30-2006)
Campus Preparer/Promoter Penalties and Civil Investigations

  1. All frivolous filings are considered for potential civil investigation when promotions, promoters, or preparers are associated with them. Initial screening of returns, claims and correspondence may determine the need to consider further development of case referrals for civil investigations. When a filing is associated with four or more frivolous filings that are potentially attributed to a specific promotion, promoter, or preparer, FRP shall make a referral to the SB/SE LDC for determination of further processing.

  2. The SB/SE LDC develops potential civil investigations on abusive tax promotions for referral to SB/SE Area offices.

  3. The SB/SE LDC determines whether the case warrants an SB/SE Area office referral for further investigation or if the case will be returned to FRP. Once these investigations are approved and assigned, examiners should request the assistance of the FRP. The FRP provides pertinent data via FRP Master on similar promotions and/or filings related to a specific promoter or promotion.

4.32.2.4.2.2  (03-30-2006)
FRP Preparer Investigations

  1. Cases not approved for promoter investigation should be considered if associated with a tax return preparer(s). To apply sanctions on non-compliant preparers, Policy Statement P-20-1, Penalties Enhance Voluntary Compliance, directs preparer penalties only after due deliberation on all facts and circumstances. This process is described in the Frivolous Return and Non-filer Programs Overview section of IRM 4.19.1, Liability Determination—Campus Examination Operations.

  2. All preparer penalty cases prepared by FRP are coordinated with Area Counsel to determine if the case should be considered for civil injunction, penalty assessment, or no action.

4.32.2.5  (03-30-2006)
Case Control/Case Assignment Procedures

  1. All promoter investigation cases (except for TE/GE investigations) must be input on ERCS. TE/GE promoter investigation cases must be input on either Employee Plans Inventory Control (EPIC) or Exempt Organization Inventory Control (EOIC). Promoter investigations are not controlled on AIMS.

  2. SB/SE Area PSPs establish SB/SE promoter investigations on ERCS with the proper project code and tracking code, if applicable. For SB/SE, only the promoter's most current fully completed tax year is established on ERCS.

  3. LMSB investigations are input on ERCS by Team Managers.

  4. Investigation cases are input on ERCS through the Control Penalty Investigation screen option. Use MFT P6 for IRC §6700, IRC §6707, and IRC §6708 investigations and MFT P7 for IRC §6701 investigations.

  5. All time charged to a promoter’s TIN under MFT P6 automatically defaults to activity code 593, Promoter Penalty.

  6. All time charged to a promoter’s TIN under MFT P7 automatically defaults to activity code 594, Aiding and Abetting Penalty .

  7. See the ERCS Handbook for further instructions.

4.32.2.5.1  (03-30-2006)
SB/SE Special Case Control Procedures

  1. The SB/SE LDC sends promoter investigations to the field as either authorized investigations or investigations not yet authorized due to unresolved CI conflict.

4.32.2.5.1.1  (03-30-2006)
Authorized Investigations

  1. SB/SE examiners should verify the investigation has been established on ERCS under the promoter TIN by PSP.

4.32.2.5.1.2  (03-30-2006)
Investigations Not Yet Authorized

  1. Occasionally, the SB/SE LDC may forward an investigation not yet authorized to the field ("Yellow Flag" investigations) to resolve CI potential conflicts. See IRM 4.32.2.3.5.3, Conflict Investigation Sent to the Field.

  2. Investigations not yet authorized are established by PSP in the same manner as authorized investigations except no time is charged to the specific promoter investigation until the CI conflicts are resolved.

  3. All time charges prior to securing CI's concurrence to a parallel investigation should be charged to activity code 593 or 594. The cases remain in status code 10 until the investigation is authorized. Under no circumstances should any time be charged directly to the promoter’s TIN for investigations that are not yet officially authorized by the SB/SE LDC.

  4. Examiners contact the special agent assigned to the criminal investigation and schedule a six-way conference. For further information, see IRM 4.32.2.6.3, Six-Way Conference.

  5. If the decision from the six-way conference is to proceed with a parallel investigation, a joint CI and civil memorandum is prepared and sent to the SB/SE LDC to request an authorization memorandum. This memorandum also describes any restrictions or limitations on the civil investigation.

  6. Once the SB/SE LDC provides an authorization, the investigation is updated to status code 12 and time charged as described in IRM 4.32.2.5, Case Control/Case Assignment Procedures.

4.32.2.5.2  (03-30-2006)
LMSB Special Case Assignment Procedures

  1. The Promoter Issue Champion forwards the OTSA referral package to the Team Manager for field assignment.

  2. Team Managers set up the administrative ERCS record. The tax period used is the year the investigation was approved by the LMSB 6700 Committee. See IRM 4.32.2.5, Case Control/Case Assignment Procedures, for further information on setting up the investigation case on ERCS.

4.32.2.5.3  (03-30-2006)
Securing TINs for Promoter Investigations

  1. Occasionally, promoter investigations, without valid TINS, are sent to Area Offices. This section provides procedures for securing TINs.

  2. A temporary TIN is assigned until a correct TIN is identified or a permanent TIN is provided by the Campus.

  3. When the promoter's correct TIN is identified or a permanent TIN is secured, the ERCS record is updated with the correct information.

4.32.2.5.3.1  (03-30-2006)
SB/SE PSP ATAT Coordinator Responsibilities

  1. PSP ATAT Coordinators are responsible for obtaining temporary TINs for promoter investigation cases with no valid TINs before sending them to the field.

  2. Command Code AMTIN7 is used to assign a new temporary number. See IRM Exhibit 2.8.8-3, Command Code AMTIN7, for the input display for Command Code AMTIN7.

  3. If an income tax examination is to be conducted as well as the promoter investigation, establish Non-Master File (NMF) AIMS control for the income tax examination using Form 5354, Examination Request Non-Master File. See IRM 4.4.9.12, No TIN, for additional information. Command Code AMNON is used to establish the dummy number on AIMS. See IRM Exhibit 2.8.8-1, Command Code AMNON, for the input display for Command Code AMNON.

  4. If a promoter never had a valid TIN and refuses to obtain one, PSP ATAT Coordinators assist examiners in securing a permanent TIN from the appropriate Campus.

  5. PSP ATAT Coordinators notify the SB/SE LDC of the assignment of a temporary TIN and any subsequent changes to the TIN.

4.32.2.5.3.2  (03-30-2006)
Examiner Responsibilities

  1. Examiners attempt to identify a promoter's valid TIN during their investigation.

  2. If a promoter does not have a valid TIN, examiners will request the promoter to acquire a TIN as follows:
    For a Social Security Number (SSN):

    • Individuals eligible for a SSN must contact the Social Security Administration to obtain an SSN.

    • Form SS-5, Application for a Social Security Number, is used to obtain an SSN.


    For an Individual Taxpayer Identification Number (ITIN):

    • Individuals not eligible for an SSN use Form W-7, Application for IRS Individual Taxpayer Identification Number, to obtain an ITIN.

    • By mail - To IRS, Philadelphia Campus, ITIN Unit, P.O. Box 447, Bensalem, PA 19020

    • In person - At any IRS Taxpayer Assistance Centers in the US and most IRS offices abroad.

    • Through an Accepted Agent - A list of Accepted Agents can be found on the internet at www.irs.gov.


    For an Employer Identification Number (EIN):

    • Form SS-4, Application for Employer Identification Number , is used to obtain an EIN.

    • Through the internet at www.irs.gov.

    • By telephone at 1-800-829-4933 (International applicants must call 1-215-516-6999)

    • By fax - See the instructions for Form SS-4, Application for Employer Identification Number, for fax numbers.

    • By mail - See the instructions for Form SS-4 for addresses.

  3. If a promoter does not have a valid TIN and refuses to obtain one, examiners should contact the PSP ATAT Coordinator. The PSP ATAT Coordinator will assist in securing a valid TIN from the Campus.

  4. Once a valid TIN has been determined or obtained, the examiner should update ERCS from the temporary TIN to the valid TIN. The user can go through the Correct or Display option from the ERCS Main Menu and select " Change a Non-master File Return to a Masterfile Return" .

  5. If a promoter is unlocatable, the promoter investigation case file is closed out as discontinued before contact. See IRM 4.32.2.11.10.2, Case Closing Procedures, for investigation case closing procedures.

  6. If an income tax examination is conducted on the promoter and a valid TIN has been determined or obtained, both ERCS and AIMS must be updated.

    1. ERCS is updated as described above.

    2. The NMF return is deleted from ERCS and replaced with the Masterfile return by completing a Form 5345B, Examination Request Master File . This can be done at the group level if the user has command code AMSOC permissions. Two command codes are generated to update AIMS: a Masterfile requisition (AM424) and a Non-master File deletion (AMSOC).

    3. If an SFR is required wait until a valid TIN is received before sending an SFR to Master File. When the return is converted on ERCS and if an SFR is to be generated at the same time, input push code 036. If an SFR is not to be generated at the same time as the AIMS opening, update the push code on ERCS to 036 when the SFR is to be generated.

4.32.2.5.3.3  (03-30-2006)
SB/SE LDC Responsibilities

  1. The SB/SE LDC updates the database with the temporary/valid TIN as applicable.

  2. If a valid TIN is received, the Investigation Authorization memorandum is updated with the correct TIN.

4.32.2.5.4  (03-30-2006)
Transferring Promoter Investigations

  1. There may be instances where a civil promoter investigation must be transferred from one compliance Area to another. For example:

    1. The promoter has shifted ATAT activity physically from one area to another. If so, it may be more efficient to transfer the investigation to the other Area office.

    2. The receiving Area office may be unable to conduct a civil promoter investigation due to staff limitations or other considerations.

    3. The promoter is related to another investigation and it would be more efficient to have one Area or examiner work related investigations.

4.32.2.5.4.1  (03-30-2006)
Field Compliance Responsibilities

  1. Examiners prepare Form 4665, Report Transmittal, explaining why the promoter investigation is being transferred.

  2. Update the promoter investigation on ERCS to status code 41 using disposal code 30.

  3. Send the administrative investigation case file to the SB/SE Area’s PSP ATAT Coordinator or LMSB PSP using Form 3210.

4.32.2.5.4.2  (03-30-2006)
PSP ATAT Coordinator Responsibilities

  1. The transferring Area PSP ATAT Coordinator:

    1. Notifies the SB/SE LDC or LMSB Financial Services that the promoter investigation is being transferred to another Area office. Notification may be made electronically

    2. Transfers the administrative case file per the Area office’s standard case transfer procedures.

    3. Case is updated to status code 90 on ERCS and short closed.

  2. The receiving Area PSP ATAT Coordinator:

    1. Ensures that the promoter investigation is established on ERCS.

    2. Assigns the promoter investigation to the field.

4.32.2.5.5  (03-30-2006)
Tracking Codes

  1. When a participant list is secured or developed during a SB/SE promoter investigation, an ERCS tracking code must be secured from the SB/SE LDC if one does not already exist. The request is submitted through the group manager with a copy to PSP. The SB/SE LDC provides the tracking code to both the group manager and PSP. Tracking codes are updated at the group level using Form 5348, AIMS/ERCS Update. See IRM 4.32.2.13, Participant/Investor Cases, for more information on participant cases.

  2. Locally defined project or tracking codes can not to be used unless approved in advance by Headquarters since the locally defined codes are not reflected in national reports or tables.

  3. The tracking code is used on all promoter investigations and income tax examinations conducted on participants or other related examinations including investors, sub-sellers, preparers, etc. regardless of the Area. The promoter tracking code is added to all related cases including any in process cases.

  4. Using the same tracking code on all the promoters and participants in a promotion could help the key case examiner compute estimate of harm to the government. It also allows the case building unit to coordinate participant examinations.

  5. A promoter tracking code generally overrides any other tracking code. If a different tracking code is assigned to a related promoter investigation or participant examination case, contact PSP to have it updated. Group managers should contact the domestic or offshore ATAT Program Manager for advice if there is a conflict in tracking codes.

4.32.2.6  (03-30-2006)
Parallel Investigations

  1. The IRC contains both civil and criminal provisions to address ATAT promotions. Examiners may conduct civil investigations before, during or after criminal investigations of a promoter.

  2. Parallel investigations are simultaneous civil and criminal investigations of a common individual or entity.

  3. Parallel investigations are not joint investigations. Each Operating Division conducts a separate investigation. Significant coordination is required throughout the investigation and litigation processes. While regularly scheduled coordination meetings are required, CI must not direct the examiner’s actions in the civil investigation.

4.32.2.6.1  (03-30-2006)
Policy Statement

  1. Policy Statement P-4-26, Criminal and Civil Aspects in Enforcement, (formerly P-4-84) provides guidance on taking civil enforcement action when the subject is also involved in a criminal investigation. This new statement encourages civil enforcement action in all investigations where the promotion is ongoing and harm to the government is significant. This compliance strategy is intended to quickly stop the promotion, prevent additional loss of tax revenue, and foster voluntary compliance by the participants.

  2. If criminal and civil Operating Divisions cannot agree on an approach, P-4-26 describes the procedures for resolving the matter. Refer to IRM 4.32.2.6.3.4.4, Resolving Conflicts.

4.32.2.6.2  (03-30-2006)
Commencement of Parallel Investigation

  1. Criminal investigation is notified of all proposed investigations prior to authorization by the SB/SE LDC or OTSA. CI may respond that the commencement of a civil investigation may or may not pose a conflict with the criminal investigation. See IRM 4.32.2.3.5, Coordination with CI, for additional discussion.

  2. If CI has an open subject or related investigation or is interested in initiating a criminal investigation, civil and criminal examiners must coordinate developing evidence to support both the separate and distinct criminal and civil investigations while being mindful of legal requirements and constraints. Communication is essential for a successful parallel investigation.

4.32.2.6.3  (03-30-2006)
Six-Way Conference

  1. A six-way conference is required for all investigations where CI has an open investigation or is interested in pursuing an investigation. The conference should be held within 10 days of the examiner receiving the promoter investigation case.

  2. A pre-conference meeting with the examiner, Collection, and Area Counsel to discuss the investigation and objectives of the six-way conference is advisable.

4.32.2.6.3.1  (03-30-2006)
Purpose

  1. A six-way conference is held to determine the appropriate course of action to achieve the IRS’s objective of stopping the ATAT promotions as rapidly as possible. Conference participants discuss the legal implications and coordination aspects of a parallel investigation.

4.32.2.6.3.2  (03-30-2006)
Conference Participants

  1. The following individuals should participate in the six-way conference:

    • Examiner

    • Group/Team manager

    • Area Counsel

    • Special agent

    • Supervisory special agent

    • Criminal Tax (CT) Counsel

  2. If there is an Assistant United States Attorney (AUSA) or Department of Justice attorney assigned to the criminal investigation, that attorney should participate. If that attorney cannot participate, it is imperative that he or she is fully apprised of the nature of the discussion and decisions made with respect to the coordination of the civil and criminal investigations.

  3. The local Fraud Technical Advisor (FTA) is encouraged to attend. Territory Managers, a representative from Collections, and the SB/SE LDC Technical Advisor or the IMT Technical Advisor may also participate as appropriate.


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