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Part 4. Examining Process

Chapter 32. Abusive Tax Avoidance Transactions (ATAT)

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

4.32.2  The Abusive Tax Avoidance Transactions (ATAT) Process (Cont. 2)

4.32.2.8 
Investigation Outcomes

4.32.2.8.4  (03-30-2006)
Discontinuation

  1. SB/SE examiners, in consultation with Area Counsel, may determine that an investigation should be closed as a discontinuation.

  2. Some circumstances which may warrant a discontinuation of the investigation include:

    • The individual or entity identified as the ATAT promoter is in fact not involved in the activity.

    • The promotional activity has been proven not to be abusive in nature, and accordingly, would not be subject to penalties under IRC §6694, IRC §6695, IRC §6700, IRC §6701, IRC §6707, or IRC §6708.

  3. Examiners must discuss decisions to discontinue an investigation before closing the file from the group. SB/SE examiners should consult with Area Counsel, ATAT/IMT Technical Advisors, and the SB/SE LDC. LMSB examiners must contact Area Counsel, the LMSB DFO with jurisdiction over the promoter investigation and LMSB Financial Services, DFO, Manhattan.

4.32.2.8.4.1  (03-30-2006)
Discontinuation Before Promoter Contact

  1. A discontinuation letter is not required if no promoter contact has been made. Any time charged will not have been investigation specific, but charged to activity code 593.

  2. Investigations are closed by the field compliance group using the case processing procedures described in IRM 4.32.2.11.10.2, Case Closing Procedures.

4.32.2.8.4.2  (03-30-2006)
Discontinuation After Promoter Contact

  1. If a promoter has been contacted, examiners must issue a discontinuation letter when closing the investigation. Below is a chart of the appropriate discontinuation letter to be used by examiners:

    Investigation Letter IRM Exhibit #
    IRC §6700/IRC §6701 Investigation Letter 1866 - 6700/6701 Investigation Discontinuation IRM Exhibit 4.32.2-11
    IRC §6112 Investigation- no formal IRC §6707/IRC §6708 Examination Withdrawal Letter for an IRC §6112 Investigation – No IRC §§6707/6708 Investigation IRM Exhibit 4.32.2-12
    IRC §6112 Investigation - IRC §6707/IRC §6708 Examination Withdrawal Letter for IRC §§6707/6708 Investigations IRM Exhibit 4.32.2-13

  2. SB/SE examiners may issue the discontinuance letter once it has been signed by their immediate manager. LMSB examiners do not issue the audit letter until approved by the DFO, Financial Services, Manhattan.

  3. Discontinuing a civil investigation is not a "no change " closure. The decision to discontinue does not preclude the investigation from being reopened if more information becomes available later. The reopening of a civil investigation is not subject to the reopening requirements of an income tax examination.

  4. Investigations are closed by the field compliance group using case processing procedures described in IRM 4.32.2.11.10.2, Case Closing Procedures .

4.32.2.9  (03-30-2006)
Injunctive Action

  1. The IRS should consider civil injunction actions in investigations where the promotion is ongoing or is likely to recur and harm to the Government is significant, even when a criminal investigation has begun.

  2. The primary goal of any civil promoter investigation is to quickly terminate the promotion or activity. This is generally done by seeking injunctive relief under IRC §7402, IRC §7407, IRC §7408 against the promoter.

  3. Examiners conduct promoter investigations to gather information to demonstrate conduct or activity subject to penalties under IRC §6700, IRC §6701, IRC §6707 or IRC §6708.

  4. Occasionally, examiners and Area Counsel, may determine that asserting penalties may be sufficient to change the behavior of the promoter. If so, an injunction may not be necessary.

  5. If an injunction is being recommended, examiners must prepare an Examiner Injunction Referral (EIR) to Area Counsel recommending the actions to be taken against the promoter(s). The report must be prepared using a specific format substantially different than a Revenue Agents’ Report (RAR).

  6. The EIR is similar in format to a Special Agents’ Report and is very detailed. It is organized into five parts:

    1. Case summary.

    2. Facts and findings.

    3. Appendix of attached exhibits.

    4. Investigative agent data.

    5. List of witnesses.


    Each of these components is described in IRM Exhibit 4.32.2-14, Examiner Injunction Referral (EIR).

  7. Area Counsel refers promoters to the DOJ for filing of injunction suits.

4.32.2.10  (03-30-2006)
Tax Shelter Provisions

  1. This section provides an overview of IRC §6111 and IRC §6112.

4.32.2.10.1  (03-30-2006)
IRC §6111 Overview

  1. The AJCA of 2004 changed IRC §6111 after October 22, 2004. Any person who is a material advisor for a reportable transaction as defined under IRC §6707A and related regulations must disclose the reportable transaction in the manner prescribed by the Secretary. Failures to timely disclose or submitting false or incomplete disclosure statements are subject to penalties under IRC §6707. Notice 2004-80 advises material advisors to use Form 8264, Application for Registration of a Tax Shelter, for this disclosure until it is revised or a successor form is issued. Notice 2004-80 also provides instructions to material advisors on how to complete the form.

  2. IRC §6111(b)(1) defines a material advisor as any person who provides any material aid, assistance, or advice relating to organizing, managing promoting, selling, implementing, insuring or carrying out any reportable transaction, and who directly or indirectly derives gross income for the advice or assistance in excess of the threshold amount. See IRC §6111(b)(1)(B), Threshold Amount, for threshold amounts.

  3. The following notices issued by the IRS provide interim guidance to material advisors who must comply with the revised IRC §6111:

    • Notice 2004-80, 2004-50 I.R.B. 963

    • Notice 2005-17, 2005-08 I.R.B. 606

    • Notice 2005-22, 2005-12 I.R.B. 756

    Note:

    The IRS and the Treasury Department have announced that regulations under amended IRC §6111 will be issued. These regulations will apply to transactions where material aid, assistance, or advice is provided after October 22, 2004. Caution: The new regulations may modify this interim guidance.

  4. For tax shelters first offered for sale before October 23, 2004, organizers, managers, sellers or promoters of tax shelters were required to register the shelter. Form 8264 was used and had to be filed with the Ogden Campus by the first day an interest was offered for sale.

  5. Prior to amendment by AJCA of 2004, IRC §6111(c), defined a tax shelter as any investment where a person could reasonably infer from representations made that the tax shelter ratio for any investor at the close of any of the first 5 years ending after the day the investment is offered for sale may be greater than 2 to 1, and which also met one of the following requirements:

    • Was required to be registered under securities laws.

    • Was sold pursuant to an exemption from registration that required the filing of a notice with a Federal or State agency regulating the offering for sale of securities.

    • Was a substantial investment, meaning the aggregate amount which could be offered for sale to all investors exceeded $250,000 and there were expected to be 5 or more investors.

  6. Prior to amendment by AJCA of 2004, IRC §6111(d) also defined a tax shelter as any transaction that met the following requirements:

    1. A significant purpose of the structure was the avoidance or evasion of federal income tax for a direct or indirect corporate participant.

    2. Was offered to a potential participant under conditions of confidentiality.

    3. The promoters may have received fees of more than $100,000 in the aggregate.

4.32.2.10.2  (03-30-2006)
IRC §6112 Overview

  1. Each material advisor (as defined in IRC §6111, as amended) of a reportable transaction is required to maintain a list identifying each person whom the advisor acted as a material advisor for with respect to that transaction. Lists are retained for 7 years.

  2. Material advisors must furnish this list when requested in writing by the IRS. The revised penalty under IRC §6708 applies to requests made after October 22, 2004 for such lists. Failing to make the list available within 20 business days of the request is subject to penalties under IRC §6708, as amended.

  3. The following notices issued by the IRS provide interim guidance to material advisors who must comply with the revised IRC §6112:

    • Notice 2004-80, 2004-50 I.R.B. 963

    • Notice 2005-17, 2005-08 I.R.B. 606

    • Notice 2005-22, 2005-12 I.R.B. 756

    Note:

    The IRS and the Treasury Department have announced that regulations under IRC §6112 will be amended. Caution: The amended regulations may modify this interim guidance.

  4. Sellers and organizers of potentially abusive tax shelters, as defined under IRC §6112 (pre AJCA of 2004), offered for sale before October 23, 2004, must also maintain and furnish investor lists when requested. Investor information is required to be retained for 7 years. Sellers and organizers who fail to make a list available to the IRS within 20 business days of a request made after October 22, 2004, may be subject to penalties under IRC §6708 (as amended). See IRM 4.32.2.11.1, Promoter Penalty Overview.

    Caution:

    The interim guidance states that the existing rules contained in Treas. Reg. §301.6112-1, including the provisions relating to designation agreements between material advisors, continue to apply to the revised IRC §6112. Amended regulations may modify this interim guidance.

4.32.2.11  (03-30-2006)
Penalty Assessment

  1. Penalties continue to remain an important tool of the IRS in supporting its mission to encourage voluntary compliance.

  2. This section covers penalties related to ATAT promoter investigations. See IRM 20.1.6, Preparer/Promoter Penalties, IRM 20.1.10.12, IRC Section 6707, and IRM 20.1.10.13, IRC Section 6708, for more information.

4.32.2.11.1  (03-30-2006)
Promoter Penalty Overview

  1. IRC §6700, Promoting Abusive Tax Shelters, etc. , permits assertion of penalties against promoters of abusive tax shelters. A person who knowingly organizes, assists in the organization of or, creates or sells an interest in, an entity, plan or arrangement that contains a false or fraudulent statement about any material matter or a gross valuation overstatement may be liable for a penalty under IRC §6700. See IRM 20.1.6.5, Penalty for Promoting Abusive Tax Shelters--IRC Section 6700--Legislative Overview, for more information.

  2. IRC §6701, Penalties for Aiding and Abetting Understatement of Tax Liability, permits assertion of penalties against persons who help others to understate their tax liabilities. A person who assists, procures, or gives advice to others regarding the preparation or presentation of a document knowing that use of the document will result in an understatement of another person's tax liability may be liable for penalties under IRC §6701. See IRM 20.1.6.6, Penalties for Aiding and Abetting--IRC Section 6701--Legislative Overview, for more information.

  3. For material advisors required to disclose reportable transactions for advice/assistance/material aid given after October 22, 2004:

    1. IRC §6707, Failure to Furnish Information Regarding Reportable Transactions, permits assertion of penalties against any person who fails to timely file an information return with respect to a reportable transaction, or files a false or incomplete return, as required by IRC §6111(a).

    2. See IRM 20.1.10, Miscellaneous Penalties, for more information on IRC §6707 penalties, and IRM 4.32.2.14.6, Special Rules for Corporate Tax Shelters, for more information on IRC §6111.

  4. For tax shelter registrations due before October 23, 2004:

    1. IRC §6707, Failure to Furnish Information Regarding Tax Shelters, permitted asserting penalties against any person who failed to timely register a tax shelter, or filed a false or incomplete registration, as required by IRC §6111(a).

    2. See IRM 20.1.6, Preparer/Promoter Penalties, for more information on IRC §6707 and IRM 4.32.2.14.6, Special Rules for Corporate Tax Shelters, for more information on IRC §6111.

  5. Requests for investor/advisee lists:

    1. For requests made after October 22, 2004, IRC §6708, Failure to Maintain Lists of Advisees with Respect to Reportable Transactions , permits asserting penalties for failing to comply with the list maintenance requirements against (1) an organizer or seller of an abusive tax shelter who was required to maintain a list of investors under IRC §6112 (prior to amendment by the AJCA of 2004) and (2) a material advisor with respect to a reportable transaction who is required to maintain a list of advisees under IRC §6112, as amended by AJCA of 2004.

    2. See IRM 20.1.10 Miscellaneous Penalties, for more information on IRC §6708 and IRM 4.32.2.14.6, Special Rules for Corporate Tax Shelters, for more information on IRC §6112.

4.32.2.11.2  (03-30-2006)
Statute of Limitations

  1. IRC §6700 penalties can be assessed at any time for each specific act of organizing and/or selling interests in an abusive shelter. There is no assessment statute of limitations for IRC §6700.

  2. IRC §6701 penalties can be assessed at any time. There is no assessment statute of limitations for IRC §6701.

  3. For material advisors required to disclose reportable transactions for advice given after October 22, 2004 (post AJCA of 2004):

    1. IRC §6707 penalties for failing to timely file an information return or for filing false or incomplete information on a return required by IRC §6111(a) must be assessed within 3 years of the filing of an untimely return or the return with the false or incomplete information.

    2. IRC §6708 penalties for failing to make available the list of advisees regarding reportable transactions are not subject to a statutory period of limitation.

  4. For tax shelters required to be registered before October 23, 2004 (pre AJCA of 2004):

    1. Generally, IRC §6707(a)(1) penalties for failing to register a tax shelter are not subject to an assessment statute of limitation.

    2. IRC §6707(b)(2) penalties for failing to include a tax shelter registration number on a return must be assessed within 3 years of the filing the return with the missing identification number.

    3. IRC §6708 penalties for failing to maintain a list of investors in potentially abusive tax shelters are not subject to a statutory period of limitations.

  5. See IRM 25.6, Statute of Limitations, for more information.

4.32.2.11.3  (03-30-2006)
Coordination with Other IRC Penalty Code Sections

  1. Some promoter penalties can be applied in addition to other penalties provided for by law. Examiners should refer to IRM 20.1.6, Preparer/Promoter Penalties, for information on coordination with other penalties.

4.32.2.11.4  (03-30-2006)
Coordination with Parallel Investigations

  1. In parallel investigations, penalty assessments may be suspensed until the criminal investigation is completed. The decision to delay penalty assessment should be weighed against activities of the promoter that would imperil subsequent collection. See IRM 4.32.2.6, Parallel Investigations.

4.32.2.11.5  (03-30-2006)
Approval of Penalties

  1. IRC §6751, Procedural Requirements, requires written managerial approval of most penalties, including those under IRC §6700, IRC §6701, IRC §6707 and IRC §6708, by the immediate supervisor of the examiner making the determination to assess the penalty. Documentation of the supervisor's approval must be included in the file.

  2. Following approval by the SB/SE group manager or the LMSB team manager, the penalty case should be forwarded to Area Counsel for review.

  3. In LMSB, after Area Counsel reviews the investigation case, it is forwarded to the following officials for their review and approval:

    1. Territory Manager

    2. Director, Field Operations (DFO)

    3. Director, Field Operations, Financial Services, Manhattan (L:F:DFO:M)

  4. The investigation case is returned to the examiner for closing after it is reviewed.

  5. Generally, once a preliminary injunction is obtained penalties can be assessed. Examiners and Area Counsel should discuss the timing of the penalty assessment with DOJ. See IRM 4.32.2.8.2.2, Penalty Assessment - Parallel Investigation, for exceptions when there is a parallel investigation.

  6. See IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments , for additional information.

4.32.2.11.6  (03-30-2006)
Computation of IRC §6700 Penalties

  1. In most situations, any injunction litigation is to be resolved before asserting IRC §6700 penalties. See IRM 4.32.2.8.2.1, Injunctions - Penalty Assessment.

  2. For all activities occurring after December 31, 1989 and before October 23, 2004, as well as activities after October 22, 2004, that involve gross valuation overstatements:

    1. For each separate entity, plan, or arrangement organized by the promoter the penalty is the lesser of $1,000 or 100 percent of the gross income derived from the creation.

    2. For each sale of an interest in any entity, plan or arrangement in which the promoter participates (either directly or indirectly) the penalty is the lesser of $1,000 or 100 percent of the gross income derived from the sale.

  3. For activities occurring after October 22, 2004, involving material false or fraudulent tax statements, the penalty is equal to 50 percent of the gross income derived (or to be derived) from the following activities:

    1. Organizing or assisting in the organization of each separate entity, plan, or arrangement...

    2. Participating in the sale of an interest in any entity, plan or arrangement in which the promoter participates (either directly or indirectly).

  4. See IRM 20.1.6.5, Penalties for Abusive Tax Shelters - IRC Section 6700, for additional information on IRC §6700 penalties.

4.32.2.11.7  (03-30-2006)
Computation of IRC §6701 Penalties

  1. In most situations, any injunction litigation should be resolved before asserting IRC §6701 penalties.

  2. IRC §6701 imposes a penalty of:

    1. $1,000 for aiding and assisting in the preparation or presentation of any portion of a return, affidavit or other document, that would result in an understatement of tax or,

    2. $10,000 for each document if the prohibited conduct relates to the tax liability of a corporation.

  3. IRC §6701 penalties cannot be asserted or assessed if IRC §6700 or IRC §6694 penalties are asserted for the same document.

  4. See IRM 20.1.6.6, Penalties for Aiding and Abetting - IRC Section 6701, for additional information on IRC §6701 penalties.

4.32.2.11.8  (03-30-2006)
Computation of IRC §6707 Penalties

  1. For material advisors required to disclose reportable transactions on which advice was given after October 22, 2004 (post AJCA of 2004):

    1. IRC §6707(a) imposes a penalty of $50,000 for failing to timely file an information return regarding a reportable transaction, including filing a false or incomplete return.

    2. For failures to furnish information regarding a listed transaction, the penalty is the greater of 50 percent (75 percent in the case of an intentional failure) of the gross income derived from any aid, assistance, or advice provided regarding the listed transaction before the date the return is filed, or $200,000.

    3. The term "reportable transaction" is defined in IRC §6707A(c)(1), and is a type of transaction that the Secretary determines has a potential for tax avoidance or evasion under regulations prescribed under IRC §6011.

    4. The term "listed transaction" is defined in IRC §6707A(c)(2), and is a reportable transaction which is the same or substantially similar to a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of IRC §6011.

  2. For tax shelters offered for sale before October 23, 2004 (pre AJCA of 2004):

    1. IRC §6707(a) imposes a penalty for failing to register a tax shelter, including failing to register the shelter timely (i.e., before it was offered for sale) or for filing incomplete or false information.

    2. If promoter penalties are appropriate based on documents and testimony, compute the Tax Shelter Ratio per IRC §6111(c). If the ratio exceeds 2 to 1, and is required to be registered under a Federal or State law regulating securities or is sold pursuant to an exemption from registration requiring the filing of a notice with a Federal or State law regulating the offering or sale of securities or is a substantial investment and the tax shelter was not registered, the promoter or co-promoters are subject to IRC §6707 penalties.

    3. For tax shelters defined in IRC §6111(c), the penalty is the greater of $500 or 1 percent of the aggregate amount invested.

    4. For tax shelters defined in IRC §6111(d), the penalty is the greater of 50 percent (75 percent if the act is intentional) of the fees paid to all promoters, with respect to payments made before the date the shelter is registered, or $10,000. See IRC §6707(a)(3)(b) and IRC §6111(d) for tax shelter special rules.

    5. IRC §6707(b)(1) imposes a $100 penalty for failing to furnish tax shelter registration numbers to investors. This penalty only applies if either the sale to the investor or the 20th day after a seller receives a registration number was prior to October 23, 2004.

    6. IRC §6707(b)(2) imposes a $250 penalty for failing to include the tax shelter registration number on a return. This penalty applies only if the return was filed prior to October 23, 2004.

    7. If the tax shelter also qualifies as a potentially abusive tax shelter as defined in IRC §6112(b), and the promoter fails to provide an investor list after being requested for by the IRS, the promoter or co-promoters may also be subject to IRC §6708 penalties. See IRM 4.32.2.11.9, Computation of IRC §6708 Penalties, for more information.

    8. The penalty is not imposed if the failure is due to reasonable cause.

  3. A promoter may be liable for penalties under both former IRC §6707 and IRC §6707 as amended under certain circumstances. For instance, if the shelter was offered for sale prior to October 23, 2004 but was not timely registered, the former penalty would apply. If the same promoter then made tax statements to a potential adviser after October 22, 2004, and was a material adviser, that promoter could be liable for the new IRC §6707 penalty with respect tot he same transaction.

  4. See IRM 20.1.10.12, IRC Section 6707, for further information on IRC §6707 penalties.

4.32.2.11.9  (03-30-2006)
Computation of IRC §6708 Penalties

  1. For advisee lists maintained by material advisors after October 22, 2004 regarding reportable transactions and investor lists maintained before October 23, 2004:

    1. Failure to make lists of advisees/investors available to the IRS within 20 business days after the date of a written request as required by IRC §6112 is subject to penalty.

    2. The penalty is $10,000 for each day the list is not furnished after the 20th day after a request made after October 22, 2004.

    3. This penalty can be imposed in addition to any other penalty provided for by law.

    4. The penalty is not imposed if the failure is due to reasonable cause.

  2. See IRM 20.1.10.13, IRC Section 6708, for further information on IRC §6708 penalties.

4.32.2.11.10  (03-30-2006)
Penalty Case Processing Procedures

  1. This section discusses case file assembly and closing procedures for promoter investigations.

4.32.2.11.10.1  (03-30-2006)
Case File Assembly

  1. Penalty case files include the following:

    1. Form 4318, Examination Work Papers.

    2. Form 886-A, Explanation of Items.

    3. Form 8278, Computation and Assessment of Miscellaneous Penalties.

    4. Form 3198, Special Handling Notice.

    5. Form 4665, Report Transmittal (if applicable).

    6. ) Form 3244-A, Payment Posting Voucher-Examination (if applicable).

4.32.2.11.10.1.1  (03-30-2006)
Form 4318, Examination Workpapers

  1. Form 4318, or comparable lead sheet workpaper, may be used to summarize the investigation information and applicable penalties. Detailed penalty computations should be included in the workpapers and referenced to Form 4318 or lead sheet workpaper.

4.32.2.11.10.1.2  (03-30-2006)
Form 886-A, Explanation of Items

  1. Form 886-A is used to explain the penalty adjustments.

  2. Form 886-A should include a detailed explanation and computation of the penalties, including a listing of clients and penalties per client or evidence of the gross income derived, or to be derived, from the promoter activity.

  3. For SB/SE, the narrative used is the same format as the injunction referral report. The injunction format is recommended for the penalty case because the promoter may file suit in District Court to contest the penalty. See IRM Exhibit 4.32.2-14, Examiner Injunction Referral (EIR).

  4. LMSB examiners should prepare Form 886-A using the following format:

    1. Facts

    2. Law

    3. Conclusion

    4. Position of the Promoter

    5. Appendix of Exhibits

    6. Other data

    7. Approval record - See IRM 4.32.2.11.5, Approval of Penalties

4.32.2.11.10.1.3  (03-30-2006)
Form 8278, Computation and Assessment of Miscellaneous Penalties

  1. Form 8278 is an adjustment document used to record penalty amounts not subject to deficiency procedures.

  2. Multiple assessments of the same penalty for a single period may be consolidated. A separate form is required for each type of penalty and each penalty period.

  3. If a penalty is assessed against an individual, MFT 55 is used. If a business entity, use MFT 13.

  4. A statute date should not be entered on Form 8278 unless there is a corresponding statute of limitations for the penalty. See IRM 25.6, Statute of Limitations.

  5. For IRC §6700 and IRC §6701 penalties, the tax period used on Form 8278 should be the same as the period on ERCS.

  6. For IRC §6707 and IRC §6708 penalties, the tax period used on Form 8278 is the period that the document was required to be filed or maintained.

  7. Before assessing penalties check to make sure that the reference numbers are correct. Due to the passage of AJCA 2004 many reference numbers have been modified.

4.32.2.11.10.1.4  (03-30-2006)
Form 3198, Special Handling Notice

  1. Form 3198 is attached to the front of the case file with the notation "Civil Penalty Assessment IRC xxxx" , citing the applicable penalty code section(s).

4.32.2.11.10.1.5  (03-30-2006)
Form 4665, Report Transmittal

  1. Form 4665 is normally used in unagreed cases but may be used for other purposes. In promoter investigations it is used for transfers, discontinuations, suspended penalty cases and investigations with injunctions but no penalties.

  2. The information should supplement, not duplicate or replace, information in the case file and may include:

    1. Background on the issue(s).

    2. Explain the disposition of the issue(s).

    3. List the basis for the penalty

    4. Identify related cases.

    5. Summarize unagreed issues.

4.32.2.11.10.1.6  (03-30-2006)
Form 3244-A, Payment Posting Voucher – Examination

  1. Form 3244-A is used if a promoter makes an advanced payment to stop the interest accrual or makes any other payment.

  2. Enter the payment as transaction code 670 and MFT 55 for individual assessments or MFT 13 if assessed against a business entity.

  3. Attach part 2 of Form 3244-A to the front of Form 8278. Send part 1 with the check separately to the remittance teller using Area office procedures.

4.32.2.11.10.2  (03-30-2006)
Case Closing Procedures

  1. Procedures for case closing depend on the type of closure and whether it is an SB/SE or LMSB investigation.

  2. See IRM 20.1.6, Preparer/Promoter Penalties, and IRM 20.1.10, Miscellaneous Penalties, for more information.

  3. Closed Examination ATAT cases resulting in additional tax or penalty assessments need to have a Special Handling Sheet attached to the outside of the case file on top of Form 3198 (see IRM Exhibit 4.32.2-15, Special Handling Alert Collection ATAT Case). The Special Handling Sheet is only necessary when the promoter fails to fully satisfy the aggregate balance due or make satisfactory arrangements to fully satisfy the aggregate balance due. This will insure the case is properly routed to Collection after it has been processed and the liability assessed. The name and address of the Collection ATAT Coordinator for the Area where the taxpayer resides should be listed on the Special Handling Sheet before closing the case.

4.32.2.11.10.2.1  (03-30-2006)
Case Closing Procedures-Penalty Assessment

  1. Penalties should be recommended if a promoter engages in conduct or activity subject to penalties under IRC §6694, IRC §6695, IRC §6700, IRC §6701, IRC §6707, or IRC §6708 or conduct violating Section 330 of title 31 of the United States Code (Circular 230).

  2. Examiners may recommend asserting promoter penalties regardless of whether injunctive relief is pursued by the government.

  3. IRC §6751 requires managerial approval of penalties, including IRC §6700, IRC §6701, IRC §6707 and IRC §6708. See IRM 4.32.2.11.5, Approval of Penalties, IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments.

  4. Examiners prepare a promoter penalty report and a penalty investigative file as discussed in IRM 4.32.2.11.10.1, Case File Assembly .

  5. See related discussion in IRM 4.32.2.11.10.2, Case Closing Procedures.

4.32.2.11.10.2.1.1  (03-30-2006)
SB/SE Assessment Procedures

  1. In SB/SE, after approval from the group manager, promoter investigation penalty cases are forwarded to Area Counsel for review and concurrence.

  2. Once Area Counsel reviews the proposed penalty, the case file is returned to the examiner for closing through the group manager, to CPS or CCP, if the Area does not have a local CPS, for assessment.

  3. CPS or CCP assigns a DLN to the investigation and mails it to Files.

  4. The disposal code should reflect whether the case has been closed agreed or disagreed.

  5. A copy of the penalty report is forwarded to the Area SB/SE PSP ATAT Coordinator who in turn forwards it to the SB/SE LDC.

4.32.2.11.10.2.1.2  (03-30-2006)
LMSB Assessment Procedures

  1. In LMSB, no promoter investigation can be closed without approval of the DFO, Financial Services, Manhattan.

  2. In unagreed investigations, it is recommended that the file be suspended at the Team level for 120 days prior to shipment of the case files to the Campus.

  3. The disposal code should reflect whether the case has been closed agreed or disagreed.

  4. A copy of the penalty report is forwarded to the Financial Services Industry Director.

4.32.2.11.10.2.1.3  (03-30-2006)
Parallel Investigations

  1. In parallel investigations, CI may request suspending penalty assessments until the conclusion of the criminal investigation. See IRM 4.32.2.8.2.2, Penalty Assessment – Parallel Investigation, and IRM 4.32.2.6, Parallel Investigations, for additional information regarding penalty assessments in parallel investigations.

  2. Examiners complete the investigative case file, prepare a penalty report and suspense the investigation at the group level until completion of the criminal investigation.

  3. The case is updated to status code 16 on ERCS and AIMS (if applicable).

  4. Upon release of the case, examiners follow the closing procedures discussed in IRM 4.32.11.10.2.1, Case Processing Procedures-Penalty Assessment .

4.32.2.11.10.2.2  (03-30-2006)
Case Closing Procedures-No Penalty Assessment

  1. In some limited instances, examiners may determine assessment of penalties may not be in the best interest of the government, even if an injunction has been secured. See IRM 4.32.2.8.1.2, Injunction-No Penalty Assessment , for a discussion of factors to consider when deciding whether to assert penalties.

  2. An investigation may also be discontinued before or after contacting the promoter. See IRM 4.32.2.8.3, Discontinuation, for additional information.

  3. SB/SE examiners consult with Area Counsel, ATAT/IMT Technical Advisors, and the SB/SE LDC prior to closing the investigation.

  4. LMSB examiners must contact Area Counsel, the LMSB DFO with jurisdiction over the promoter investigation and LMSB Financial Services, DFO, Manhattan prior to closing the investigation.

4.32.2.11.10.2.2.1  (03-30-2006)
Injunctions-No Penalty Assessment

  1. Generally, if an injunction has been secured, penalties are proposed since conduct or activity subject to penalties under the various promoter penalty code sections is a requirement in order to seek an injunction pursuant to IRC §7407 or IRC §7408. However, there may be circumstances when a decision is made to not assess penalties. Examiners consult with Area Counsel and other stakeholders prior to closing an enjoined promoter investigation without a penalty assessment.

  2. Form 4665 is used to document the basis for the nonassertion of penalties. A copy of this form is provided to the SB/SE LDC through the SB/SE PSP ATAT Coordinator or to the LMSB 6700 Committee through the Industry Director.

  3. A discontinuation letter is not issued if an injunction has been secured against the promoter.

  4. Cases are closed from the field compliance group using disposal code 12 through CPS or CCP, if the Area does not have a local CPS.

  5. Form 8278 is completed and included in the case file. Columns {c} & {d} of the form for the applicable penalty will reflect the amount of zero (the 3 digit reference code is a mandatory field). CPS or CCP must insert a dummy blocking number to establish the MFT 55 or 13 module, as appropriate. CPS or CCP processes the zero posting after the MFT is established on Master File.

  6. See related discussion in IRM 4.32.2.8.1.2, Injunctions-No penalty assessment.

4.32.2.11.10.2.2.2  (03-30-2006)
Discontinuation Before Promoter Contact

  1. Sometimes examiners, in consultation with Area Counsel and other stakeholders, may determine an investigation will be discontinued without contacting the promoter. See related discussion in IRM 4.32.2.8.3.1, Discontinuation Before Promoter Contact.

  2. A discontinuation letter is not required since the Service did not contact the promoter to commence the investigation.

  3. Examiners prepare Form 4665 explaining the reason(s) why the investigation is not being pursued. Some possible reasons for a discontinuation are:

    • The individual identified as the ATAT promoter is not involved in the activity.

    • The promotional activity is not abusive in nature and is not subject to IRC §6700, IRC §6701, IRC §6700, IRC §6708.

  4. No Form 8278 is required since the file is not forwarded to the Campus and no assessment will be made, or DLN required.

  5. SB/SE groups update the status code on ERCS to 41 using an appropriate disposal code.

  6. LMSB groups update the ERCS status code to 90 and the appropriate disposal code after approved by the DFO, Financial Services, Manhattan.

  7. Use one of the following disposal codes when closing promoter investigations:

    Disposal Code 31 Insufficient Information
    Disposal Code 33 Established in Error
    Disposal Code 39 Promoter Deceased or Other (age, health, no current activity or any other reason penalties are not assessed.)
    Disposal Code 40 Unable to Locate

  8. SB/SE groups send the administrative case file to the Area’s PSP ATAT Coordinator using Form 3210. LMSB groups send the administrative case file to DFO, Financial Services, Manhattan, using Form 3210.

  9. SB/SE Area PSP ATAT Coordinators close the promoter administrative case file to the SB/SE LDC. ERCS is updated to status code 90 when the file is forwarded to the SB/SE LDC.

4.32.2.11.10.2.2.3  (03-30-2006)
Discontinuation After Promoter Contact

  1. If there is insufficient evidence of conduct or activity subject to penalties under the various promoter penalty sections, the examiner after discussing with Area Counsel and other stakeholders, may decide to discontinue the investigation without assessing penalties or making an injunction referral.

  2. A discontinuation of a civil investigation is not a " no change" closure. The decision to discontinue does not preclude the investigation from being reopened if more information becomes available. Reopening a civil investigation is not subject to the reopening requirements of an income tax examination.

  3. A discontinuation letter is required in all investigations where the Service has contacted the promoter to commence an investigation. See IRM 4.32.2.8.3.2, Discontinuation After Promoter Contact, for the appropriate discontinuation letter. In LMSB investigations, a discontinuation letter will not be sent until the DFO, Financial Services, Manhattan concurs.

  4. Examiners prepare Form 4665 explaining the investigative actions taken and reasons why the promoter investigation is being discontinued.

  5. Form 8278 is completed and included in the file. Columns {c} & {d} of the form for the applicable penalty will reflect the amount of zero (the 3 digit reference code is a mandatory field). CPS or CCP must insert a dummy blocking number to establish the MFT 55 or 13 module, as appropriate. CPS or CCP processes the zero posting after the MFT is established on Master File.

  6. The status code on ERCS is updated to 41 and closed from the field compliance group using disposal code 02.

  7. SB/SE administrative case files are forwarded to the local SB/SE PSP ATAT Coordinator using Form 3210.

  8. LMSB administrative case files are sent to the DFO, Financial Services, Manhattan who makes the final determination regarding penalty determinations.

  9. For SB/SE investigations, the local SB/SE PSP ATAT Coordinator forwards a copy of the examiner’s discontinuation report to the SB/SE LDC. Notification to the SB/SE LDC may be done electronically using secure messaging.

  10. Cases are closed from the SB/SE PSP or the DFO, Financial Services, Manhattan, through CPS or CCP, if the Area does not have a local CPS.

4.32.2.11.11  (03-30-2006)
Promoter Post Assessment Rights

  1. This section explains the post assessment process for promoter penalties and the promoter’s rights.

  2. After assessment, promoters receive a penalty assessment notice and demand for payment.

  3. Promoter rights differ depending on whether the penalties are assessed under IRC §§6700/6701 or IRC §§6707/6708.

4.32.2.11.11.1  (03-30-2006)
Promoter Rights for IRC §6700 and IRC §6701

  1. There are no pre-assessment appeal rights for IRC §6700 and IRC §6701 penalties. Congress enacted these penalties to address the proliferation of abusive promoter activities.

  2. IRC §6700 and IRC §6701 penalties may be challenged by following the special claim for refund procedures of IRC §6703.

  3. When an IRC §§6700/6701 penalty is assessed, the promoter is billed for the amounts due. The billing notice advises the promoter that if 15 percent of the penalty is paid within 30 days a claim for refund may be filed on Form 6118. In that case, the examination function reviews the claim and, when appropriate, abates the penalty. Collection action for the remainder of the penalty is suspended until the final resolution of any court proceeding.

  4. If a written request for penalty assessment reconsideration is received timely, Appeals may consider the IRC §6703 claim for refund in the same manner as any other claim for refund except where the penalty is protested on moral, religious, political, constitutional, conscientious, or similar grounds are disallowed.

  5. If, within 30 days after the day that a claim for refund is disallowed or, if earlier, within 30 days after the expiration of 6 months after the day that a claim for refund is filed, the promoter fails to begin a proceeding in the appropriate federal district court for a determination of liability for the penalty, collection action is no longer suspended. (IRC §6703(c)(2))

4.32.2.11.11.2  (03-30-2006)
Promoter Rights for IRC §6707 and IRC §6708

  1. Post assessment appeal procedures apply to IRC §6707 and IRC §6708 penalties. See IRM 20.1.1.4.1.2, Post Assessment Appeals, and IRM 8.11.1.7, Post Assessment Penalty Appeal Procedures . There are no pre-assessment appeal rights for IRC §6707 and IRC §6708.

  2. Promoters may request an abatement of the IRC §6708 penalty for reasonable cause within 30 days of receiving the notice and demand for payment from Appeals. The request must be in writing. Penalties arising under IRC §6707 for failure to comply with IRC §6111 after October 22, 2004, may not be abated on grounds of reasonable cause. They may be abated only on grounds that there was not a failure to comply with IRC §6111(a).

  3. Promoters are not required to pay any portion of the IRC §6707 or IRC §6708 penalty before requesting abatement.

  4. If the penalty is not abated by Appeals, it must be paid in full. Promoters may then file a claim for refund on Form 6118. The claim is assigned to the field for consideration. Promoters may not file a refund suit before 6 months from the date of filing the claim for refund, unless the IRS acts on the claim, nor after two years from the date of mailing a notice of claim disallowance. See IRC §6532. Late filed claims are disallowed in full.

4.32.2.12  (03-30-2006)
Post Injunction and Penalty Assessments

  1. After an injunction is granted and/or penalties are assessed, examiners need to consider additional steps to ensure the maximum compliance impact on the promoter and participants.

  2. A preliminary injunction granted by the Court, generally, immediately stops a promoter from engaging in unlawful activity. The work and actions of the DOJ attorney will continue, including the motion for a permanent injunction and, if necessary, contempt hearings.

  3. Additional compliance actions to be considered include:

    • Publicizing court actions.

    • Working on counter-marketing publicity of the promotion.

    • Sharing information with the states.

    • Taking steps to bar the promoter from practicing before the IRS.

    • Moving participant returns into the examination stream.

    • Responding to claims for refund.

    • Monitoring compliance with court order(s).

  4. Results of an injunction or penalty assessment are shared with state agencies following disclosure procedures. This is generally coordinated by the Technical Advisor assigned to participant case building. It is imperative that the Disclosure Office review any information prior to its release. This includes the name of the promoter, the names of any participants identified, the name of the abusive shelter, and what tax benefits the promotion promised to do for the participants.

4.32.2.12.1  (03-30-2006)
Publicizing Court Actions

  1. The injunction process allows the IRS to quickly publicize civil enforcement actions taken against a promoter. This publicity informs the public of the government’s position regarding the promotion, enforcement actions being taken and deters others from participation in abusive promotions.

  2. Information regarding the government's enforcement actions should have the widest possible dissemination.

  3. DOJ is primarily responsible for the distribution of any press releases. The local Office of Communications and Liaison is to be kept informed of any pending press releases and assist in any local responses. Examiners and Area Counsel work closely with DOJ and the local Media Relations Specialist in the Office of Communications and Liaison throughout the litigation process to get the releases to the national and local media as soon as possible.

  4. Press releases are generally made by DOJ at the:

    • Filing of the injunction suit.

    • Imposition of a temporary restraining order (TRO).

    • Order of a preliminary and a permanent injunction.

    • Initiation of any contempt actions.

  5. In parallel investigations, DOJ generally coordinates the filing of the injunction with specific criminal actions to foster maximum press coverage. For example, the filing of an injunction may be postponed until a search warrant is executed on the promoter, so both actions can be included in the press release.

4.32.2.12.2  (03-30-2006)
Coordinated Outreach and Education Actions

  1. (Reserved)

4.32.2.12.3  (03-30-2006)
State Memoranda of Understandings

  1. SB/SE has Memoranda of Understanding (MOU) with various states, Washington D.C. and some territories to share information regarding abusive tax avoidance transactions.

  2. Results of an injunction or penalty assessment are shared with state agencies in accordance with disclosure procedures. Release of this information is generally coordinated by the Technical Advisor assigned to participant case building and must be reviewed by the Disclosure Office prior to its release.

  3. IRS personnel should contact the Area Governmental Liaison if they receive information from the states. The Liaison routes this information to the ATAT Coordinator in the Area PSP.

4.32.2.12.4  (03-30-2006)
Barring a Promoter from Practice

  1. Promoters of ATAT promotions frequently represent their customers before the IRS. Examiners can take the following actions to bar the promoter from practicing before the IRS:

    • Seek prohibition to practice as part of the injunction process.

    • Make referrals to OPR.

    • Refer unenrolled tax return preparers not under the jurisdiction of OPR to the Area Director.

    • Notify state licensing agencies of the conduct outlined in public documents.

  2. The action taken is dependent upon the provisions granting the promoter the right to practice before the IRS as well as the circumstances surrounding the injunction.

4.32.2.12.4.1  (03-30-2006)
Courts Barring Promoters from Practice

  1. The injunction court order may include a provision permanently prohibiting individuals from practicing before the IRS.

  2. This court order has the practical effect of barring an enjoined promoter from practice before the IRS, but it is not a disbarment, suspension, or censure resulting from a Circular 230 proceeding. Historically, a Circular 230 proceeding was the only way a barred practitioner’s name was publicized. See related discussion in 4.32.2.12.4.2, Referrals to Office of Professional Responsibility (OPR).

4.32.2.12.4.2  (03-30-2006)
Referrals to Office of Professional Responsibility (OPR)

  1. OPR has oversight responsibility of tax practitioners enrolled to practice before the IRS. Referrals should be made to the OPR as soon as it appears that a practitioner may be in violation of Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service , (Circular 230, section 10.53(a)). Form 8484, Report of Suspected Practitioner Misconduct, can be used for the referral.

  2. IRS employees can make written referrals at any time during an investigation if they have reason to believe a tax practitioner has violated the rules of Circular 230.

  3. If the court grants the Government's request for either a preliminary or permanent injunction, or a promoter/preparer is subject to the disciplinary jurisdiction of the OPR, examiners should work with Area Return Preparer Coordinators (RPC) in making referrals for appropriate disciplinary action. Refer to IRM 20.1.6, Preparer/Promoter Penalties, for further information.

  4. Sometimes the courts take the additional action of prohibiting a promoter/preparer from practicing before the IRS. While the plain language of the court order has the practical effect of barring these individuals from practicing before the IRS, the RPC should notify the OPR of the court action and decide whether to pursue any additional actions.

  5. Referrals to OPR are mandatory when penalties are asserted under IRC §6694(a) and (b), IRC §6695(f), IRC §6700, and IRC §6701 or injunctions are sought under IRC §7407 and IRC §7408. Referrals to OPR should be made when penalties are asserted under IRC §6707, IRC §6708, and when penalties are agreed to by the promoter, sustained in Appeals, or closed unagreed without Appeals contact. See IRM 20.1.6, Preparer/Promoter Penalties, for more information.

  6. The AJCA of 2004 added IRC §7408(c)(2) to allow injunctive relief to be sought for violations of any rules under Circular 230.

  7. If the statutory requirements of IRC §7408, IRC §7407, or IRC §7402 are met, an injunction referral should be made to DOJ. A referral to OPR should not be used in lieu of an injunction referral to DOJ but rather in addition to the DOJ referral. The injunction is generally a faster means to stop the promoter from engaging in prohibited conduct and is broader in scope.

  8. Refer to IRM 20.1.6, Preparer/Promoter Penalties, for additional information on referrals to the DOJ.

4.32.2.12.4.3  (03-30-2006)
Referrals of Individuals Subject to Rev. Proc. 81-38

  1. Return preparers not under the jurisdiction of the OPR may also be involved in preparing abusive tax returns and selling and promoting abusive tax promotions.

  2. Rev. Proc. 81-38, Limited Practice Without Enrollment , sets out the rules under which such a preparer may appear as representative of the taxpayer before the service. This Revenue Procedures gives Area Directors the authority to discipline unenrolled return preparers for their abusive conduct and to render any appropriate action. Disbarment from practice based on this revenue procedure is not limited to the Area but rather the sanction applies nationally.

  3. If the court grants the Government's request for either a preliminary or permanent injunction, the examiner works with the Area RPC in the Area where the preparer practices to ensure appropriate disciplinary action is taken. The RPC forwards requests to the Area Director for disciplinary actions to be taken against the return preparer.

4.32.2.12.4.4  (03-30-2006)
Notification of Licensing Agencies

  1. The American Bar Association (ABA) and the American Institute of Certified Public Accounts (AICPA) have ethical standards for their members. If an ATAT promoter has violated these standards, and the violations become public as a result of injunction litigation, licensing agencies can be notified. The DOJ frequently initiates this notification.

  2. Examiners should also consider sharing this information with state licensing agencies, but only after consulting the appropriate Disclosure Office to ensure IRC §6103 allows such sharing.

4.32.2.12.5  (03-30-2006)
Participant returns

  1. Moving participant returns into the examination stream as quickly as possible is critical to the success of any promoter investigation. See IRM 4.32.2.13, Participant/Investor Cases, for information on processing of participant lists.

4.32.2.12.6  (03-30-2006)
Claims for Refund

  1. Post assessment appeal procedures may apply to promoter penalties. The promoter may file a claim for refund. See IRM 4.32.2.11.11, Promoter Post Assessment Rights, for a discussion of promoter post assessment rights.

4.32.2.12.7  (03-30-2006)
Monitoring Compliance

  1. The SB/SE LDC is responsible for monitoring compliance with injunction orders granted against SB/SE promoters. OTSA is responsible for monitoring compliance with injunction orders granted against LMSB promoters.

  2. IRS employees who learn of any new or continuing unlawful activity by an enjoined promoter must make a referral to the SB/SE LDC or OTSA.

  3. LMSB examiners should solicit future compliance agreements (Form 906). These agreements include provisions requiring promoters to adopt quality control procedures to ensure that it complies with the IRC §6111 and IRC §6112 requirements and that allows the Service to monitor such procedures.

4.32.2.12.7.1  (03-30-2006)
Contempt Investigations

  1. A court order enjoining a promoter from certain activities has the effect of law and monitoring this compliance is important. Violations of a court order can result in civil or criminal contempt sanctions.

  2. A civil contempt sanction is designed to compel the promoter to comply with the injunction’s terms. A criminal contempt sanction is designed to punish the promoter for a past violation of the injunction.

  3. The Court’s injunction order outlines required actions and any prohibited acts by the promoter. Subject to the specific requirements of the court order, examples of potential violations include:

    1. Failing to shut down a website or starting a new website.

    2. Failing to inform participants of the court action.

    3. Failing to terminate preparing income tax returns.

    4. Continuing to conduct seminars or advertisements that promote any abusive promotion.

    5. Failing to provide a participant list to the IRS.

    6. Continuing to advise participants of the mechanics of an abusive tax promotion.

    7. Failing to comply with any portion of the court order.

    8. Any conduct or activity subject to penalties under IRC §6700, IRC §6701, IRC §6694, or IRC §6695 and IRC §6111 and IRC §6112 subject to penalty per IRC §6707 and IRC §6708.

    9. Any acts resulting in the impairment or impeding the administration of the Internal Revenue Laws

  4. If evidence of violations of the preliminary or permanent injunction order are found and DOJ still has an open litigation case, examiners and Area Counsel notify the DOJ attorney, and the SB/SE LDC or OTSA.

  5. DOJ generally asks the Court to find the promoter in civil contempt and order monetary fines, incarceration, or both. If the promoter's actions warrant a criminal contempt action, DOJ Tax Division Civil Section makes a referral to the criminal counterparts in the Tax Division for their consideration.

  6. If DOJ has closed their case, examiners contact the SB/SE LDC or OTSA. Additionally, if the investigation involves a return preparer, contact the Area RPC. A contempt investigation may be approved and if sufficient facts can be developed to prove injunction violations, a referral is made through Area Counsel to DOJ requesting initiation of a contempt proceeding.

  7. Any IRS employee who learns of a potential injunction violation contacts the examiner currently assigned to the promoter or contempt investigation and the SB/SE LDC or OTSA.

4.32.2.12.8  (03-30-2006)
Service of injunction on Subpromoter/Co-promoter

  1. An injunction order against the primary promoter is binding on any individuals acting in concert with the promoter. The order has the effect of law and generally enjoins any subpromoter or co-promoter. This is true even if the subpromoter/co-promoter was not referred to DOJ.

  2. Examiners, Area Counsel, and DOJ attorneys coordinate their efforts to inform any known subpromoters/co-promoters not specifically named in the injunction suit of the court action and its effect upon them. Failure to abide by the court order may subject the subpromoter/co-promoter to contempt proceedings.

  3. The injunction must be personally served on subpromoters/co-promoters to be legally binding. An IRS employee, U.S. Marshall or private process server may be used for this purpose.

  4. Examiners should not perform the personal service if the promoter's behavior demonstrates any propensity towards violence. In such cases, a Special Agent is requested to accompany the examiner or service is completed by the U.S. Marshall or a private process server.

  5. The original certificate of service is returned to DOJ.

  6. Any IRS employee who discovers information related to ongoing or new unlawful activity by a subpromoter/co-promoter should contact the SB/SE LDC or OTSA. Additionally, if the investigation involves a return preparer, contact the Area RPC.

4.32.2.12.9  (03-30-2006)
Injunction Litigation Appeals

  1. Promoters may appeal any type of injunction or restraining order imposed by the courts. Examiners and Area Counsel continue to provide assistance to DOJ during the appeal process. Assistance could be in the form of obtaining evidence on the current actions of the promoter, providing updated calculations on the harm to the government, or other information about compliance with a court order.

4.32.2.13  (03-30-2006)
Participant/Investor Cases

  1. This section covers procedures to be followed for examinations of participants/investors involved in ATAT promotions.

  2. Critical to the success of any promoter investigation is the need to address non-compliance by participants in abusive promotions. This can only be accomplished by securing the promoter’s participant list. It is vital to secure or develop the participant list as early as possible in the investigation.

  3. SB/SE and LMSB have different procedures for processing participant lists. For SB/SE see IRM 4.32.2.13.2, SB/SE Participant Procedures . For LMSB see IRM 4.32.2.13.3, LMSB Participant Procedures .

  4. Various compliance actions may be taken by the IRS regarding participants including:

    • Income tax examinations by field examiners or Campus correspondence units.

    • Referrals to revenue officers for promotions involving attempts to impede collection efforts.

    • Correspondence to known participants soliciting self-correction of erroneous returns.

    • Referrals on erroneous refund cases or prevention of potential erroneous refunds.

    • Servicewide Electronic Research Program (SERP) alerts to flag returns or claims reflecting the abusive promotion from regular processing and worked as ATAT inventory.

    • Correspondence to participants as part of a Pre-Filing Letter Initiative (PFLI).

  5. A PFLI involves correspondence to participants prior to the filing of their income tax returns, advising of the unallowable promotion benefits and possible consequences if the promotion benefits are claimed. PFLI letters are not issued by examiners and must be coordinated with National Office Compliance and Counsel.

  6. See also IRM 4.32.2.7.3.5, Participant Contacts, and IRM 4.32.2.7.3.6, Income Tax Examinations of Participants , for additional guidance on participant third party contacts and examinations.

4.32.2.13.1  (03-30-2006)
Obtaining Participant Lists

  1. Participant lists are solicited from the promoter during the promoter investigation. See IRM 4.32.2.7.2.1, Commencement of SB/SE Investigations, and IRM 4.32.2.7.2.2 Commencement of LMSB Investigations.

  2. Participant lists should be secured from the promoter or prepared from other sources as quickly as possible to allow sufficient time for analysis and selection of returns for examination within the statute of limitations.

  3. The Court can order the promoter to provide a participant list as part of the injunction litigation or DOJ may obtain a list during the discovery phase of the litigation.

  4. Participant lists may also be constructed from evidence obtained during the investigation such as:

    • Bank records.

    • Third-party payees, such as credit card companies and Paypal®.

    • IDRS.

    • RPVUE (for tax return preparers).

    • CAF listing.

    • CI search warrants.

    • Other Federal or state agencies, such as the Securities and Exchange Commission.

    • Informants.

    • Participant lists provided pursuant to IRC §6107(b) for preparers and IRC §6112 for material advisors.

4.32.2.13.2  (03-30-2006)
SB/SE Participant Procedures

  1. This section describes specific procedures for examinations related to participants in SB/SE promoter investigations.

4.32.2.13.2.1  (03-30-2006)
Completing the Participant List Package

  1. Once SB/SE examiners secure a complete participant list, the participant list package should be sent to the Headquarters ATAT Senior Program Analyst using secure e-mail at *ATAT Listkeeper.

  2. A copy of the participant list should also be sent to the local PSP ATAT Coordinator.

  3. The participant package sent to the *ATAT Listkeeper should include:

    • Name of promoter.

    • Promoter tracking code.

    • Project code.

    • Name and description of the ATAT promotion.

    • Background information on the ATAT promotion.

    • Description of how the ATAT promotion appears on the income tax return.

    • Name and telephone number of the examiner, their group manager and assigned Area Counsel attorney.

    • Participants’ names, address (if available) and TINs.

    • Position Papers, standard Revenue Agent Report (RAR), Coordinated Issue Paper, etc., if available.

  4. A participant list package must include at a minimum, the participant’s name, TIN, form and tax period. A sample template for compiling the participant list can be found in IRM Exhibit 4.32.2-17, Sample SB/SE Identified Participant List.

  5. If examiners are unable to provide the information in the required format, participant TINs are not available or have any questions, they should contact the Headquarters ATAT Senior Program Analyst by e-mail using secure messaging at *ATAT Listkeeper. Participant TIN research should not be conducted by examiners or their group manager except as necessary to identify participants for third party contacts in the development of the promoter investigation.

  6. The Headquarters Analyst reviews participant list packages, coordinates the appropriate case building requirements with the promoter investigation examiner and other AT stakeholders and forwards the case building request to the Campus Compliance Services WSD gatekeeper. Historically, domestic promotion participant cases have been case built in the Ogden Campus and offshore promotion participant cases have been case built in the Philadelphia Campus. However, the location of case building is at the discretion of the Campus Compliance Services WSD Program Manager.

4.32.2.13.2.2  (03-30-2006)
Local Case Building for SB/SE

  1. Besides addressing individual participant noncompliance, it is necessary to show "harm" to the government by the promotion. Harm to the government is defined as the loss, or potential loss, of revenue through noncompliance. Occasionally, participants' income tax returns may need to be examined in conjunction with the promoter investigation to substantiate harm to the government. Examination of the participants is not always necessary to establish harm to the government and, in many instances, it can be estimated or determined from the face of the return. Examiners should consult the SB/SE LDC TA for support on promoter investigations.

  2. The DOJ attorney assigned to a referred promoter investigation may occasionally request participant examinations be conducted. Examiners should discuss such requests for participant examinations with the SB/SE LDC TA, IMT TA, or other TA assigned to the promoter investigation to explore alternatives to examinations. Examinations could delay the filing of the complaint and impede the IRS’s ability to stop the promotion quickly.

  3. If it is determined that examinations are necessary for successfully developing a promoter investigation, a maximum of 20 income tax returns can be built by the Area PSP office. No case building activity is to be conducted at the group level.

  4. Examiners and group managers coordinate the selection of returns with the Headquarters ATAT Senior Program Analyst and the local Area PSP office.

  5. All functions are responsible for ensuring that the proper source, project and tracking codes are placed on the selected participant tax returns.

4.32.2.13.3  (03-30-2006)
LMSB Participant Procedures

  1. This section describes specific procedures for examinations related to participants in LMSB promoter investigations.


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