4.32.2. The Abusive Transactions (AT) Process

(1) The SB/SE LDC was established to centralize receipt and development of SB/SE AT promoter and preparer leads, conduct research, build promoter cases, and authorize the initiation of promoter or preparer investigations.

(2) OTSA was created as part of LB&I (Announcement 2000-12, IRB 2000-12, 835, Disclosure Requirements for Corporate Tax Shelters). OTSA provides information and services to all IRS operating divisions and functions as well as other interested parties, including Treasury and Congress.

(3) The LB&I Tax Shelter Steering Committee provides leadership and executive oversight in implementing the tax shelter program.

(4) The LB&I TTSPC is a sub-committee of the LB&I Tax Shelter Steering Committee and approves all LB&I tax shelter promoter and material advisor contacts and investigations. Examiners may NOT contact a promoter or material advisor with respect to a tax shelter or reportable transaction promotion unless approval is first obtained from the LB&I TTSPC.

(5) TE/GE’s Compliance, Planning and Classification (CP&C), Classification and Case Assignment (C&CA) function is responsible for formulating a TE/GE wide approach to abusive transactions within its customer base. C&CA collaborates with SBSE, LB&I, CI, IRS Counsel, and other operating divisions to address abusive transactions.

(6) C&CA coordinates the dissemination of reports and other activities between the TE/GE functions and the SB/SE LDC and OTSA.

(1) SB/SE Delegation Order 4.60, Functions Related to Potential Promoters/Tax Shelter Cases, delegates authority to approve and refer all SB/SE AT promoter investigations to the SB/SE LDC Program Manager.

(1) The Director, Exam Case Selection is the executive responsible for the authorized SB/SE AT investigations.

(2) The SB/SE LDC Program Manager is responsible for authorizing all AT investigations for SB/SE & TE/GE.

(3) The LB&I TTSPC approves all LB&I promoter and material advisor investigations.

(4) The SB/SE investigations are conducted by specially trained Revenue Agents under the supervision of an SB/SE Field Exam Group Manager.

(1) Program Reports- Monthly reports detailing the current inventory of authorized investigations by Area, their status, and results for the current and past fiscal years are produced and provided to Examination Headquarters staff, Area Directors, TE/GE personnel and select others for monitoring purposes.

(2) Ad-hoc reports are produced as requested by Exam personnel with appropriate permission.

(1) A table of acronyms used throughout this IRM section can be found at Exhibit 4.32.2-1 Acronyms.

(2) Below is a table of common terms.Defined Terms

(1) The following are the primary sources of guidance for the AT program:

• IRM 4.32.1Process Guide for Combating Abusive Tax Avoidance Transactions

• IRM 4.32.3Coordination and Roles of Cross-Functional Units

• IRM 4.32.4IRC 6707A Penalty for Failure to Include Reportable Transaction Information with Return

• IRM 5.20Abusive Tax Avoidance Transactions (ATAT)

• IRM 20.1.6Preparer, Promoter, Material Advisor Penalties

(1) The Tax Reform Act of 1976 (PL 94–455) added IRC 7407, Action to Enjoin Income Tax Return Preparers.

(2) Statutory tools provided in the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (PL 97-248) used to address promotions include the following:

• IRC 6700, Promoting Abusive Tax Shelters Etc.

• 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.

(3) The Tax Reform Act of 1984 (PL 98-369) added additional statutory provisions to the IRC imposing penalties for failure of an organizer or seller of an abusive tax shelter to register that tax shelter or to maintain the required list of investors. See IRC 6111, IRC 6112, IRC 6707, and IRC 6708.

(4) The American Jobs Creation Act (AJCA) of 2004 added additional statutory provisions to the Internal Revenue Code and amended some existing code sections as follows:

(1) All potential leads are sent to the SB/SE LDC or OTSA for development and evaluation. If sent to OTSA, OTSA will make a recommendation to the TTSPC.

(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

• Frivolous anti-tax positions

• Exempt organization promotions

• Corporate tax shelter promotions

• Arrangements designed to illegally reduce or eliminate employment taxes

• Compliance issues relating to IRC 6111, Disclosure of Reportable Transactions

• Compliance issues relating to IRC 6112, Material Advisors of Reportable Transactions Must Keep Lists of Advisees

• Collection promotions

(3) The SB/SE LDC will coordinate with the TE/GE Fraud and Promoter Program Coordinator when developing any lead or referral that involves a TE/GE-related promotion or taxpayer.

(4) TE/GE contacts and TE/GE Division Counsel will assist with the deconfliction process. De-confliction is a cross-functional process designed to ensure that the beginning of an investigation will not interfere with another operating division’s investigation or examination.

(5) No contact with a known or suspected promoter or third parties should be made prior to receiving authorization from the SB/SE LDC or LB&I TTSPC. Examiners may only conduct passive research on any lead. Examples of passive research are securing marketing or promotion materials from internal or public sources and researching IDRS to identify the suspected promoter’s taxpayer identification number (TIN). Any research should be included with the referral package.

(6) Active research of leads relating to a promoter is not conducted until appropriate approval is obtained from the SB/SE LDC or LB&I TTSPC. Active research includes the following:

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

2. Ordering the promoter's tax return.

3. Initiating an income tax examination of the promoter.

4. Making direct contact with the promoter or third parties.

5. Ordering a return of a client not currently under examination or directly related to a return currently under examination.

6. Performing IDRS research on clients.

(7) Promoter lead packages should contain sufficient background information that is readily available to make the referral useful. The following list includes examples of potentially useful information:

1. Marketing or promotional materials including legal opinions, secured during an examination or from third parties.

2. Information regarding the promoter’s network, operations, or marketing strategy.

3. A list of any known clients.

4. Affidavits, interview notes, correspondence or statements from witnesses or clients.

5. A brief overview of examination results (if applicable).

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

7. Copies of tax returns used in the promotion.

8. Names, addresses, and employer identification numbers (EINs) for related and/or sub-promoters.

9. Copies of any correspondence between related and/or sub-promoters.

10. Years involved.

11. Source(s) of information.

12. Promoter /material advisor history, if known.

Note: This list is not all inclusive. Your referral may include only some of the items listed, or items not listed. Do not perform research to secure missing items. Send your referral in when it is as complete as possible without concern about missing information.

(8) Promoter lead packages are forwarded to the SB/SE LDC or OTSA as appropriate.

(9) For referral forms and additional information on the SB/SE LDC or OTSA referral process:

• For SB/SE—See IRM 4.32.2.4.2, SB/SE Lead Development Center (SB/SE LDC).

• Form 14242, Reporting Abusive Tax Promotions and/or Promoters

• For LB&I—See IRM 4.32.2.4.3.1, Role of OTSA.

(1) SB/SE supports administration of tax law by selecting promoters and preparers to investigate. The primary objective in selecting promoters and preparers for investigation is to identify and quickly terminate the abusive promotion or activity and to address the tax implications to clients while making the most efficient use of finite examination staffing and other resources. Employees must exercise their professional judgment, not personal opinions, when making selection decisions. As explained in Policy Statement 1-236, Fairness and Integrity in Enforcement Selection, IRS employees are expected to carry out our duties with integrity and fairness.

• To ensure fairness to the taxpaying public, our Examination Workplan provides a balanced approach for return delivery and allocation of resources to address areas of the Tax Gap by taking into account factors such as income levels, geographic locations, and return types.

• To ensure an equitable process for all promoters and preparers, selection decisions are made utilizing available experience and/or statistics indicating the probability of substantial error. No one individual can control the investigation selection decision-making process. We limit involvement to only those employees whose duties require them to be included.

• To ensure fairness to each promoter/preparer who is selected for IRC §6700/§6701 investigation, selection decisions are based on the underlying relevant tax law and the following criteria:
  i. The promoter/preparer activity is abusive in nature.
  ii. Money is exchanged for products and services.
  iii. Potential harm to taxpayers.

• Managerial reviews of selection decisions occur during each phase of the selection and assignment process.

(2) SB/SE Program Level Objective - Ensure examinations are initiated based on indicators of non-compliance or on other criteria (such as selection for the National Research Program), identified in the Internal Revenue Manual. In addition, ensure a review of the decisions to survey a return (i.e., not initiate an examination) are based upon factors outlined in the Internal Revenue Manual and approved by an appropriate level of management.

(3) SB/SE Delegation Order 4.60, Functions Related to Potential Promoters/Tax Shelters Cases, delegates authority to approve and refer all SB/SE AT promoter investigations to the SB/SE LDC Program Manager.

(4) The SB/SE LDC was established to centralize receipt and development of SB/SE AT promoter leads, conduct research, build promoter cases, and authorize the initiation of promoter investigations in coordination with other operating divisions.

(5) The SB/SE LDC (under Exam Case Selection) also provides assistance and support to field exam on case development involving all preparer and promoter cases except those promoter cases involving coordinated issues by the AT Group. The LDC will support promoter investigations involving specifically identified coordinated issues when the AT Group and field examiner requests the support.

(6) The Abusive Transactions Group (under Exam Quality and Technical Support) provides case development assistance and support on specifically identified promoter investigations involving specifically identified coordinated issues.

(7) Leads are submitted to the SB/SE LDC using Form 14242, Reporting Abusive Tax Promotions and/or Promoters.

(8) The SB/SE LDC will acknowledge receipt of the lead and may contact the referring IRS employee for additional information. Initial classification of each lead is conducted to determine if the lead should be developed further.

(9) Each lead is reviewed and uploaded to the LDC Database with an assigned Control Number. Appropriate documentation from the referred lead will be scanned and uploaded to the LDC Database record.

(10) If further development by the LDC Revenue Agent (RA) is not recommended, review and concurrence will be made by the SB/SE LDC Group Manager.

(11) The SB/SE LDC Group Manager will assign leads for development to LDC Revenue Agents where additional research is completed.

(12) SB/SE LDC will develop each lead independently using established criteria to either recommend or not recommend an IRC 6700/6701 investigation:

• Recommendation memos are reviewed by the LDC Group Manager and the LDC Program Manager.

• Non-Recommend memos are reviewed by the LDC Group Manager.

(13) If the LDC receives lists containing multiple leads from both internal and external sources as one referral, the list will be sent to the Abusive Transaction Support Unit (ATSU) for research and development of each lead within the list.

(14) Leads received at the ATSU will be processed as follows:

• Lists from State Departments of Revenue: Each state list is submitted by the state via a designated shared server. The Revenue Agent will review the documentation submitted and apply the same criteria as the LDC to determine if the information should be submitted as a lead to the LDC on Form 14242 , Report Suspected Abusive Tax Promotions or Preparers. The decision process and explanations of any non-selects will be recorded directly on the document received from the state. Once the analysis is complete and decisions documented, the list will be saved in the completed list folder on the shared server. The ATSU Group Manager will complete a 5% monthly review of completed lists.

• Lists submitted by AUR, LDC or other sources: The RA will analyze all lists. A master list of all leads received is stored within the ATSU shared server. Leads meeting LDC criteria will be submitted to the LDC on Form 14242 and recorded on the master list. Leads that do not meet LDC criteria will not be referred and an explanation will be documented on the master list. The ATSU Group Manager will complete a 5% monthly review of the non-selected leads.

(15) The SB/SE LDC conducts additional research and evaluates the investigation potential. Some factors they consider are:

• Type of promotion

• Past activity of the promoter

• Ongoing activity or likelihood of recurrence

• Size of the promotion

• Tax impact of the promotion

• Possible tax law violations

• Favorable public or compliance impact

• Existing balance due liabilities including an open Collection assignment.

(16) If a promoter subject to Circular 230 violates any of its provisions (such as failure to file tax returns or a criminal conviction for financial crimes involving breach of trust), the SB/SE LDC will make a referral to the OPR. A copy of any referral made to OPR by the LDC may be included in the investigation authorization file.

(17) Once an investigation is authorized, the authorization file is sent to the field. A copy of the authorization memo is sent by e-mail to Collection Policy. The file includes the following:

1. An investigation authorization memorandum describing the promoter's background and history, the promotion, potential First Amendment concerns, summary of products or services sold, any criminal investigation information, the scope of the promotion, and recommendation for investigation.

2. Any promotional or other materials provided by the referring examiner(s) or other lead source.

3. Internal or external public records research conducted by the SB/SE LDC.

(18) An investigation is not limited to the scheme identified in the referral. Approval of the investigation authorizes an examiner to review all potentially abusive activities.

(19) Approval of a promoter investigation includes the investigation of any entity controlled by the promoter.

(20) Promoter investigations may be conducted simultaneously with examination of the promoter and related clients. There is no requirement that an income tax examination of the promoter or any of the clients be initiated in development of the promoter investigation. If examinations of the promoter or clients are initiated, it is preferable that one examiner conduct the AT investigation and a different examiner conduct the income tax examination of the promoter and/or clients. However, the examiners should coordinate and share relevant information.

(1) OTSA was created as part of LB&I (Announcement 2000-12, IRB 835 , 2001-1 C.B. 835, Disclosure Requirements for Corporate Tax Shelters). OTSA provides information and services to all IRS operating divisions and functions as well as other interested parties, including Treasury and Congress.

(2) The LB&I Tax Shelter Steering Committee provides leadership and executive oversight in implementing the tax shelter program.

(3) The LB&I TTSPC is a sub-committee of the LB&I Tax Shelter Steering Committee, and approves all LB&I tax shelter promoter and material advisor contacts and investigations. Examiners may NOT contact a promoter or material advisor with respect to a tax shelter or reportable transaction promotion unless approval is first obtained from the LB&I TTSPC.

(1) If a TE/GE examiner identifies a potential AT or promoter issue involving a TE/GE entity during an examination, the examiner should contact the TE/GE Fraud and Promoter Program Coordinator to discuss the issue. The Coordinator’s contact information is included in the TE/GE intranet page.

(2) If the TE/GE Fraud and Promoter Program Coordinator determines a referral warrants further development, the information is forwarded to the SB/SE LDC or OTSA for consideration and authorization.

(1) The SB/SE LDC and OTSA submit deconfliction memoranda to CI advising of their intent to authorize a civil promoter investigation (SB/SE) or present a referral to the TTSPC (LB&I).

(2) CI will respond that the investigation falls into one of three categories:

• No CI Activity

• CI Activity - No Conflict

• CI Activity - Conflict

(3) If CI notifies the LDC or OTSA that there is CI activity, the civil investigation is authorized and sent to the local SB/SE or LB&I field compliance group whether there is conflict or not. The examiner is directed to hold a six-way conference with CI before starting any investigative activity (see IRM 4.32.2.7.3, Six-Way Conference).

(1) The SB/SE LDC also evaluates return preparer leads for investigation. These cases generally fall into one of two categories:

• Return preparers authorized for civil investigation.

• Return preparers who have been the subject of a preparer project and who have not corrected their misconduct or have had other compliance measures taken to no avail.

• Return preparers who have been the subject of other compliance measures and have not corrected their misconduct.

(2) Return preparers can engage in conduct in violation of IRC 6700, IRC 6701, IRC 6694, and IRC 6695, 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 20.1.6.6, Program Action Cases Overview), the RPC contacts the SB/SE LDC to determine if a promoter investigation has been considered. See IRM 20.1.6, Preparer/Promoter/Material Advisor Penalties, for more information on PACs. The following actions may be taken:

(4) If a PAC is approved, the RPC monitors the examinations of the preparer's clients and the assessments of preparer penalties. Depending on the outcome of the PAC or other information regarding the preparer’s activities, the RPC may resubmit a new referral to the SB/SE LDC for consideration of an investigation.

(5) See IRM 20.1.6, Preparer, Promoter, Material Advisor Penalties, for more information regarding return preparer penalties and program action cases.

(1) The Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) is a multi-country workgroup that originated in 2004 to address cross-border tax avoidance schemes, transactions and structures through use of the bilateral treaty process. In 2014, JITSIC was re-established and opened to all member countries in the Organization for Economic Cooperation and Development (OECD) Forum on Tax Administration (FTA). JITSIC brings together a number of the world's national tax administrations that have committed to more effective and efficient ways to deal with tax avoidance. It offers a platform to enable its members to actively collaborate within the legal framework of effective bilateral and multilateral conventions and tax information exchange agreements – sharing their experience, resources and expertise to tackle the issues they face. Participation in JITSIC enables each country to better target compliance and enforcement efforts to combat abusive transactions. Since its creation, JITSIC has evolved to address issues beyond abusive transactions. This IRM will address only JITSIC's role with abusive transactions.

(2) The JITSIC role in addressing abusive transactions is to:

1. Provide support to the parties through the identification and understanding of abusive transactions and those who promote them.

2. Share expertise, best practices and experience in tax administration to combat abusive transactions.

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

4. Enable the parties to better address abusive transactions promoted by firms and individuals who operate without regard to national borders.

(3) One objective of JITSIC is to deter promotion of, and investment in, abusive transactions. Through information exchange and knowledge sharing, the parties:

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

• 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 techniques for early identification of promoters and investors involved in abusive transactions.

• Identify emerging trends and patterns to anticipate new abusive transactions.

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

(4) JITSIC representatives have been delegated Competent Authority status for purposes of their JITSIC work and have the authority to exchange information per bilateral tax treaties and disclosure rules.

(5) Examiners that identify cross-border abusive transactions that involve a JITSIC member country should make referrals directly to JITSIC following instructions on the JITSIC website or through the SB/SE LDC. Examiners may consult with a JITSIC specialist as needed for a list of the current JITSIC member countries and to determine if an identified issue is potentially abusive. All referrals to JITSIC should be clearly referenced with "JITSIC Referral".

(6) Referrals outside the IRS can be made to JITSIC through OTSA.

Internal Revenue Service
Office of Tax Shelter Analysis
1973 North Rulon White Blvd.
LB&I:OTSA; M/S 4916
Ogden, Utah 84201

(7) Examiners should refer to their respective operating division's Guidance Memorandum for individuals to contact for further guidance.

(1) IRC 6702(a), Civil Penalty for Frivolous Tax Returns, imposes a $5,000 penalty on any taxpayer filing a document purporting to be a return which:

1. Does not contain sufficient information to determine the substantial correctness of the self-assessment, or contains information on its face which indicates the self-assessment is substantially incorrect, and

2. Contains a position that the Secretary has identified as frivolous, or reflects a desire to delay or impede the administration of federal income tax laws.

(2) IRC 6702(b), Civil Penalty for Specified Frivolous Submissions, imposes a $5,000 penalty on any person who submits a specified frivolous submission. The term "specified frivolous submission" means a specified submission if any portion of such submission:

1. Is based on a position which the Secretary has identified as frivolous, or

2. Reflects a desire to delay or impede the administration of federal tax laws.

(3) The term "specified submission" means:

• A request for hearing upon filing of notice of lien (IRC 6320).

• A request for hearing before levy (IRC 6330).

• An application relating to agreements for payment of tax liability in installments (IRC 6159).

• An application relating to offer-in-compromises (IRC 7122).

• An application relating to taxpayer assistance orders (IRC 7811).

(4) The Secretary maintains a list of identified frivolous positions and updates it as necessary. See Notice 2010-33 , Frivolous Positions.

(5) Under IRC 6702(b)(3), if a taxpayer is notified and subsequently withdraws the frivolous submission within 30 days of notification by the IRS, the penalty will not apply. The amount of the penalty can be reduced if in the opinion of the Secretary it would promote compliance with and aid in the administration of federal tax laws (IRC 6702(d)). See Rev. Proc. 2012-43, and IRM 20.1.10.10.3, IRC 6702(d) Reduction of Frivolous Submission IRC 6702 Penalties for additional information regarding the possible reduction of frivolous penalties.

(6) This penalty can be imposed in addition to other applicable penalties (IRC 6702(e)).

(1) Identification of frivolous submissions can be made during original return processing, amended return or claim processing, examinations, collection activities, and other contacts with a taxpayer or the taxpayer's representative. These filings are frequently identified in Submissions Processing (SP), Customer Account Services (CAS) and compliance in the campuses, field offices, and other IRS offices.

(2) Frivolous submissions should be routed to the Ogden Frivolous Return Program. See IRM 25.25.10.3, Referrals to Frivolous Return Program.

(3) The Ogden Frivolous Return Program mailing address is:

Internal Revenue Service
1973 N. Rulon White Blvd., M/S 4450
Ogden, UT 84404

(1) The FRP master database is used to track and monitor frivolous submissions. The database includes current inventory and historical data on accounts not in compliance (return filing or payment of tax) for two consecutive years. It provides a means to identify new AT promotions to make referrals for injunctive actions, civil and criminal investigations, and follow-up monitoring on violations of existing court orders on promoters.

(2) FRP provides reports to SB/SE Communications and Liaison and other affected parties on:

• Emerging promotions.

• Promoters involved in AT promotions.

• Trends in geographic locations of frivolous submissions 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 reports are also used to provide data to examiners conducting related promoter investigations. Examiners should submit requests for FRP database information to the Ogden FRP Senior Technical Advisor.

(1) The FRP screens each frivolous submission to determine if it is related to a promotion, specific promoter or return preparer and may submit a referral to the SB/SE LDC for consideration of a promoter investigation.

(2) The SB/SE LDC evaluates and authorizes civil investigations of AT promotions.

(3) The SB/SE LDC determines whether an authorized investigation will be conducted by the FRP or by an SB/SE Area.

(4) If assigned to an SB/SE Area, the examiner should contact the FRP for assistance and to obtain pertinent data related to the promotion.

(1) SB/SE Area Planning and Special Programs (PSPs) establish SB/SE promoter investigations on ERCS as penalty investigations, with a project code and tracking code if applicable. A tracking code is generally assigned after a client list is forwarded to the listkeeper for case building. See IRM 4.32.2.6.6, SB/SE Tracking Codes.

(2) For SB/SE, only the promoter's most current fully completed tax year is established on ERCS.

(3) SB/SE examiners upon assignment of the investigation should verify that the investigation was established on ERCS by PSP.

(1) Following TTSPC approval per IRM 4.32.2.4.3.6, LB&I TTSPC Procedures, LB&I Tax Shelter Promoter Program forwards the OTSA referral package to the Team Manager for field assignment.

(2) Team Managers set up the administrative ERCS record for the promoter investigation. The tax period used is the year the investigation was approved by the LB&I TTSPC. See IRM 4.32.2.6, Case Control/Case Assignment Procedures, for further information on setting up the investigation case on ERCS.

(1) When it is determined that TE/GE will accept assignment of a promoter investigation, the SB/SE LDC will provide the TE/GE Fraud and Promoter Program Coordinator with a complete copy of the authorization memo and all attachments via the SharePoint.

(2) If it is determined that TE/GE will be the lead operating division, the TE/GE Fraud and Promoter Program Coordinator will provide the SB/SE LDC with contact information for the TE/GE revenue agent and the TE/GE Division Counsel attorney assigned. If TE/GE determines SB/SE assistance is necessary, TE/GE will contact the SB/SE LDC. The SB/SE LDC will coordinate with the appropriate AT territory manager to provide such assistance.

(3) If it is determined that SB/SE will be the lead operating division, the SB/SE LDC will provide the TE/GE Fraud and Promoter Program Coordinator with contact information for the SB/SE examiner and SB/SE Counsel attorney assigned. The SB/SE LDC will track promoter investigations involving TE/GE taxpayers or issues and provide monthly reports to TE/GE. See IRM 4.32.3.8.1.8, Information Sharing. The TE/GE Fraud and Promoter Program Coordinator will provide SB/SE with the contact information of the TE/GE revenue agent and TE/GE Division Counsel attorney assigned to assist on the investigation.

(1) If a valid TIN was not identified for the promoter, the PSP AT Coordinator assigns a temporary TIN.

(2) When the promoter's correct TIN is identified or a permanent TIN is secured, the ERCS record is updated with the correct information. See IRM 4.32.2.6.4.2 (4).

(1) There may be instances where the promoter investigation is transferred from one compliance area to another. For example:

• The promoter has relocated or the promotional activity is concentrated in another compliance area. It may be more efficient to transfer the investigation to the other area office.

• The receiving area office may be unable to conduct a civil promoter investigation due to staffing limitations or other considerations.

• The promoter is related to another investigation and it would be more efficient to have one area or examiner work all the related investigations.

(1) A tracking code will be assigned to an authorized investigation by the AT Listkeeper at the time client examinations are approved for case building, either at the local level or through the formal case building process. The AT Listkeeper will notify the assigned Agent and the Area PSP AT Coordinator of the tracking code assigned. See IRM 4.32.2.14, Client/Investor/Advisee Lists, for more information on client cases.

(2) Locally defined project or tracking codes should not be used since the locally defined codes are not reflected in national reports or tables.

(3) If a different tracking code was previously assigned to a related promoter investigation or client examination case, contact the AT Listkeeper to update. Group managers should contact the AT listkeeper for advice on how to resolve the tracking code conflict.

(4) The tracking code is added to all related cases including any in-process cases. The examiner will need to coordinate with other examiners and PSP to ensure related cases are properly coded. Examiners conducting the investigation or PSP AT coordinators should review related ERCS inventory lists for missing or incorrect tracking codes particularly for prior, subsequent or related entity pickups by requesting an ERCS inventory list by tracking code as well as periodically obtaining a list by TIN to verify coding for multiyear and related pickups.

(5) Use of the same tracking code on all the promoters and clients in a promotion helps the key case examiner compute an estimate of harm to the government. It also allows the case-building unit to coordinate client examinations.

(6) Tracking code updates can typically be made until the case moves to status code 80. Related cases that were not properly coded prior to the status 80 update will need to be tracked manually. Existing tracking codes can only be changed at the Area PSP level. If there is not an existing code, the group clerk can add it to the case.

(1) IRM 1.2.13.1.11, Policy Statement 4-26 (Formerly P–4–84) , provides guidance on taking civil enforcement action when the subject is also involved in a criminal investigation. This statement, effective October 5, 2005, 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 stop the promotion quickly, prevent additional loss of tax revenue and foster voluntary compliance by the clients.

(2) If criminal and civil operating divisions cannot agree on how to proceed, Policy Statement 4-26 (P-4-26) describes procedures for resolving the matter. Refer to IRM 4.32.2.7.3.3.3, Resolving Conflicts.

(1) CI is notified of all proposed investigations prior to authorization by the SB/SE LDC or OTSA. CI will provide feedback whether the commencement of a civil investigation may pose a potential conflict with a criminal investigation. See IRM 4.32.2.4.5, Coordination with Criminal Investigation (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 are required to follow parallel investigation procedures to ensure proper coordination between the operating divisions. Communication is essential for a successful parallel investigation.

(1) A six-way conference is held to determine the appropriate course of action to achieve the IRS’s objective of stopping the AT promotion as quickly as possible and establish ongoing communication between the operating divisions to foster information sharing to the extent allowable and to avoid any actions which could undermine or negatively impact each respective investigation. Conference participants should discuss the legal implications and coordination aspects of a parallel investigation.

(2) 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 20 days after assignment of the investigation to an examiner.

(3) A pre-conference meeting with the examiner, Counsel and other meeting participants to discuss the investigation and objectives of the six-way conference is advised.

(1) Civil and criminal examiners must regularly communicate regarding their investigative efforts, but CI should not direct civil actions. Investigation status meetings are required to be held every quarter until the civil proceedings are complete. These required conferences should not be waived. If there is little to discuss, the meeting can be short and can be done via telephone.

(2) The purpose of the quarterly investigation status meeting is to communicate investigation developments and facilitate information sharing between the civil and criminal divisions. AT staff should not assume that CI is well versed in the parallel process. The AT GM should be prepared to explain the process and the steps that will be taken by the civil (AT) side to protect the criminal case while still accomplishing the work in the civil investigation.

(3) Participants in the status meeting should include the examiner, special agent, their respective managers, and the respective Area and CT Counsel. If a civil or criminal matter has been referred to DOJ, the assigned criminal DOJ attorney can participate in these investigation status meetings along with the DOJ civil/criminal counsel coordinator. Examiners and special agents should not wait until the next quarterly status meeting to communicate information about any significant developments in their respective investigations.

(4) Use of special investigative techniques, such as undercover operations or the active pursuit of a search warrant should be communicated to the civil operating division. The timing of actions in the civil examination, investigation or proceeding may affect special agent safety during a special investigative technique or the execution of a search warrant. Therefore, close coordination and communication is necessary when CI utilizes these techniques. Any decisions on how and when to proceed should be weighed in the favor of special agent safety concerns.

(5) Any concerns or objections raised during the investigation process should be resolved by consultation among the civil and criminal investigators and their supervisors, and Area and CT Counsel. When the promoter has been referred civilly or criminally, DOJ must be included in the decision-making process. See IRM 4.32.2.7.3.3.3, Resolving Conflicts.

(1) Civil and criminal examiners and their respective Counsel should carefully consider whether any tax theories or positions taken in their respective investigations (civil injunction and criminal prosecution) and related client examinations are inconsistent. However, CI may not direct civil actions in promoter investigations or client examinations.

(1) Examiners must advise the special agent assigned to the criminal investigation prior to contacting the promoter or witnesses. CI may request that no contact be made with the promoter and that is generally not a roadblock for the civil investigation. An interview of the subject (promoter) is not mandatory, and in some instances is not useful in terms of gathering evidence.

(2) Neither IRC 6700 or IRC 6701 mandate an initial appointment letter be sent or interview of the promoter be conducted, so examiners may proceed with the development of the civil investigation without contacting the promoter. Counsel should be involved in any decision to conduct an investigation without contacting the promoter.

(3) Generally, CI informs promoters of their Fifth Amendment rights before the examiner initiates contact or conducts an interview. If an interview is held after CI has contacted the promoter, examiners should explain to the promoter that they are conducting a civil investigation but the information provided will be shared with CI.

(4) If a promoter inquires about criminal implications or whether the promoter is the subject of a criminal investigation before CI has contacted the promoter, examiners must be careful to provide accurate information and never mislead or misrepresent the facts to the promoter. CI should provide the AT Agent with information regarding how to answer any such questions during the initial six-way conference.

(5) When interviewing a subject or witnesses, examiners and special agents should clearly explain the purpose of their respective investigations, their roles in the investigations, and the potential impact of cooperation by the subject. AT Agents must be sure that the subject or witness clearly understands that anything they share could potentially be shared in any criminal proceeding.

(6) Examiners must not mislead the promoter regarding the existence of a criminal investigation nor conduct a criminal investigation under the guise of the civil investigation. See United States v. Tweel, 550 F.2d 297 (5th Cir. 1977). Refer to IRM 25.1, Fraud Handbook, for further information.

(7) There is no specific prohibition on conducting joint interviews of promoters. However, examiners and special agents must clearly identify themselves and their roles at these meetings and prepare a joint memorandum of the interview. Examiners should keep a copy of their interview notes and provide the original notes to the special agent.

(8) IRC 7602(c)(3)(C) provides for an exception to the third party notification requirements. Accordingly, if CI requests no civil contact with a promoter, the third party notification letter (Letter 3164-P, Third Party Notification for IRC 6700/6701 Investigations) is not required. See IRM 4.32.2.8.3.2, Third Party Contacts.

(1) Sharing information among examiners, special agents, and government attorneys assigned to the investigation is a key ingredient in developing civil and criminal investigations simultaneously and efficiently.

(2) Special agents should develop as much evidence as practical administratively before using the grand jury process. This can be done through summonses, search warrants, witness interviews, and undercover operations. This process allows CI to share information with the civil operating division.

(3) Examiners are permitted access to all non-grand jury information obtained during the criminal investigation. Generally, not all records obtained in the criminal investigation are grand jury materials. Records that constitute "matters occurring before the grand jury" depends upon the law of the particular judicial circuit. Examiners should consult with CT Counsel and the LDC SPA assigned to their investigation with questions related to access to records in grand jury cases.

(4) A grand jury investigation in a parallel investigation does not prohibit a civil investigation; however, Federal Rule of Criminal Procedure 6(e) does limit the use of grand jury materials to the enforcement of criminal law.

(5) Information sharing between civil and criminal functions is appropriate unless prohibited under grand jury secrecy rules of Rule 6(e) of the Federal Rules of Criminal Procedures and disclosure provisions of IRC 6103, Confidentiality and Disclosure of Returns and Return Information. Judicial districts and appellate courts have diverse rulings on what constitutes grand jury information. The grand jury process can never be used to perfect a civil investigation. Refer to IRM 9.3.1.4.1, Grand Jury Secrecy (Federal Rules of Criminal Procedure Rule 6), and Chief Counsel Directives Manual (CCDM) 38.2.2, Review of Criminal Tax Cases -Grand Jury Procedures, for further information about the grand jury secrecy rules of Rule 6(e).

(6) IRC 6103 permits the disclosure of tax information between civil and criminal functions to the extent permitted by IRC 6103(h) as long as there is a "need to know" to accomplish official duties relating to tax administration, and there are no grand jury prohibitions.

(7) In grand jury investigations, concurrence of the DOJ attorney assigned to the criminal investigation must be secured prior to releasing or allowing civil examiners access to any records in CI’s possession to avoid inadvertent release of grand jury information. Examiners should contact CT Counsel and the LDC SPA assigned to their investigation if the DOJ attorney will not allow access or release records that are not grand jury materials.

(8) IRC 6103(h)(2) allows disclosure to DOJ attorneys as long as a referral to DOJ has been made by either the civil or criminal divisions. However, grand jury information cannot be shared with a civil DOJ attorney unless a Rule 6(e) order has been secured from the court.

(9) Examiners must provide CI access to all available information in the civil examination and attorney files. Sharing information should be an ongoing process throughout the parallel investigation to avoid unnecessary delays. Criminal attorneys have a mandatory obligation to disclose certain information to criminal defendants. This includes documents, interview notes and any other information obtained in the civil investigation. See Brady v. Maryland, 373 U.S. 83 (1963), Giglio v. United States, 405 U.S. 150 (1972) and Jencks Act, Demands for Production of Statements and Reports of Witnesses (18 USC § 3500).

(1) Any overt civil actions are temporarily stayed if CI is conducting an undercover operation or developing probable cause to execute a search warrant in the near future. Benefits of an undercover action or search warrant should be weighed against the need to enjoin a promoter quickly.

(2) Information obtained through a search warrant is generally not grand jury information. Search warrant information obtained during the grand jury process can be made available to civil examiners if no grand jury information was included in the affidavit for the search warrant. Although not yet addressed by the courts, if grand jury information is included in the affidavit, the materials seized during the search may be disclosed even if the affidavit is not subject to disclosure. If the affidavit supporting the warrant has been sealed by the court, sharing of the information seized in the search with civil examiners or attorneys may result in the unsealing of the affidavit. Examiners should seek the guidance of CT Counsel for direction in these circumstances.

(3) Use of search warrant and undercover evidence must be approved by the assigned DOJ attorney. Requests should be coordinated with CI, CT Counsel, and DOJ. Examiners should consult with CT Counsel with questions or issues related to release of this information.

(1) IRC 7602(d) does not allow a summons to be issued or enforced with respect to any person if a Justice Department referral is in effect with respect to such person. This does not impact a promoter investigation as defined in (5) below.

(2) A Justice Department referral is defined as an IRS recommendation of a grand jury investigation or criminal prosecution of the taxpayer or a criminal investigation request initiated by DOJ pursuant to IRC 6103(h)(3)(B).

(3) IRC 7602(d)(3) specifies that each taxable period and type of tax be treated separately for purposes of determining what constitutes a referral. Administrative civil summonses are generally permitted with respect to taxable periods for other types of tax not included in a criminal investigation referral.

(4) An IRC 6700 or IRC 6701 penalty, while deemed to be a tax pursuant to IRC 6671, is not included in the criminal referral for a grand jury investigation with respect to the promoter’s income tax liabilities.

(5) 26 CFR 301.7602-1(c)(4)(ii), Example (5) describes the issuance of an administrative summons, related to a promoter investigation, where a referral has been made to DOJ for a grand jury investigation with respect to the promoter’s income tax liability. In this example, a summons is allowed in conjunction with the promoter investigation because the IRC 6700 penalty is not the same as the promoter’s income tax liability included in the criminal referral for a grand jury investigation.

(6) If CI has made a criminal referral to DOJ and the referral involves a conspiracy theory, widespread false return preparation or interference with administration of the tax laws, then seek Counsel’s advice prior to the examiner issuing a summons with respect to the civil promoter investigation.

(7) If an administrative summons in a civil promoter investigation is proposed and CI has made a referral to DOJ for grand jury investigation or criminal prosecution, examiners must discuss this matter with Counsel and CT Counsel along with any DOJ attorney assigned to the investigation before issuing a summons. See IRM 4.32.2.8.5, Summonses.

(1) Assessment of promoter and preparer penalties are suspended pending completion of the criminal investigation. Penalties will reject if there is a 914 freeze on the promoter’s account. See IRM 4.32.2.9.2.2, Penalty Assessment – CI Parallel Investigation, for more information.

(2) A prompt assessment may be made without delay when collection appears to be at risk. The intention is to proceed with collection action immediately following the 10-day period for Notice and Demand. See IRM 5.1.4.5, Prompt Assessments. A jeopardy assessment should be considered when a promoter is planning to flee the United States, dissipate assets or property or place assets beyond the reach of the US Government. Examiners should consult with Area Counsel, the DOJ attorney, Collection and CI. See IRC 6862 , Jeopardy assessment of taxes other than income, estate, gift, and certain excise taxes and IRC 7429 , Review of jeopardy levy or assessment procedures. Also see IRM 3.17.244.3, Quick, Prompt, Jeopardy and Termination Master File Assessments, for additional information.

(3) If after the assessment is made, it is discovered that the promoter is planning to flee the United States, dissipate assets or property or place assets beyond the reach of the US Government, see IRM 5.11.3, Jeopardy Levy without a Jeopardy Assessment.

(4) Refer to IRM 4.32.2.12.10, Penalty Case Processing Procedures, for more information on case closure procedures.

(1) After the civil investigation is complete, including the litigation process, and if the penalty assessment is suspended pending completion of the criminal investigation, the investigation is updated to Status Code 16 and suspended in the group. The investigation should be completed to the point where penalties can be easily assessed once CI has completed its criminal investigation. TE/GE examiners should refer to IRM 4.70.

(1) Examiners assigned to parallel investigations should request a client list from CI and consider whether to build cases for examination locally, send the list to the AT Listkeeper for case building if necessary, or conduct witness interviews from the list. IRM 4.32.2.14, Client/Investor/Advisee Lists.

(2) . If the assigned examiner hasn’t secured a client list and CI does not have a client list readily available, the examiner should consider using available non-grand jury information such as search warrant documents or bank records to construct a client list. See IRM 4.32.2.7.7, Information Sharing.

(3) Civil agents should ask CI to review the client list and exclude those clients who may be considered potential criminal subjects in their investigation.

(1) If it is determined that examinations are needed, examinations of client returns should be initiated as soon as possible. Always check to see the past history of audits in the years preceding the investigation as this is often a good place to start. CI should be kept apprised of all civil compliance actions with respect to clients.

(2) Special agents must be mindful of the civil statute of limitations and the potential loss of tax revenues to the government. Special agents should make every effort to provide the civil examiner with all information or potential sources of information to identify clients in a timely manner.

(3) CI may ask to postpone contact or examination of a limited number of clients who are being considered as potential criminal subjects as part of their investigation. CI should not prohibit civil compliance actions on clients just because the client is a witness in the criminal case.

(4) Any tax theories or positions advanced in the client examinations should be consistent. See IRM 4.32.2.7.5, Coordination of Tax Positions.

(1) New authorized AT investigation files are sent via Area SharePoint to the Area AT PSP. The PSP Coordinator will establish the investigation on ERCS and transmit the file to the appropriate group for assignment. Each investigation file contains the authorization memo and research conducted by the LDC .

(2) When a new investigation file is received, the investigation should be started and actively pursued within 45 days of receipt. This will ensure that the information sent in the file doesn’t become outdated or need to be redone.

(3) Before meeting with promoters, examiners should discuss and plan the investigation with the assigned Counsel attorney. Although it is not required, Counsel should review Form 4564, Information Document Request, to ensure that it includes "summons ready" language.

(4) The examiner should meet with the assigned ATAT revenue officer. See IRM 4.32.3.4, Collection, for the procedures to have a revenue officer assigned to the investigation. ATAT ROs can provide assistance with locating people, collecting balance due amounts, and assisting with jeopardy determinations or assessments if needed, among other things.

(5) In some instances, it may be advisable to have a specialist such as an engineer, appraiser, actuary or computer audit specialist assigned to the investigation team. If specialists are needed, examiners should request assistance as early in the investigation as possible. Requests are made using the Specialist Referral System.

(6) Information in the SB/SE LDC or OTSA investigation authorization file should be reviewed and used as a basis for developing the investigation.

(7) Examiners should research IDRS, financial transactions through the FinCEN Portal, the internet and other sources for current information on the promoter or promotion such as whether First Amendment issues may be present or possible leads regarding clients/investors/advisees, if necessary. In many cases, the investigation authorization file will contain this material. FinCEN requests are made using either Form 10509 , FinCEN Query (FCQ) Request(used to request general FinCEN data such as a Currency Transaction Report, Form 8300, or the Report of Foreign Bank and Financial Accounts (FBAR)) or Form 10509 A , FinCEN Query SAR Request (used to request Suspicious Activity Report (SAR) data). The forms are sent via secure e-mail to the appropriate FinCEN SuperUser.

(8) If the investigation involves a paid return preparer, an RPVUE for the most recent processing year would normally be included in the investigation authorization file. If not included in the file, examiners should consider securing EFDS and AUR research early in the investigation process. A research tools job aid explaining the available research tools and how to secure the research can be found on the SB/SE LDC web page under Resources.

(9) Examiners should determine whether examinations of clients will be needed and if so, forward the list to the local Area PSP AT Coordinator for case building. If the AT Coordinator concurs with case building, they will contact the AT Listkeeper for assignment of a tracking code.

(10) If the investigation is a parallel investigation, the examiner must initiate a six-way conference. See IRM 4.32.2.7.3, Six-Way Conference.

(1) This section provides procedures for examiners to commence promoter investigations.

(1) The primary goals of the initial interview are to:

1. Conduct a detailed interview with the promoter.

2. Secure promotional materials.

3. Secure a complete client, investor, or advisee list.

   Note: This is a crucial investigative step, and should be rigorously pursued from the initial contact. Be prepared to take all necessary actions to secure this information, including issuing summons.

(2) Examiners should prepare a list of interview questions before the interview. Examiners should seek assistance from Counsel, the assigned LDC SPA or technical issue specialists as needed to help formulate the interview questions. Interview questions should cover the following topics:

• Personal history.

• Business and professional history.

• Structure of the organization and role of various parties within the organization.

• Size of the promotion.

• Description of tax attributes of the promotion.

• Sub-promoters, co-promoters, or other related parties.

(3) Every effort should be made to secure as much information as possible at the initial interview as the promoter may cease to cooperate at any point during the investigation.

(4) Examiners should consider preparing a summons in advance of the interview to serve on the promoter in the event the promoter fails to comply with the IDR.

(5) Examiners may provide a Letter 3164-P, Third Party Notification for IRC 6700/6701 Investigations at the initial interview, however Letter 3164-P should generally be sent 10 days prior to the initiation of third party contacts, including income tax examinations of clients.

(6) It is recommended that interviews be conducted in the presence of at least one IRS witness.

(7) It is recommended that the assigned Counsel attorney attend interviews when you feel Counsel’s legal support may be needed. Examples include where issues may surface over First and Fifth Amendment privilege, attorney-client privilege, summons production and other areas where counsel support is critical.

(8) In parallel investigations, promoters will not be interviewed without coordination with CI and consultation with Counsel. See IRM 4.32.2.7.6, Interviews, for procedures regarding special agents attending interviews. See IRM 4.32.2.7, Parallel Investigations.

(9) Consider the best location to hold the interview. If employee safety is a concern, notify TIGTA to request their presence or consider holding the interview inside a government facility.

(10) For LB&I, court reporters are required for all formal interviews. Examiners should make arrangements for purchase of the interview transcript. Examiners should contact a LB&I Financial Services Senior Program Specialist for assistance.

(11) For some sample promoter interview questions, see Sample Interview Questions for Promoters/Preparers. This document is available on MySB/SE, Promoter Investigations.

(12) See IRM 4.10.3.3, Interviews: Authority and Purpose, for the authority for and purpose of conducting interviews.

(13) See IRM 4.10.3.3.7, Interview Techniques, for additional general interviewing techniques.

(1) Affidavits can be used to document oral statements of the promoter or any other person interviewed during the promoter investigation. Form 2311, Affidavit can be used to document the interview.

(2) Affidavits are used:

• When other documentary evidence is not available to support the statements of a person.

• To record the testimony of a person.

• To discourage a person from later changing his testimony.

• In certain circumstances as evidence if the person cannot be located for future proceedings.

• To accurately record and document a person’s statements.

(3) Examiners can administer an oath or affirmation to the person being interviewed, but discuss the merits of this approach with the assigned LDC SPA. The authority for administering oaths is IRC 7602, Examination of Books and Witnesses, and IRC 7622, Authority to Administer Oaths and Certify, and authority 14 of Delegation Order 25-1 (IRM 1.2.52.2), Summonses, Oaths, Certifications, and Related Functions. Contact Counsel prior to administering any oath or affirmation.

(4) See IRM 20.1.6.20, Affidavits Overview, for information to be included in affidavits related to preparer penalty cases.

(5) There is no set form for an affidavit as long as all of the required information is present. There are four basic types of affidavits:

• Narrative Affidavit – A verbatim written record of the person’s statements or testimony.

• Summary Affidavit – A summary of the person’s statements or testimony.

• Question and Answer Affidavit – A written record containing the exact question asked, and either the verbatim answer or a summary of the answer given by the witness.

• Attested Interview Report – A summary of the interview that is not signed by the person but is signed under oath by the examiner and all other IRS employees attending the interview.

(6) Except for an attested interview, the person giving the affidavit should sign and date the document. If the affidavit is more than one page, the person should initial and date each page. Any typographical errors or other changes to the person’s statement must be initialed and dated by the person. If more than one person is interviewed, prepare a separate affidavit for each person.

(7) If a person refuses to sign the affidavit, but states that it is true and correct, the following statement should be added to the bottom of each page of the document:

"This statement was read by [insert name] on [date], who stated it was true and correct but refused to sign it."

(1) A summons can be used to require a promoter or witness to appear on a given date to give testimony, or to produce existing books and records, or other data. A summons cannot require the preparation or creation of documents (including tax returns) that do not already exist. If a privilege defense is raised to the production of summoned documents, always involve assigned Counsel in the issue. It is a best practice to describe the elements of the privilege log requested from the witness in the instructions to the summons. See IRM 25.5.5.4.3, Privileged Communication and Summons.

(2) For summonses related to promoter investigations the following language must be included in the summons: "In the matter of liability of [promoter or preparer's name] under 26 USC Secs. 6694, 6695, 6700, 6701, 6707 and 6708 [use all sections that may be applicable]."

(3) The periods on the summons form should say "From January 1, [year] through date of compliance with this summons". The year to be inserted would be the earliest year that the promoter is suspected of having engaged in the abusive transaction.

(4) The Counsel attorney assigned to the promoter investigation can review summonses before they are issued to make sure they are legally enforceable. An examiner may want Counsel to review the summons prior to issuance if the summons is not routine or has factors that are complex. For LB&I investigations, LB&I Counsel forwards the summons to DOJ for approval after Counsel review through procedures prescribed by LB&I Division Counsel and the CCDM. . Summonses are of particular concern in cases where First Amendment concerns are present. Such summonses must be narrowly tailored to avoid infringing on First Amendment rights and Counsel should be contacted for assistance when this is an anticipated issue.

(5) In parallel investigations, examiners must deconflict all summonses with CI before issuance. Examiners should be aware that IRC 7602(d) limits the authority of the IRS to issue or enforce summonses when there is a "Justice Department referral" in effect (regarding Grand Jury or criminal matters). See IRM 4.32.2.7.9, Administrative Summons. For advice on the meaning of that restriction, examiners should contact Counsel.

(6) Examiners should continue to develop the promoter investigation during the summons enforcement process and attempt to secure the information from another source.

(7) Additional requirements for LB&I examiners:

1. A summons log must be kept. A sample copy of the summons log is in IRM Exhibit 4.32.2-2, Sample Summons Log.

2. Each listed transaction should be shown on a separate summons. All other transactions should be combined on one additional summons.

3. Team Managers (TM) should sign the summons. It is left to the discretion of the TM whether or not to inform the promoter of the pending summons. If a summons is a third party summons, notice must be given under IRC 7609(a).

(8) See IRM 25.5, Summons, for additional information on summonses and IRM 1.2.52.2, Delegation Order 25-1, Summonses, Oaths, Certifications, and Related Functions.

(1) One objective of the investigation is to develop evidence to support whether or not the promoter is harming the Government and their clients. Evidence is generally defined as something that proves a fact and includes properly sworn testimony, documents, photographs, audiotapes and videotapes.

(2) Knowledge that a promoter’s activities are for tax evasion and avoidance purposes is an element of many promoter penalties. Examiners should develop and retain evidence of the promoter's claimed tax expertise.

(3) Generally, in a court of law, the contents of a document can be proven only by that document, rather than by summaries or testimony about the document. In addition, the original piece of evidence should be produced unless there is a satisfactory explanation why the original cannot be produced. A copy can be provided to the court if properly authenticated. Consequently, great care in handling or preserving information is necessary if it is to be used in court. See IRM 9.6.4.9, Admissibility of Evidence at Trial, for further information. Examiners should consult with Counsel if questions arise about handling or preserving potential evidence.

(4) All documents obtained during the investigation should be maintained in the condition in which they were received. For each document received the examiner should record on Form 9984, Examining Officer's Activity Record, or its equivalent, the date it was received, from whom it was received, and how it was received (mail, during interview, via fax, etc.).

(5) Do not make notations or other extraneous marks on any documents received. Examiners are seldom allowed to retain original documents obtained from the promoter, so it is very important to make copies. Mark the back of each copy with the statement "compared to original," then sign and date the document to authenticate it.

(6) If examiners are allowed to temporarily retain documents for additional examination and/or making copies they should provide a receipt to the promoter for the records. Form 2725-A, Document Receipt/History and Custody of Documents, is available for this purpose.

(7) See IRM 4.10.7.3, Evaluating Evidence, for additional information on evaluating evidence.

(1) Summary Conferences:

1. A summary conference is a meeting with the promoter held prior to an injunction referral to DOJ. The purpose would be to confirm or clarify IRS’s understanding of the facts and ascertain any new defense or rebuttal positions claimed by a promoter.

2. If the examiner and Group Manager (in consultation with Counsel if needed) feel that a summary conference would not be worthwhile, one is not required. In addition, in a parallel investigation, if CI has requested no contact with the promoter, then no summary conference should be held.

3. If held, possible investigative outcomes can be discussed in general terms, but no definitive statement should be made regarding any final determinations of the IRS. Discussion of the number or amount of penalties would be deferred until DOJ has had an opportunity to evaluate the injunction referral.

4. If there are indications of fraud, a summary conference would not normally be held. Examiners should consult the fraud technical advisor (FTA) and make a fraud referral when appropriate.

(2) Closing Conferences:

1. A closing conference should be offered to the promoter generally at the conclusion of the investigation unless the group manager and Counsel agree that this should not take place. The conclusion means after any injunction action has been taken, after the case has been returned by DOJ or after a decision not to refer it to DOJ has been made. The purpose of this meeting is to discuss penalty assessments, appeal processes and future behavior. LB&I requires closing conferences to be offered in all investigations.

2. If DOJ accepts the injunction referral, examiners should discuss the timing of assessment of any applicable penalties. In most instances, DOJ recommends suspending penalty assessments until any potential litigation has been finalized.

3. Examiners send Letter 3829, Closing Conference Letter for Tax Shelter Promoter Investigations, to the promoter to offer the closing conference. This letter should be modified to incorporate the specific IRC sections applicable to the investigation. Consider who should attend the closing conference. In some instances, it is advisable to have Counsel attend the closing conference.

4. If the promoter declines to attend or is nonresponsive to the closing conference letter, the examiner may send the penalty report to the promoter utilizing Letter 5390, Penalty Explanation.

5. Any proposed penalties must be approved in writing by the examiner's immediate supervisor before discussing with the promoter. See IRM 4.32.2.12.1, Approval of Penalties.

(3) Generally, no extension of time shall be granted for scheduled conferences except in extenuating circumstances, although the IRS may at its discretion schedule additional meetings.

(4) If the promoter declines or fails to attend either the summary or closing conferences, the IRS shall proceed based on the available information.

(1) During preparer and promoter investigations, examiners gather evidence to determine if false statements were made (promoter) or if the preparer was aiding and abetting in the preparation of an abusive tax return. An injunction referral is warranted if the preparer and/or promoter engages in conduct specified in IRC 7407(b) related to income tax return preparation and/or specified conduct under IRC 7408(c). In addition, a referral may be appropriate for specified conduct under IRC 7402 for impairing and impeding the proper administration and enforcement of Internal Revenue laws.

(2) The purpose of an injunction is to stop individuals from further engaging in certain conduct with respect to the preparation of returns or engaging in conduct related to tax shelters and reportable transactions and to prevent the recurrence of the conduct. There is no requirement that the conduct be ongoing but a court may be reluctant to grant the extraordinary remedy of an injunction unless the government can demonstrate that there is a likelihood of recurrence. Factors to consider in assessing the appropriateness of an injunction include:

• Gravity of the harm to the government.

• Extent of the promoter's participation.

• Degree of knowledge.

• Isolated or recurrent nature.

• Promoter's recognition or non-recognition of culpability.

• Likelihood that the promoter’s occupation would place them in a position where future violations could be anticipated.

(3) Injunction actions are separate and apart from any other civil or criminal actions (such as summons proceedings and criminal trials) brought by the government against promoters.

(4) An injunction should be considered even if the preparer or promoter is criminally prosecuted and sentenced to incarceration, probation, etc. A criminal sentence is punishment for past criminal behavior while an injunction prohibits future behavior.

(5) See IRM 4.32.2.10, Injunctive Actions, for additional information on injunctions.

(1) If a preparer or promoter engages in conduct or activity subject to penalties under IRC 6694, IRC 6695, IRC 6676, IRC 6700, IRC 6701, IRC 6707, or IRC 6708, penalties will generally be assessed.

(2) Examiners may recommend asserting penalties regardless of whether injunctive relief is pursued by the government as long as the evidence demonstrates that the preparer and/or promoter engaged in conduct that violates specific penalty code sections.

(3) Prior to the AJCA, IRC 6707 and IRC 6708 allowed for a reasonable cause exception if the tax shelter organizer or any other person could establish that the failure to comply was due to reasonable cause. See 26 CFR 301.6707-1T and 26 CFR 301.6708-1T . After the AJCA, the reasonable cause exception only applies to IRC 6708. Persons subject to IRC 6707 are not entitled to reasonable cause consideration, but may request rescission of the IRC 6707 penalty under the procedures set forth in Rev. Proc. 2007-21.

(4) IRC 6751 requires written managerial approval for the assessment of most penalties, including all penalties covered by this IRM and referenced above, by the immediate supervisor of the individual making the determination to assess the penalty or such higher level official as the Secretary may designate. See IRM 4.32.2.12.1, Approval of Penalties, and IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments.

(5) Coordinate with the Area ATAT Collection Coordinator based on the location of the promoter whenever the collectibility of a potential penalty is a concern. For a list of ATAT Collection Coordinators, see the collection contact located on MySB/SE.

(1) A discontinuation of an investigation may occur before or after promoter contact. If no contact has been made with promoter and less than 10 hours has been applied to the investigation, follow survey procedures outlined in IRM 4.32.2.9.5, Surveys.

(2) SB/SE examiners should consult with their group manager, assigned Counsel, AT SPA and the SB/SE LDC prior to discontinuing an investigation.

(3) LB&I examiners must contact assigned counsel, the LB&I DFO with jurisdiction over the promoter investigation and LB&I Financial Services, DFO, Manhattan prior to discontinuing an investigation. If the promoter has been contacted, examiner must issue a withdrawal letter when closing the investigation. LB&I examiners do not issue the withdrawal letter until approved by the DFO, Financial Services, Manhattan.

(4) Circumstances that may warrant a discontinuation of an investigation include:

1. The individual or entity identified as the AT promoter is in fact not involved in the activity which is corroborated through evidence such as third party testimony.

2. The activity has been proven not to be abusive in nature, and accordingly, would not be subject to penalty under one of the applicable penalty statutes.

3. The promoter is deceased and the operation is defunct.

(5) Discontinuing a civil investigation is not a no change closure and does not preclude the investigation from being reopened if more information becomes available at a later date. The reopening of a civil investigation is not subject to the reopening requirements of an income tax examination.

(6) See IRM 4.32.2.12.10, Penalty Case Processing Procedures, for investigation discontinuation processing procedures.

(1) The SB/SE LDC or LB&I OTSA coordinates all civil promoter investigation cases with CI prior to approval of the investigation. See IRM 4.32.2.4.5, Coordination with Criminal Investigation (CI).

(2) Examiners should be alert to indicators of fraud throughout their investigation. A Fraud Technical Advisor (FTA) should be contacted if the investigation reveals indicators of fraud. See IRM 25.1.2 , Recognizing and Developing Fraud, for more information on fraud development.

(1) For SB/SE, the decision to survey a promoter investigation should be discussed with the group manager, Counsel and an LDC SPA. The group manager must approve the reason for the survey. LB&I promoter examinations may not be surveyed.

(2) No survey is allowed if there has been any contact with the promoter or more than 10 hours were charged to the case.

(1) Examiner Injunction Referrals (EIR) are prepared using a specific format. The referral should include detailed information about the promoter and any related promoters, the mechanics of the promotion, and the basis for an injunction recommendation.

(2) The EIR is organized into five sections:

1. Investigation summary

2. Facts and findings

3. Exhibits

4. Investigative agent data

5. Witness list

(3) If several individuals or entities were investigated, the EIR should discuss the involvement of each person or entity. See IRM 4.32.2.10.2, Related Promoters.

(4) Examples of various Examiner Injunction Referral (EIR) are available on MySB/SE, Promoter Investigations and Abusive Return Preparers/Exam Aid web page.

(1) It is a best practice to consolidate related promoters in one referral to the extent possible. DOJ may elect to:

• File one injunction suit against all parties.

• File separate suits against specific individuals or entities.

• Decline to file a suit against some or all of the related individuals or entities.

• Request that IRS refer additional parties to be included in the injunction suit.

(2) The decision to consolidate related promoters in one referral is based on many factors, including when cases are identified or investigated, the related promoter’s involvement in the activity, and the strength of the evidence.

(3) The necessity and appropriateness of any further investigative actions on the related promoter should be discussed with the group manager. For LB&I investigations, the LB&I:Financial Services, Promoter Program Manager should be consulted. The decision may be made to assert penalties based on the best available information, discontinue the investigation or proceed with the investigation, depending on the facts and circumstances of the investigation.

(1) After receipt of the EIR, Counsel will prepare an injunction suit letter authorizing DOJ to file an injunction suit on behalf of the IRS or to secure a consent injunction. A referral and injunction suit must be made even if the promoter indicated they are willing to enter into a voluntary consent injunction.

(2) Counsel shall consult the CCDM on coordination requirements.

(3) All injunction packages are sent to DOJ Tax Division, Civil Trial Division, Central Region regardless of the location of the promoter

(4) Copies of the referral are sent by Counsel to:

• SB/SE Division Counsel assigned to AT schemes (without enclosures).

• Area Counsel, Area 4 (without enclosures).

• SB/SE Group Manager (without enclosures).

• SB/SE Lead Development Center

(5) Injunction referrals must be handled on an expedited basis. These cases are classified as standard referrals.

(1) The IRS will consider offers by promoters to enter into consent injunction agreements whereby the promoter agrees to a voluntary permanent injunction.

(2) An injunction referral must be made to DOJ to initiate the consent injunction process. Examiners should work with Counsel on preparing an expedited referral to DOJ.

(3) A Form 906, Closing Agreement on Final Determination Covering Specific Matters, or any other agreement cannot be used as a substitute for a consent injunction.

(4) If a consent injunction offer is made by the promoter prior to an injunction referral to DOJ, the information requested in all IDRs (see IRM 4.32.2.8, Promoter Investigation Guidelines) should still be obtained in the event the promoter does not execute the consent injunction.

(5) If DOJ enters into negotiations for a consent injunction subsequent to a referral, Counsel and the group manager will participate in all negotiations.

(1) Promoters may claim that the First Amendment to the US Constitution (freedom of speech) prevents the government from obtaining injunctions against them.

(2) Federal courts can enjoin promoters without violating their First Amendment free speech rights if it is commercial speech, aids or abets a crime, or incites imminent lawlessness.

(3) The determination of what is deemed to be protected speech is a complex area of law. Examiners should seek assistance from Counsel on how best to address the promoter’s First Amendment assertions.

(4) The EIR and the corresponding Counsel injunction suit letter to DOJ should clearly explain the reasons why the First Amendment does not protect the promoter’s activities.

(5) For additional information on First Amendment issues, see the MySB/SE, Promoter Investigations, under "Issues and Procedures".

(1) The injunction referral to DOJ does not conclude the involvement of the examiner in the investigation. Examiners and Counsel will assist DOJ attorneys throughout the case development and litigation process. Counsel should assist as well when complex legal matters are present.

(2) Litigation support may include:

• Securing certified copies of client returns.

• Interviewing new or potential witnesses.

• Computing or refining computations of estimated tax loss.

• Gathering evidence of ongoing promoter activity.

• Testifying in court proceedings.

(3) Examiners will execute a sworn declaration prepared with the assistance of the DOJ attorney. The declaration is filed with the initial complaint filed by DOJ.

(4) Examiners should contact their PSP AT Coordinator or an AT SPA for assistance with requests from DOJ that will require extensive research or the gathering of substantial documents. (e.g., certified copies of large numbers of client returns).

(1) Any person who is a material advisor for a reportable transaction as defined under 26 CFR 301.6111-3(b) must file a return as described in 26 CFR 301.6111-3 . Failure to timely disclose or submitting false or incomplete disclosure statements are subject to penalties under IRC 6707. Material advisors must use Form 8918, Material Advisor Disclosure Statement, (or successor form) and the form must be completed in the manner provided for in the regulations and the instructions to the form.

(2) IRC 6111(b)(1) (as amended by the AJCA) 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), for threshold amounts. The threshold amounts are:

1. For reportable transactions other than list transactions, $250,000 if all clients in the shelter are corporations (looking through any partnerships or trusts) or $50,000 for all other taxpayers;

2. For listed transactions, these thresholds are reduced to $25,000 and $10,000, respectively.

(3) See 26 CFR 301.6111-3(d) and (e) for the form and content of material advisor disclosure statement and time for providing disclosure.

(1) Each material advisor (as defined in IRC 6111, as amended by the AJCA) of a reportable transaction is required to maintain a list identifying each person for whom the advisor acted as a material advisor with respect to that transaction. Lists are retained for seven years following the earlier of the date the material advisor last made a tax statement relating to the transaction or the date the transaction was last entered into, if known. See 26 CFR 301.6112-1(d)for rules regarding entries that have been dissolved or liquidated prior to the expiration of the seven year period.

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

(1) IRC 6751 requires written managerial approval for the assessment 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 or such higher level official as the Secretary may designate. Documentation of the supervisor's approval must be included in writing in the file.

(2) Managerial approval should only be granted after the examiner has fully developed the facts, completed the workpapers, and clearly established a basis for penalizing the promoter or material advisor.

(3) In SB/SE investigations, the group manager may want to discuss the penalty case with Counsel prior to closing for assessment. Counsel does not need to approve the penalty assessment.

(4) In LB&I, after 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 (LB&I:Financial Services:DFO:M)

(5) See IRM 20.1.1.2.3, Managerial Approval for Penalty Assessments, for additional information.

(1) The 10-year collection statute of limitations begins on the day after the penalty is assessed.

(1) This section includes the following:

1. IRC 6694(a), Understatement Due to Unreasonable Positions

2. IRC 6694(b), Understatement Due to Willful or Reckless Conduct.

(2) IRC 6694(a) deals with understatements due to unreasonable positions and states:

1. In general, if a tax return preparer -

1. prepares any return or claim of refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2), and

2. knew (or reasonable should have known of the position

(3) IRC 6694(b)deal with understatements due to willful or reckless conduct and states:

1. In general - Any tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a conduct described in paragraph 2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of -

1. $5,000 or

2. 75 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.

(4) Return preparer penalties assessed as a result of an authorized AT investigation have special procedures. See Return Preparer Penalty Job Aid for instructions.

(5) When considering which penalty applies to the facts and circumstances of an investigation, consideration must be given to all relevant factors including current Court decisions regarding application of the knowledge standard. It may be prudent to discuss which penalty is most fitting to the specific facts of the investigation with assigned Counsel.

(1) Commonly referred to as identification penalties, these are rarely assessed in abusive promoter investigation cases but are available if determined to be applicable.

(2) This table describes the available penalties and rates, adjusted for inflation:

(3) See IRM 20.1.6.5, IRC 6695 Penalties That May Apply to a Tax Return Preparer, for details regarding the application and computation of each penalty.

(4) See the Return Preparer Penalty Job Aid for directions regarding how to process the penalties.

(1) IRC 6700, Promoting Abusive Tax Shelters, Etc., permits assertion of penalties against any person who:

• Organizes or assists in the organization of a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, or

• Participates (directly or indirectly) in the sale or any interest in an entity or plan or arrangement and

• Makes or furnishes or causes another person to make or furnish a false or fraudulent statement about any material matter or a gross valuation overstatement.

(2) Penalties should usually be assessed after the permanent injunction is obtained if there is not an on-going parallel investigation. See IRM 4.32.2.9.2.2, Penalty Assessment - CI Parallel Investigation.

(3) Penalties under IRC 6700 are assessed and collected in the same manner as taxes. See IRC 6671, Rules for Application of Assessable Penalties.

(4) It is not necessary to have a return filed in order to assess IRC 6700 penalties. The activity is the "sale or organization" of a plan or arrangement. Examiners need not prove the promoter's clients actually used the promotion, only that if the client had utilized the promotion, there would have been tax harm to the government. The statute requires potential, not actual, tax harm to the government.

(5) An IRC 6700 penalty can be imposed in addition to any other penalty, except it cannot be assessed on the same document on which an IRC 6701 penalty is applied.

(6) See IRM 20.1.6.13, Penalty for Promoting Abusive Tax Shelters- IRC 6700, for more information.

(1) IRC 6701, Penalties for Aiding and Abetting Understatement of Tax Liability, permits assertion of penalties against persons who help others understate their tax liabilities. A person who aids, assists in, procures, or advises others regarding the preparation or presentation of any portion of a return, affidavit, claim or other document who knows (or has reason to believe) that the document will be used in connection with any material matter arising under the IRC, and who knows will result in an understatement of another person's tax liability, may be liable for penalties under IRC 6701.

(2) Consideration should be given as to whether to assert IRC 6701 or IRC 6694(b)given the facts and circumstances of the investigation. There is significant difference in the knowledge standard applied by the Courts to the two penalties, and so a discussion of that factor with Counsel should be held prior to determining which penalty to apply.

(3) Penalties should usually be assessed after the permanent injunction is obtained if there is not an on-going parallel investigation. Even then, the examiner must ensure that these penalties are well developed because any failure to sustain these penalties could lead to a motion to have the court vacate the injunction because the related penalty conduct could not be sustained by the Government. See IRM 4.32.2.9.2.2, Penalty Assessment - CI Parallel Investigation.

(4) Penalties under IRC 6701 are assessed and collected in the same manner as taxes. See IRC 6671, Rules for Application of Assessable Penalties.

(5) IRC 6701 penalties generally can be imposed in addition to any other penalty, except that the penalty cannot be assessed on the same document for which a penalty under either IRC 6700 or subsections (a) or (b) of IRC 6694 is applied.

(6) See IRM 20.1.6.14, Penalties for Aiding and Abetting - IRC 6701, for more information.

(1) For material advisors required to disclose reportable transactions under IRC 6111 (as amended by AJCA) for material aid, assistance or advice given after October 22, 2004:

1. IRC 6707, Failure to Furnish Information Regarding Reportable Transactions, as amended by the AJCA, permits the assertion of penalties against any person who fails to file an information return with respect to a reportable transaction timely, or files a false or incomplete return, as required by IRC 6111(a). IRC 6707, as amended by the AJCA, is effective for returns the due date for which is after October 22, 2004.

(2) For tax shelter registrations due before October 23, 2004:

1. Pre-AJCA IRC 6707, Failure to Furnish Information Regarding Tax Shelters, permits the assertion of penalties against any person who failed to register a tax shelter timely, or filed a false or incomplete registration, as required by pre-AJCA IRC 6111(a).

(3) IRC 6707 penalties can be applied in addition to any other penalty allowed by law.

(4) See IRM 20.1.6.16, Failure to Furnish Information Regarding Reporting Transactions - IRC 6707, for more information on IRC 6707 penalties.

(1) For IRS requests made after October 22, 2004, post-AJCA 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. A principal organizer, organizer, manager, or seller of a tax shelter who was required to maintain a list of investors under IRC 6112 (prior to amendment by the AJCA of 2004) for interests sold in investments before October 23, 2004; and

2. A material advisor with respect to a reportable transaction who was required to maintain a list of advisees under IRC 6112, as amended by AJCA of 2004 for transactions with respect to which material aid, assistance, or advice is provided after October 22, 2004.

(2) IRC 6708 penalties can be applied in addition to any other penalty allowed by law.

(3) See IRM 20.1.6.18, Failure to Maintain Lists of Advisees with Respect to Reportable Transactions - IRC 6708, for more information.

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

(2) After assessment of the penalties, promoters receive a penalty assessment notice and demand for payment. If the promoter pays the penalties, then the promoter may file a claim for refund.

(3) Promoter rights differ depending on whether the penalties are assessed under IRC 6700, IRC 6701, IRC 6707, or IRC 6708.

(1) This section discusses writing a penalty report, case file assembly, and closing procedures for promoter investigations.

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

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

(3) DOJ distributes press releases regarding court actions. The local Office of Communications and Liaison is informed of any pending press releases and assists in any local responses. Examiners and 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 or permanent injunction.

• Initiation of any contempt actions.

(5) In parallel investigations, DOJ 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 that both actions can be included in the press release.

(1) Promoters frequently represent their clients 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.

(2) The action taken is dependent upon the specific provisions which allow the promoter the right to practice before the IRS as well as the circumstances surrounding the injunction.

(3) If the promoter or the promoter’s power-of-attorney also represents clients in their examinations, a potential conflict of interest exists. If this situation occurs, the examiner should consult with Counsel regarding the appropriate action to take. For additional guidance, see Representing Clients on MySB/SE, Parallel Investigations web page.

(4) Section 10.29 of Circular 230 discusses the rules regarding conflict of interest. It states that a conflict exists if "the representation of one client will be directly adverse to another client" or "there is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client or a third person, or by a personal interest of the practitioner."

(5) Circular 230 further states that the POA can still represent the client if "each affected client waives the conflict of interest and gives informed consent, confirmed in writing." Copies of these informed consents must be provided to the IRS upon request. "Informed consent" means more than simply obtaining a client's consent. There are occasions where, despite a client's consent, a practitioner cannot reasonably or effectively provide competent and diligent representation to each affected client. When these situations arise during an investigation, Counsel should be consulted. If a suspected conflict of interest(s) occurred/occurs during the investigation, a referral to OPR should be made at the conclusion of the investigation.

(1) Considering client returns for examination is an important aspect of AT compliance actions. See IRM 4.32.2.14, Client/Investor/Advisee Lists, for information on processing of client lists.

(1) Post-assessment appeal procedures may apply to promoter penalties. The promoter may file a claim for refund. See IRM 4.32.2.12.9, Post-Assessment Rights, for a discussion of promoter post-assessment rights and procedures.

(2) See IRM 20.1.6.19, Appeal Rights, for additional information regarding IRC 6694(a) and IRC 6694(b) penalties.

(1) Monitoring compliance with injunction orders is an important step in the process of stopping abusive activities. The LDC, ATSU and AT Field exam share responsibility for monitoring compliance with injunction orders. Other operations may have a role to assist, including other SB/SE employees, TE/GE, Collection, RPO, DOJ and LB&I. The SB/SE LDC is also responsible for authorizing and tracking contempt investigations and contempt rulings related to previously enjoined promoters in the LDC database.

(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) LB&I examiners should solicit future compliance agreements (Form 906). These agreements include provisions requiring promoters to adopt quality-control procedures to ensure compliance with the IRC 6111 and IRC 6112 requirements and allowing the Service to monitor such procedures.

(4) Form 906 agreements are generally not used by SB/SE in promoter investigations and never used as a substitute for a referral for injunctive relief when the evidence warrants a referral to DOJ.

(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 sub-promoter or related return preparer. This is true even if the sub-promoter or related subject was not referred to DOJ.

(2) Examiners, Counsel and DOJ attorneys coordinate their efforts to inform any known related subject not specifically named in the injunction suit of the court action and its effect upon them. Failure to obey the court order may subject the related party to contempt proceedings.

(3) The injunction must be personally served on the related parties to be legally binding. An IRS employee, US 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 the US Marshall or a private process server completes the service.

(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 sub-promoter or related return preparer so served should contact the SB/SE LDC or OTSA.

(1) Promoters may appeal any type of injunction or restraining order imposed by the courts. Examiners and Counsel continue to assist 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.

(1) Client lists are solicited from the promoter during the investigation. See IRM 4.32.2.8.2.1, Commencement of SB/SE Investigations, and IRM 4.32.2.8.2.2, Commencement of LB&I Material Advisor Investigations.

(2) Client lists should be secured from the promoter or developed from other sources as quickly as possible to allow sufficient time for analysis and selection of returns for examination within the assessment statute of limitations, should a determination be made that client examinations are necessary. Return preparers client lists will be included with the investigation authorization file. Subsequent year lists can be obtained via RPVUE and/or IRC 6107(b)letters. Be prepared to summons a list, if necessary, to secure the client list from an uncooperative promoter.

(3) The court can order the promoter to provide a client list as part of the injunction litigation or DOJ may obtain a list during the discovery phase of the litigation.

(4) Client 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).

• CI search warrants.

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

• Informants.

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

(1) This section describes specific procedures for processing client lists for authorized AT investigations of promoters and preparers.

(1) This section describes specific procedures for examinations related to clients in LB&I promoter investigations.

(1) TE/GE will provide the SB/SE AT Listkeeper with client lists within 30 days of receipt. See IRM 4.32.2.14, Client/Investor/Advisee Lists, for additional information.