25.1.14. Campus Examination Fraud Procedures

(1) The goal of the Campus Examination Fraud Program is to ensure SB/SE Examination, W&I Examination and Automated Underreporter (AUR) employees independently identify indicators of fraud.

(2) Mission. The mission of the Office of Fraud Enforcement (OFE) is to promote compliance by strengthening the IRS’ response to fraud and by mitigating emerging threats. This includes:

• Improving fraud detection and development to address areas of high fraud/risk noncompliance.

• Cultivating internal and external partnerships to identify new treatment streams to enhance enforcement.

• Pursuing civil fraud penalties and recommending criminal cases that will lead to prosecutions, where appropriate.

OFE builds strong internal and external partnerships and serves as the primary civil liaison to IRS-Criminal Investigation. By supporting cases throughout the life cycle and through full consideration of available treatments, OFE facilitates optimal disposition of cases with civil or criminal fraud potential.

(3) Purpose. The purpose of this chapter is to provide guidance to campus employees in identifying potential indicators of fraud and assist in development of the potential fraud cases.

(4) Audience. Campus Examination and AUR employees in SB/SE and W&I and OFE employees.

(5) Policy Owner. Director, Office of Fraud Enforcement, SB/SE.

(6) Program Owner. Office of Fraud Enforcement, Policy, SB/SE.

(7) Primary Stakeholders. SB/SE and W&I Campus Examination and AUR.

(1) Each SB/SE Campus is responsible for:

• Identification of fraud indicators

• Development of potential fraud cases

• Assertion of the civil fraud/fraudulent failure to file (FFTF) penalties

• Imposition of the 10-year bans

• Consideration for criminal fraud referral

(2) The W&I Austin Campus Examination function is the designated centralized W&I site for working fraud cases. The W&I Austin Campus Examination is responsible for developing fraud, asserting the civil fraud penalty and imposing the 10-year EITC, CTC, ACTC and/or AOTC bans.

(3) The AUR fraud referrals from the AUR functions are referred to SB/SE campuses.

(4) The Frivolous Return Program was moved from SB/SE to W&I Return Integrity and Compliance Services (RICS) in FY 2015. When appropriate, cases developed for fraud and penalties are asserted by that function, or referred to Field Operations.

(5) All campuses refer cases to CI for criminal investigation consideration with FEA approval. Fraud referrals accepted in the Austin Examination function, however, are limited to those originating from the Examination function. Cases with complex issues, inappropriate for development within the W&I campuses, are transferred to the SB/SE Area offices for development.

(1) Functional Fraud Coordinator (FFC)

The FFC is a fraud specialist assigned to a function or operation within a campus. The FFC is responsible for reviewing Form 13549, Campus Fraud Lead Sheet, for potential fraud issues, conducting research to establish a pattern of non-compliance and, when appropriate, referring cases to the Campus Fraud Coordinator or Examination Fraud Coordinator (CFC/EFC). See IRM 4.19.10.4.3, Responsibilities of the Functional Fraud Coordinator (FFC). FFCs are assigned to functions or operations within SB/SE campuses; an FFC is assigned to each of the AUR operations.

(2) Campus Fraud Coordinator (CFC)

The CFC is a fraud liaison assigned to each SB/SE campus and is the primary point of contact with the FEA assigned to that campus.

(3) Examination Fraud Coordinator (EFC)

The EFC is a fraud liaison assigned to each W&I Examination campus and is the primary point of contact with the FEA assigned to the campus. The EFC's role is to provide insights and feedback. See IRM 4.19.10.4.4 , Responsibilities of the Exam Fraud Coordinator (EFC) - W&I Only.

(4) Fraud Enforcement Advisor (FEA)

The CFC/EFC collaborates with the FEA in developing potential fraud cases. Only the CFC/EFC meets with the FEA during campus visits by the FEA to discuss potential fraud cases, procedural changes, identify potential issues/trends, deliver training, present topics at meetings, etc. When needed, the FEA schedules visits to discuss specific cases.

(1) When a campus examiner identifies indicators of fraud, those indicators will be discussed with the team leader/manager. If the team leader/manager agrees that indicators of fraud are present, the examiner will prepare Form 13549 and submit the case to the team leader/manager for approval. When Form 13549 is approved, it is sent via secure e-mail to the FFC, or directly to the CFC/EFC (where an FFC position is not present).

(2) The FFC has 10 business days to review the case for fraud potential and either accept it (forward it to the CFC/EFC for fraud development consideration) or decline it (return the case to the examiner through the team leader/manager). The FFC will conduct a preliminary screening of the case, including a review of the prior and subsequent years' tax returns for pattern consideration. All actions taken by the FFC will be noted on the Form 13549.

1. If the FFC accepts a case as having fraud potential, the case is forwarded, via secure e-mail, to the CFC/EFC for consideration of fraud development.

2. If the FFC declines a case as not having fraud potential, the FFC must explain in writing the decision in Section V of Form 13549, Explanation for Declination, and return a copy of the completed form to the campus examiner through the team leader/manager.

(3) The CFC/EFC has 21 business days from receipt of a case from the FFC to accept or decline it for potential fraud development. The CFC/EFC reviews the case and completes additional research including a review of the prior and subsequent year returns for pattern consideration, if that research was not conducted by the FFC.

1. If the CFC/EFC determines fraud development is warranted, the FEA is contacted for review of the case file and to discuss the indicators of fraud.

2. If the case is declined for fraud development, the CFC/EFC must provide a written explanation for the declination in Section V of Form 13549.

(4) When a CFC/EFC accepts a case for potential fraud development, a discussion will be held with the FEA. During the initial analysis, the case information and evidence, internal and external research, and Form 13549 are reviewed by the FEA with the CFC/EFC for the FEA's determination regarding whether the indicators of fraud warrant development.

(5) If the FEA concurs that the indicators of fraud warrant development, the CFC/EFC will sign the Form 13549 and forward to their group manager. The group manager will sign and forward, via secure e-mail, to the FEA to approve in section VII of the Form 13549 and complete a plan of action. All CFC/EFC actions must be noted on Form 13549 and a copy of the completed form must be returned, via secure e-mail, to the campus examiner through the team leader/manager.

1. Following the initial discussion and a determination to pursue development of the fraud indicators, phone or e-mail contact between the CFC/EFC and the FEA occurs at least every 30 business days to ensure progress on the lead. When needed, the FEA can schedule face-to-face meetings.

2. CFCs/EFCs receive guidance from the FEA who reviews cases in "fraud development status" to determine if additional audit steps and follow-up actions are necessary.

(6) All cases require the CFC/EFC to discuss with the FEA whether the fraud development actions will occur at the campus or, when the case cannot be fully developed in the campus environment, it should be transferred to the Field Operations.

SB/SE Campuses:

• If fraud indicators will be developed within the SB/SE campus, the FEA recommends placing the case in "fraud development status" (Status 17) by signing the appropriate line on Form 13549. The FEA will return, via secure e-mail, the signed Form 13549 to the CFC and CFC GM with an agreed plan of action, identifying the audit steps needed to establish affirmative acts (firm indications) of fraud.

• If fraud referrals will be transferred to Field Operations for development, the FEA will facilitate by:

1. Consulting with the FEA located in the receiving Area office to determine if local factors impact the case determination.

2. Documenting the recommendation by signing the appropriate line on Form 13549 indicating "Transfer to field for further fraud development and input Project Code".

3. Returning, via secure e-mail, the completed Form 13549 to the CFC/EFC and CFC/EFC GM.

Upon receipt of the signed recommendation to transfer a case to Field Operations for fraud development, the CFC and CFC GM will ensure appropriate actions are taken. The return module(s), however, should not be updated to AIMS Status Code 17.

W&I Campuses:

1. When a case originates from the Austin Examination function, the case is developed within the Austin Campus. If a W&I examination case originates from outside the Austin Campus, the FEA will sign Form 13549 indicating "Transfer to Austin" and return it, via secure e-mail, to the originating EFC and EFC GM so action to transfer the case on AIMS to Austin Examination can be taken.

2. The Austin EFC and EFC GM will receive, by secure e-mail, the FEA's recommendation for placing a case in "fraud development status" with the appropriate line on Form 13549 signed. The Austin EFC and EFC GM will also receive from the FEA an agreed plan of action, identifying the audit steps needed to establish affirmative acts (firm indications) of fraud.

Note: If the W&I case requires transfer to the Field Operations for fraud development, see IRM 25.1.14.4 (6) for FEA, EFC and EFC GM actions.

(7) If firm indications of fraud are established within the campus and criminal criteria have been met, the FEA considers a referral to CI for criminal investigation consideration. The CFC/EFC may request the FEA's assistance with preparing Form 2797, Referral Report of Potential Criminal Fraud Cases. See IRM 25.1.3, Criminal Referrals, for procedures on processing Form 2797.

(8) If firm indications of fraud cannot be established, the CFC/EFC and FEA will discuss the reason(s) why firm indicators of fraud weren't established. The FEA will also discuss other penalties to consider, including the 2-year EITC, CTC, ACTC, and/or AOTC bans (if applicable) for reckless or intentional disregard of the EITC, CTC, ACTC, and/or AOTC rules. The FEA will confirm the recommendation by signing Form 13549 indicating "Return to status 12 or other prior status code" and will return, via secure e-mail, the form to the CFC/EFC and the CFC/EFC GM. For W&I examination cases transferred to Austin Examination from another campus, the Austin FEA will notify the referring FEA of the case declination with a written explanation via Form 13549 , prior to requesting the Austin EFC to assign the case to Correspondence (Corr) Examination.

(9) Where indicators of fraud do not meet criminal criteria, the CFC/EFC may receive a recommendation by the FEA to assert the civil fraud penalty, the Fraudulent Failure to File (FFTF) penalty and/or impose the 10-year EITC, CTC, ACTC, and/or AOTC bans. The FEA will sign Form 13549 indicating "Assert Civil Fraud Penalty, Assert Fraudulent Failure to File, and/or Impose 10-year Ban(s) on applicable credit(s)." and will return, via secure e-mail, the form to the CFC/EFC and the CFC/EFC GM. The CFC/EFC may request the FEA to:

• Assist with computing and writing up the penalty, and/or the 10-year ban on applicable credit(s) recommendation.

• Review the penalty section of the SB/SE case file and the penalty / 10-year ban portion of the 30-day letter and 90-day notice language for accuracy and adequate support.

• For W&I recommendations, assist in drafting the recommendation, checking accuracy, and coordinating with Counsel, if needed, in preparing the 30-day letter and 90-day notice language.

(10) The FEA's case involvement concludes when one of the following recommendations is made:

• Transfer the case to the field for initial fraud development.

• Return the case to its prior status code, or send the case to Correspondence Examination.

• Transfer the case to the field for additional fraud development.

• Final review of the civil fraud penalty, the FFTF penalty and/or the 10-year ban on applicable credit(s) recommendation is completed.

(1) Internal Revenue Code (IRC) section 32(k) provides that no EITC shall be allowed for a period of 10 years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit was due to fraud. The 10-year ban on EITC will be imposed if the established affirmative acts of fraud are directly related to the claimed EITC. A determination that the EITC adjustment was due to fraud must be made in the Notice of Deficiency in order to impose the 10-year ban.

(2) Internal Revenue Code (IRC) section 24(g) provides that no Child Tax Credit/Additional Child Tax Credit/Other Dependent Credit (CTC/ACTC/ODC) shall be allowed for a period of 10 years after the most recent taxable year for which there was a final determination that the taxpayer's claim of credit was due to fraud. The 10-year ban on CTC/ACTC/ODC will be imposed if the established affirmative acts of fraud are directly related to the claimed credit. A determination that the CTC/ACTC/ODC adjustment was due to fraud must be made in the Notice of Deficiency in order to impose the 10-year ban.

(3) Internal Revenue Code (IRC) section 25A(b) provides that no American Opportunity Tax Credit (AOTC) shall be allowed for a period of 10 years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of AOTC was due to fraud. The 10-year ban on AOTC will be imposed if the established affirmative acts of fraud are directly related to the claimed credit. A determination that the AOTC adjustment was due fraud must be made in the Notice of Deficiency in order to impose the 10-year ban.

(4) The recommendation to impose any of the 10-year bans is independent of whether the taxpayer's reporting results in an "underpayment", per IRC Section 6664, on which the civil fraud penalty is based. For a discussion of the civil fraud (and accuracy-related) penalties, see IRM 20.1.5.3.2, Common Features of Accuracy-Related and Civil Fraud Penalties, and IRM 20.1.5.16, IRC Section 6663 Civil Fraud Penalty. For discussion of the 10-year Earned Income Tax Credit (EITC), Child Tax Credit (CTC) Additional Child Tax Credit (ACTC), Credit for Other dependents (ODC) and American Opportunity Credit (AOTC) Ban Procedures see IRM 4.19.10.4.13

Note: On behalf of the CFC/EFC, the FEA will contact the servicing Area Counsel office, if needed, for further information and guidance on this issue.

(1) The FEAs provide additional support to the Campus Fraud Program by:

• Participating in Campus Examination teleconferences

• Assisting with Campus reports

• Assisting with Campus fraud training

• Recommending fraud recognition

(2) Campus examination teleconferences maintain the health of the Campus Examination Fraud Program by identifying barriers and resolving emerging issues. The teleconferences are attended by the CFCs, EFCs, FFCs, FEAs, and Headquarters Analysts. The teleconferences are scheduled by the Examination Fraud Headquarters Analyst. As part of their participation in the teleconferences, FEAs identify procedural changes, potential issues/trends, and training needs.

(3) Campus examination may identify the need for special reports. While the FEA must follow the reporting requirements for the fraud database, the FEA will respond to the expressed need.

(4) The CFC/EFC and/or FEA may identify a need to increase fraud awareness. The FEA is available to assist with developing and delivering training to Campus Examination and AUR employees. The FEA should be available to assist the CFC/EFC with training.

(5) The CFC/EFC may recommend to the FEA recognition of employees' achievements that contribute to and promote the Fraud Program. The FEA is also responsible for recognizing noteworthy accomplishments. All recommendations for recognition are forwarded to the FEA GM.

(6) Periodically, campuses will hold Compliance Council and other meetings, both formal and informal. FEAs attend these meetings to contribute to enhancing the Campus Examination Fraud Program.