4.19.10. Examination General Overview

(1) This IRM provides information on Examination general procedures for administrative matters and references for common issues and related items that might be found on tax returns.

(2) W&I Refundable Credits Exam Operations (RCEO) and SB/SE Campus Examination support the mission of the Internal Revenue Service (IRS) by maintaining an enforcement presence and encouraging the taxpayers correct reporting of income, deductions and credits, and estate, gift, employment, and certain excise taxes, so as to instill the highest degree of public confidence in the tax system's integrity, fairness, and efficiency. Both W&I and SB/SE Campus Examination are referred to as "Examination", "Campus Examination", or "Correspondence Examination".

(3) The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Taxpayers contact TAS for assistance in resolving problems, when they:

• are unsuccessful in resolving the problem through normal channels,

• are experiencing economic harm, or

• believe that an IRS system or procedure is not working as it should.

(1) The Internal Revenue Service has the authority to conduct examinations, make assessments, and apply penalties under Title 26 of the Internal Revenue Code, Subtitle F, Procedure and Administration. Additional information relating to conducting examinations is contained in 26 CFR 601.105, Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. Examiners conduct correspondence examinations for multiple programs using Internal Revenue Code, Regulations, Policy Statements, and Policies and Procedures relevant to Correspondence Exam. The authority for the assertion of the ten-year ban when there is a final determination that the taxpayer’s claim for credit is due to fraud is found in IRC 32(k)(1) for EITC, IRC 24(g)(1) for CTC/ACTC/ODC, and IRC 25A(b)(4) for AOTC.

(1) Campus Examination employees:

• Will identify returns with fruad potential and conduct research to determine the probability of non- compliance.

• Will conduct timely examinations of tax returns and make appropriate third party contacts to determine the tax liability.

• Are responsible for researching and following IRM procedures when processing taxpayer audits and applying the tax law with integrity and fairness to all.

• Must understand and are obligated to protect taxpayer rights. The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see https://www.irs.gov/taxpayer-bill-of-rights

(1) Audits are conducted by W&I RCEO and SB/SE Campus Operations employees.

(2) Headquarters analyzes audit results, performs program reviews, and monitors the rule-based applications used to select inventory. The results are used to make data-based decisions to improve quality, improve case selection, and to ensure the integrity of the selection methods.

(3) W&I Program Management (PM) is responsible for providing oversight and monitoring the performance results of the EITC and Non-EITC programs for the W&I campuses.

(4) SB/SE Examination Planning and Performance Analysis provides support and monitors the program results for the SB/SE campuses.

(1) Case review is performed using the Embedded Quality Review System (EQRS). EQRS is an on-line database, used by Campus Compliance Services and Return Integrity and Compliance Services (RICS). EQRS is used by managers. The National Quality Review System (NQRS) is used by national quality reviewers. To input a Data Collection Instrument into the system, capturing results on case reviews performed. The EQ website contains an electronic Master Attribute Job Aid that provides information specific to Examination Paper and Phones. EQRS/NQRS report data is available through the EQRS/NQRS database as well as in the monthly Campus Operations Business Results reports.

(1) The following is a listing of definitions for the most common acronyms used in this IRM:

(2) Acronyms may also be checked on the Acronym Database, http://rnet.web.irs.gov/resources/acronymdb.aspx.

(1) Examination employees are responsible for researching and using information contained in all reference materials. Other IRM chapters provide information on single topics that pertain to more than one function. Links to the most commonly used reference materials are listed below.

• IRM Part 4, Examining Process http://publish.no.irs.gov/pubsys/irm/indp04.htm

• IRM Part 3, Submission Processing http://publish.no.irs.gov/pubsys/irm/indp03.htm

• IRM Part 21, Customer Account Services http://publish.no.irs.gov/pubsys/irm/indp21.htm

• Numerical index for other IRMs http://publish.no.irs.gov/pubsys/irm/numind.html

• Information on forms and publications http://publish.no.irs.gov/catlg.html

(1) During an examination, information may be obtained which indicates the taxpayer has, or is attempting to, understate their tax liability through fraudulent means. Although only a small percentage of cases are fraudulent, it is necessary to detect and report any potentially fraudulent activities. The fraud may involve a promoter or return preparer.

(2) Taxpayers who knowingly understate their tax liability often leave evidence in the form of identifying earmarks (or indicators). Indicators of fraud serve as a sign or symptom and may show that actions have been taken for the purpose of deceit, concealment, or to make things seem other than what they are. Indicators of fraud, by themselves, do not prove fraud. Fraud indicators are the starting point to complete further inquiry and analysis to determine if affirmative acts of fraud exist. See IRM 25.1.1.4, Indicators of Fraud vs. Affirmative Acts of Fraud. Some examples of common indicators of fraud are:

• A history of Exam disallowance for similar issues.

• Taxpayer responding to unreported income inquiries with unsubstantiated deductions or expenses.

• Large, unusual or questionable (LUQ) expenses/deductions.

• Conflicting false statements made by the taxpayer.

• Claiming of different dependents from year to year in order to qualify for EITC and other tax credits and/or benefits.

• Potentially false or altered forms and documents (e.g., Form W-2, Form 1099, Form 1098-T etc.).

• Potentially false or altered documents from third parties (e.g., medical records, school letters, etc.).

• Command Code (CC) DDBKD/MFTRAU mismatch for birth certificate cases.

• Use of a decedent’s Social Security Number (SSN) for dependent exemptions.

• Unsubstantiated refundable credits, (e.g., American Opportunity Tax Credit (AOTC)), not verifiable through IDRS.

(3) If fraud is suspected, the case will be referred to the FFC, CFC, or EFC, as applicable.

(4) The case will be evaluated for fraud development by the CFC/EFC, working with the FEA, to determine if affirmative acts (e.g., deceit, subterfuge, camouflage, concealment) of fraud exist. The Internal Revenue Service (IRS) must prove that the taxpayer acted deliberately and knowingly with the specific intent to violate the law. If the CFC/EFC and the FEA determine the case has the potential for fraud development, the case will be referred to Brookhaven for SB/SE or Austin for W&I.

(5) If preparer or promoter involvement is identified, a referral should be made. See IRM 4.19.10.6, Potential Return Preparer Scheme Identification, for procedures.

(6) Refer to IRM 25.1.2, Recognizing and Developing Fraud, IRM 25.1.2.3, Indicators of Fraud, and IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures, for additional information.

(1) Correspondence Examination Technicians/Tax Examiners (CET/TE) must familiarize themselves with indicators of fraud. See IRM 4.19.10.4.1, Identifying Fraud in Correspondence Examination, and IRM 25.1.2, Recognizing and Developing Fraud, for more information.

(2) Identify indicators of fraud during the examination process. This may occur:

1. The CET/TE identifies based upon pre-examination research and analysis.

2. The CET/TE identifies upon determination that the same issue(s) or scheme exists in another examiner's inventory.

3. The CET/TE identifies based upon initial taxpayer reply and document submission, in response to an Initial Contact Letter (ICL), a 30-day letter, or Statutory Notice of Deficiency (90-day letter).

(3) Maintain an accurate case record reflecting all statuses/actions taken, documents received from and conversations with the taxpayer, representative, return preparer, and third parties.

(4) Follow the existing auditing standards and preparation of work papers as defined in IRM 4.19.13, General Case Development and Resolution.

(5) Discuss the indicators of fraud with the team supervisor/lead. If the team supervisor/lead concurs, prepare the Form 13549, Campus Fraud Lead Sheet, detailing the indicators of fraud. For instructions, see Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

(6) Secure the team supervisor/lead's initials with the date and forward the Form 13549 to the FFC, the CFC, or the EFC, as applicable.

(7) Expedite the referral process for cases in ST 22 when the taxpayer’s response indicates fraud. Do not change the status code. The RGS suspense date may need to be updated to prevent automatic issuance of the 90-day letter, Statutory Notice of Deficiency. You must document the actions taken.

(8) If the case is in ST 24, only consider a referral if the taxpayer’s response includes suspected altered documents and was received after the 90-day letter was issued. Do not change the status code. The RGS suspense date may need to be updated to prevent an assessment of the tax and penalty as a result of the automatic default of the 90-day letter, Statutory Notice of Deficiency (SNOD). Only egregious cases may be considered for fraud development after a SNOD has been issued.

(9) Research identity theft indicators on AIMS and IDRS and take the appropriate action. Refer to IRM 25.23, Identity Protection and Victim Assistance, and IRM 4.19.13.28, Campus Exam Identity Theft.

(1) Serve as the point of contact for the tax examiner and team supervisor/lead for help with potential fraud referrals in their function.

(2) Ensure Form 13549 is properly completed by the CET/TE and approved by the team supervisor/lead. If:

• the CET/TE did not complete all the applicable Form 13549 sections and provide detailed information on the apparent and specific indicators of fraud, return the document to the CET/TE for correction.

• the team supervisor/lead did not initial and date the Form 13549 to indicate their approval for the referral, return the document to the team supervisor/lead for correction.

(3) Review the information, provided by the tax examiner and team supervisor/lead, on Form 13549. If there is insufficient evidence for fraud development, decline the referral and return it to the originator. Document the reason for the declination so that the originator has a clear understanding of why the case could not be developed for fraud.

(4) Conduct preliminary IDRS research, on the tax year submitted, for fraud development:

• Check the Assessment Statute Expiration Date (ASED). If it is less than one year, decline the referral and return it to the SB/SE Exam team.

• Look at prior and subsequent years to see if the same issues (pattern) or other fraud related matters exist for case development.

  Note: If there is merit to the referral but for administrative timeframe and actions, fraud development is impractical, the FFC will determine if the same issues exist on subsequent year(s). The FFC will provide the information to the CFC. If the CFC approves fraud development for the subsequent year(s), the applicable case information from the declined year must be scanned and provided to the CFC for the subsequent year(s) case development.

• If there is a QRP indicator showing Return Integrity Verification Operations (RIVO), CI, or Exam involvement, see IRM 4.19.14.9.2, QRP Source Code and Project Codes, for more information. If transaction code (TC) 971 with action code (AC) 136, 134, 099, or 617 is present in the current, prior, or subsequent years, do not refer the case unless false or altered documents are present.

• If there are identity theft indicators on the account, refer to IRM 25.23, Identity Protection and Victim Assistance, for more information.

(5) Expedite the referral when the case is in the ST 24 suspense period, only if it is egregious and involving suspected altered documents received after the date of the 90-day letter. Contact the CFC immediately and make a prompt decision regarding the case. The issuance of a Statutory Notice of Deficiency, Letter 3219, does not preclude subsequent fraud development; but it does create some additional considerations. Questionable documents received prior to the issuance of the statutory notice cannot be used to refer the case for fraud development. Referring the case for fraud development, after the issuance of the statutory notice, must be based on taxpayer responses and document submissions received after the issuance of the statutory notice. The CFC and the FEA will request Counsel assistance to determine the appropriate course of action, if needed.

(6) Accept or decline the fraud referral within 10 business days; this includes transfer of cases to a co-aligned campus:

1. If the referral is accepted, the completed Form 13549 and the case file documents will be forwarded to the CFC for consideration. If the case is being transferred from AUR, the FFC will input a process code that suspends action on the case in the AUR system and annotate on Form 13549 that the case has been accepted for examination. No tax or credit adjustments will be made by AUR. The AUR discrepancy will be addressed as part of the examination.

2. If the referral is declined for fraud development, the FFC must provide a written explanation for the declination in Section VI, Explanation for Declination, of Form 13549 and return a copy of the completed form and the case to the CET/TE through the team manager/lead.

(7) Document all research and activities on Form 13549. See Exhibit 4.19.10-1, Campus Fraud Lead Sheet.

(8) Update the taxpayer information and Functional Fraud Coordinator sections in the Centralized Campus Fraud Monitoring Workbook. SB/SE will follow the instructions included under separate tab in the workbook.

(9) Place the most current Form 13549 in the case file and save a copy of the form to the shared storage drive, after renaming the form to include the referral number (e.g., 0001-23PH-F13549).

(10) Refer to IRM 25.1.14, Campus Examination Fraud Procedures, for additional information.

(1) Ensure Form 13549 is properly completed and approved by the CET/TE supervisor/lead.

(2) Review Form 13549 received from the CET/TE to determine if sufficient indicators of fraud exist.

(3) Conduct further research as needed and document the results on Form 13549, Section V, Fraud Indicators and Development Actions.

(4) Refer to IRM 4.19.13.28, if identity theft is present, IRM 4.19.13.28, Campus Exam Identity Theft.

(5) Update referred cases to EGC 5024. Accept or decline the Form 13549 referral within 21 business days of receipt. This includes contacting the FEA within 10 business days to discuss the case.

1. If the referral is accepted, the EFC will contact the FEA to discuss fraud development consideration.

2. If the referral is declined, the reason for the declination will be entered in Section VI, Explanation for Declination, of Form 13549. The case will be updated back to the prior EGC and returned to the CET/TE through the team supervisor/lead.

(6) The table below lists the actions that the EFC will take on referrals:

(7) Update the Taxpayer Identification, Campus Fraud Coordinator and Fraud Enforcement Advisor Recommendation sections in the Centralized Campus Fraud Monitoring Workbook.

(8) For additional information, see IRM 25.1.14, Campus Examination Fraud Procedures.

(9) The Austin EFC will also follow the procedures under IRM 4.19.10.4.5.1, Responsibilities of the Brookhaven CFC (BCFC) and the Austin EFC, and IRM 4.19.10.4.7, Centralized Fraud Development Procedures, Brookhaven and Austin only.

(1) Ensure Form 13549 is properly completed and approved by the initiator's supervisor/lead. The form must contain the required digital signatures and dates.

(2) Update the Centralized Campus Fraud Monitoring Workbook. Follow the instructions included under separate tab in the Workbook. The referral tracking number on Form 13549 must match the entry on the Centralized Campus Fraud Monitoring Workbook.

(3) If the case is not in status ST 24, update the case to ST 38. If the case is in ST 24, generally the referral should be declined. In rare instances, when the taxpayer submits fraudulent documents after a SNOD has been issued, the CFC should consult with the FEA and Counsel (if necessary) to determine the next appropriate course of action.

(4) Update the referred cases to the appropriate employee group code (EGC); 5500 for Philadelphia & Memphis, 5335 for Cincinnati, 5195 for Ogden, and 5217 for Brookhaven.

(5) Review the Form 13549 to determine if sufficient indicators of fraud exist.

(6) Conduct further research as needed and document the results on Form 13549, Section V, Fraud Indicators and Development Actions.

(7) Accept or decline the Form 13549 within 21 business days. This includes contacting the FEA within 10 business days to discuss the case and obtaining acceptance or denial from the Brookhaven CFC (BCFC).

(8) If the CFC determines that the referral does not warrant fraud development (and the case will not be referred to the BCFC):

1. Note the reason for declination on Form 13549, Section VI, Explanation for Declination

2. Update the Centralized Campus Fraud Monitoring Workbook

3. Save the completed Form 13549 (signed and dated) to the shared storage subdirectory. Rename the form to include the referral number before saving (e.g., 0001-22PH F13549). The shared drive storage is located at≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4. Return the completed Form 13549 to the CET’s manager or to the FFC for AUR referrals. The CFC should suggest applying the Negligence Penalty and the Two-Year Ban if EITC, CTC/ACTC/ODC, or AOTC is involved by making the appropriate notations when returning Form 13549.

5. For cases originating in correspondence exam, update the status on AIMS and RGS to the status code prior to ST 38 and return the case to the EGC of the examiner who last worked or referred the case.

6. For referrals from AUR, update the status on AIMS and RGS to the ST code prior to ST 38 and return the case to the FFC who will continue the examination. The FFC will consider and apply the negligence penalty if appropriate.

(9) If the CFC and FEA determine the case should be referred to Criminal Investigation, the CFC will prepare Form 2797, Referral Report of Potential Criminal Fraud Cases, and refer the case to CI if affirmative acts of fraud are established and criminal criteria are met. The FEA will assist the CFC with completing the Form 2797, if needed.

(10) If the CFC and FEA agree the case requires further development, and it is outside the scope of Campus Correspondence Examination, transfer the case to the SB/SE Area Office. See IRM 4.19.10.4.9.1, Transfer of Fraud Cases for Area (Field) Examination.

(11) If the CFC and FEA determine that the referral has potential for fraud development in Brookhaven, the CFC will:

1. Ensure that all supporting case documents are scanned into RGS. Update the RGS case history and workpaper.

2. Notify the BCFC of the referral by emailing the completed Form 13549, via secure messaging, to *SBSE CEA Fraud Centralization. The subject line of the email will contain the referral number and a response due date (e.g., 0001-22PH F13549 due MM-DD-YYYY).

   Note: If the referral is from AUR, all case documentation and Form 13549 is emailed to the centralized mailbox. If accepted for fraud development, the BCFC establishes the case on AIMS, creates the RGS case and scans supporting case documents into RGS.

3. Save the completed Form 13549 (signed and dated) to the shared storage subdirectory. Rename the form to include the referral number before saving (e.g. 0001-22PH F13549). The shared drive storage is located at ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

4. Prepare and mail Letter 3164-E (Exam 1) Third-Party Contact Letter. Save a copy of the letter in CEAS and update the case history of the action.

(12) If the fraud referral is declined by the BCFC, the BCFC will return the completed form 13549 (dated, signed, and noting reasons for declination) to the CFC. Since the CFC accepted the fraud referral, the CFC will work the case through examination closure (including consideration of the negligence penalty and appropriate ban).

(13) If the fraud referral is accepted by the BCFC, with the concurrence of the Brookhaven FEA, the referring CFC will:

1. Secure a signed and dated Form 13549 from Brookhaven, verifying acceptance by the BCFC, group manager and FEA.

2. Transfer the case (on AIMS and RGS) to Brookhaven for fraud development. The case should be in ST 38 or, in very rare circumstances, ST 24 when transferring.

   Note: All paper case files will remain at the originating campus location until the BCFC closes the case. Once the case is closed, the paper files are sent to files for association. When the case is closed, the BCFC will highlight the case in yellow on the Fraud Development Status Report spreadsheet, in the Centralized Campus Fraud Monitoring Workbook.

3. Issue Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office, to the taxpayer.

4. Notate all actions taken on Form 13549.The form should clearly reflect the acceptance of the fraud referral, the status, and the organization code the case was updated to. Return a copy of the completed form to the CET/TE through the team supervisor/lead or the FFC for AUR referrals.

(1) The CFC/EFC will coordinate with the FEA and Counsel to discuss the subsequent course of action when the case is in ST 24 and the taxpayer submits apparently false or altered documentation after the issuance of the Statutory Notice of Deficiency.

(2) The CFC/EFC will expedite contact with Counsel if the case is in ST 24 and the taxpayer’s response includes suspected altered documents. They will inform Counsel that the taxpayer is suspected of submitting false or altered documentation and ask whether fraud development should be pursued. Counsel should be consulted on a case-by-case basis and IRM 4.8.9, Statutory Notices of Deficiency, guidelines must be followed to ensure that the notice accurately reflects the IRS position, should the case proceed to Tax Court.

(3) If the taxpayer's actions are serious enough to warrant a referral to Criminal Investigation (CI), Counsel must be consulted immediately.

(1) The originating campus completes the Form 13549, including documenting the reasons for the potential fraud, and forwards the form to the Brookhaven CFC (for SB/SE) or the Austin EFC (for W&I) for fraud development consideration. W&I campuses will also transfer the case on AIMS/RGS to Austin. SB/SE campuses will only transfer the case once Brookhaven has approved and accepted the case for fraud development.

(2) Form 13549 documents the approval of the CFC/EFC/FEA and CFC/EFC’s group manager for placing a case in ST 17, fraud development status. A case should not be placed into or taken out of ST 17, without consulting the FEA. If a disagreement arises over whether a case is placed into ST 17 or remains in ST 17, the final decision rests with the CFC/EFC's group manager.

(3) The CFC/EFC's group manager reviews Form 13549, indicates their approval by signing their name, dating, and electronically forwarding the completed form to the FEA for consideration.

(4) If the FEA concurs with fraud development, they will sign and date the Form 13549 and return it to the CFC/EFC and the CFC/EFC's group manager. A copy of the form is retained by the FEA and uploaded into the RGS casefile.

(5) For cases approved for fraud development, the FEA must prepare and document the agreed upon "plan of action," under Section VII of the Form 13549. The plan will:

1. Provide audit steps required to establish affirmative acts (proof) of fraud;

2. Be the joint effort of the CFC/EFC, the group manager, and the FEA;

3. Guide the case to its appropriate conclusion in a timely manner;

4. Specify any direct assistance the FEA will provide. The role of the FEA can be more advisory or consultative in nature; and

5. Be in writing and documented, with a copy of the initial plan and follow-up actions. All actions must be documented in the workpapers.

(6) The CFC/EFC will update the case on AIMS/RGS to ST 17 and secure the original tax return(s), if requested by the FEA or Counsel. Usually, the case can be developed using the existing tax return facsimile or document. The CFC/EFC will proceed with the plan until affirmative acts of fraud are established or a determination is made that fraud is no longer potentially applicable or cannot be proven. Cycle time for cases in ST 17 is excluded from the monthly aging reports.

(7) If affirmative acts of fraud are established:

1. The CFC/EFC will suspend the examination and immediately notify their group manager and the FEA;

2. The FEA will generally recommend a referral to CI, if criminal criteria are met (See IRM 25.1.3, Criminal Referrals); and

3. The FEA will generally recommend assertion of the civil fraud penalty and/or the fraudulent failure to file penalty and imposition of the Ten-Year EITC, CTC/ACTC/ODC, or AOTC ban(s). See IRM 25.1.6, Civil Fraud.

(8) If a determination is made that fraud is no longer potentially applicable, cannot be proven, or that the case will be transferred to the field or other BOD for fraud development::

1. The mutual agreement between the CFC/EFC, the CFC/EFC group manager, and the FEA for removing the case from ST 17 fraud development must be documented on Form 13549.

2. In SB/SE, the BCFC will update the case to the status code prior to ST 38, retain control of the case, and complete the examination. The BCFC should appropriately consider an alternative position of applying the applicable penalty and ban such as the Negligence Penalty and the Two-Year Ban, if EITC, CTC/ACTC/ODC, and AOTC are involved.

3. In W&I, the EFC will return the case to Austin Correspondence Examination in the prior status code to continue examination. The EFC should indicate that Correspondence Examination should appropriately consider an alternative position of applying the applicable penalty and ban, such as the Negligence Penalty and the Two-Year Ban if EITC, CTC/ACTC/ODC, or AOTC are involved.

(9) For procedures relating to case transfer, see IRM 4.19.10.4.9, AIMS Case Control and Planning and Special Programs (PSP) Transfer Procedures and IRM 4.19.10.4.9.1, Transfer of Fraud Case for Area (Field) Examination.

(1) See IRM 25.1.14, Fraud Handbook, Campus Examination Fraud Procedures.

(1) If the case is not open on AIMS and it has been accepted into the campus fraud program for development, the BCFC/EFC, will establish the case on AIMS in the appropriate EGC.

1. W&I will establish the case in EGC 5024.

2. SB/SE will establish the case in EGC 5217.

(2) In W&I, if a case is open on AIMS, and accepted by the EFC/FEA, the case is updated to EGC 5024 and transferred on RGS/AIMS to the Austin Campus. Refer to the W&I Fraud Transfers of Potential Fraud Cases to Austin job aid and the Transfer Checksheet on SERP.

(3) In SB/SE, if the case is open on AIMS and accepted by the CFC/FEA, the case is updated to ST 38, within 21 business days. The case remains in the originating campus EGC until acceptance by the BCFC/FEA for fraud development. Once the BCFC/FEA accepts a case, it will be transferred to Brookhaven and updated to ST 17. The BCFC is then responsible for the examination, development of the fraud issue, and mailing of the Form 4549 and Form 886-A, etc.

(4) When applicable, prior and subsequent year returns will be opened for exam. Current exam procedures will be followed.

(5) Use the following organization function program (OFP) Code when working a fraud case:

1. 93421 for W&I Non-EITC Fraud Referrals or 93621 for W&I EITC Fraud Referrals. Function Codes 710, 720 and 730 are approved for use in W&I.

2. 710, 730, 740, or 790–91892 for SB/SE fraud development work other than performed by an FFC or CFC.

3. 640–91424 for FFCs reviewing initial fraud referrals to SB/SE.

4. 730 or 740–91891 for SB/SE CFCs only.

(6) Update the case(s), with FEA approval for fraud development, with the appropriate Project Code:

1. 0076, Non-EITC ,or

2. 0691, EITC Fraud.

(7) A case selected for field examination, on the joint recommendation of the FEA and CFC/EFC, will be transferred to the respective Area PSP Office, using Form 3185, Transfer of Return, and cover memo. See Exhibit 4.19.10-2, W&I PSP Fraud Memo, and Exhibit 4.19.10-3, SB/SE PSP Fraud Memo. The case will be transferred in ST 07 with an AIMS Aging Reason Code (ARC) of:

1. ARC 006 - fraud workload originating in campus, or

2. ARC 007 - substantial exam issues, originating in campus.

(8) For additional information on transferring cases for field examination, see IRM 4.19.10.4.9.1, Transfer of Fraud Case for Area (Field) Examination.

(9) For additional information on AIMS transfer procedures, contact your Campus AIMS Coordinators and refer to IRM 4.4.33, AIMS Procedures and Processing Instructions -Transfers.

(1) For cases transferred to another campus or other examination location, the originating campus will mail Letter 86C, Referring Taxpayer Inquiry/Forms to Another Office, to the taxpayer. If any prior contact occurred with the taxpayer, or if correspondence was received from the taxpayer, the transfer notification procedures are required. For W&I, refer to the W&I Transfers of Potential Fraud Cases to Austin and Transfer Check Sheet job aids on SERP.

(2) Interim Letters and Action 61 guidelines apply to fraud cases. See IRM 4.19.13.3.6, Standard 6 -Timely Actions, and IRM 4.19.3.22.1.5, Action 61/Policy Statement P-21-3.

(3) When a case is accepted into the Fraud Program, the BCFC/EFC will issue the appropriate letters, following examination procedures in IRM 4.19.13, General Case Development and Resolution and observe suspense periods per IRM 4.19.10.1.7.2, Standard Suspense Periods for Correspondence Examination. Correspondence to the taxpayer should not include the use of the word “fraud”, nor similar languaage.

(1) General assessment period - The normal assessment statute expiration date (ASED) is three years from the due date or three years from the date the original (valid) return was filed, whichever is later. See IRC 6501(a).

(2) Special assessment periods:

1. Fraudulent return - There is no period of limitations on assessment for a false or fraudulent return with intent to evade tax. See IRC 6501(c).

2. 25 percent Omission - The period of limitations is extended to six years, if the taxpayer omits:

More than 25 percent of the gross income reported on the original income tax return;

More than 25 percent of the tax reported on the original excise tax return; or

Includable items in excess of 25 percent of the gross estate reported on the original estate tax return. See IRC 6501(e).

(3) See IRM 25.6, Statute of Limitations, for the procedures used to control the ASED.

(1) Effective 8/15/19, Publication 1, Your Rights as a Taxpayer, will no longer satisfy the advance notice requirement of IRC 7602(c)(1).

(2) Effective after 8/15/19, the Taxpayer First Act impacts third-party contact notice procedures. Section 1206 of the Taxpayer First Act amended IRC 7602(c)(1) (advance notice provision). The IRS is now required to:

• Issue notice of the intent to make third-party contacts;

• Intend, at the time such notice is issued, to contact third parties (the notice must state this intent);

• Specify the time period in the notice (not to exceed one year) in which the IRS will be making the contact; and

• Send the notice at least 45 days in advance of contact with a third party.

(3) For pre-notification of third-party contact, campuses will send Letter 3164-E, (Exam 1) Third Party Contact. A copy of the Letter 3164-E must be saved to the RGS case file folder.

(4) The Letter 3164-E notification takes effect in 45 days from the date of the letter and remains valid for one year, from the 46th day.

(5) No contact with the third-party should be initiated before the 46th day after the date of the Letter 3164-E.

(6) If additional third-party contact is needed after the expiration of the original contact period, a new Letter 3164-E must be issued.

(7) Other provisions of IRC 7602(c)(1) are unchanged and require the IRS to:

• Record all third-party contacts.

• Provide a list of third-party contacts to the taxpayer, on request.

(8) For procedures relating to third-party contact, refer to:

• IRM 25.27.1, Third-Party Contact Program.

• IRM 4.11.57, Third Party Contacts.

(1) The Internal Revenue Code (IRC) provides that no EITC, and for tax years after 2015, CTC/ACTC or AOTC shall be allowed for a period of ten years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of the credit was due to fraud. The Credit for Other Dependents (ODC) is added for tax years 2018 - 2025. See:

• IRC 32(k)(1)(B)(i) for EITC.

• IRC 24(g)(1)(B)(i) for CTC/ACTC/ODC.

• IRC 25A(b)(4)(A)(ii)(I) for AOTC.

(2) The BCFC/Austin EFC will secure the FEA’s recommendation to impose the ten-year EITC, CTC/ACTC/ODC, or AOTC Ban(s) on the Form 13549, Campus Fraud Lead Sheet. The BCFC/Austin EFC will complete the form and electronically send it to the FEA. The FEA will complete Section VII, Fraud Indicators and Developmental Actions, indicating "Assert CFP/FFTFP (Fraudulent Failure to File Penalty), impose Ten-Year EITC, CTC/ACTC/ODC, or AOTC Ban(s)" and electronically return the form to the CFC/Austin EFC.

(3) The case file must contain sufficient write-up and documentary evidence needed to prove the affirmative acts of fraud.

(4) When fraud is established, both the CFP and the ten-year ban normally apply. However, there are instances when the CFP does not apply. Prior to assertion of the ten-year EITC, CTC/ACTC/ODC, or AOTC Bans without the Civil Fraud Penalty, agreement must be secured from the FEA.

(5) If the FFC or BCFC/Austin EFC determine that the disallowance of the EITC, CTC/ACTC/ODC, or AOTC was not due to fraud, but instead a result of the taxpayer’s reckless and intentional disregard of the rules and regulations, the two-year EITC, CTC/ACTC/ODC, or AOTC ban(s) and negligence penalty should be considered. See IRM 4.19.14.7.1, 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET), for information related to the two-year ban.

(6) Priority Code 6 must be input on Form 5344, Examination Closing Record, to impose the ten-year ban for EITC. If an "A" freeze is present on the account, the examiner must use a priority code 7.

(7) Priority codes are not required to assert the ten-year ban for CTC/ACTC/ODC or AOTC. When the CTC/ACTC/ODC, and/or AOTC issue is disallowed in RGS, a recertification code is systemically generated by RGS on the 5344. To assert the ten-year ban, the examiner must overwrite the recertification code with the appropriate reason code:

• Reason Code 183 to set the ten-year ban for CTC/ACTC/ODC.

• Reason Code 180 to set the ten-year ban for AOTC.

(8) For more information on the two and ten year bans, refer to IRM 4.19.14.7.1, 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET) and the Penalty Handbook IRM 20.1.5.3.5, Two and Ten Year Bans on Claiming the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and American Opportunity Tax Credit (AOTC).

(1) Generally, Campus Examination Operation personnel do not develop or assert penalties against tax return preparers. However, there may be instances where campus employees may be directed to do so. In that event, the following information and procedures will apply.

(2) Any person who prepares a tax return or claim for refund for compensation or who employs one or more persons to prepare for compensation, any return of tax, or claim for refund is a tax return preparer.

(3) IRM 20.1, Penalty Handbook, is the primary source of authority for civil penalty administration by the Internal Revenue Service. IRM 20.1.6, Preparer and Promoter Penalties, provides servicewide policy for the administration of tax return preparer penalties and promoter penalties.

(4) A penalty is charged for understating a taxpayer's tax liability when the understatement was due to willfulness or any reckless or intentional disregard of rules and regulations. See IRM 20.1.6.4, IRC 6694 Understatement of Taxpayer’s Liability by Tax Return Preparer.

(5) For other tax return preparer penalties, see IRM 20.1.6.5, IRC 6695 Penalties That May Apply to a Tax Return Preparer.

(6) All documentation to support assertion of the penalty must be uploaded to the RGS case file.

(7) SB/SE can refer penalty cases to the Return Preparer Penalty Working Group (RPPWG) for developing and proposing return preparer penalties under IRC 6694 and IRC 6695. See IRM 20.1.6.2.1, Optional Penalty Case Referral to Return Preparer Penalty Working Group (RPPWG).

(8) Examiners will flag cases where there are indications of possible income tax preparer violations by use of Form 3198, Special Handling Notice for Examination Case Processing, and forward to the Examination Return Preparer Coordinator (RPC) for review and forwarding to Area Office RPCs.

(1) The Office of Professional Responsibility (OPR) establishes, communicates, and enforces the rules of professional conduct applicable to tax professionals as defined by Treasury Department Circular 230. The OPR may propose disciplinary action against a practitioner for noncompliance issues associated with their personal or business tax returns.

(2) IRS employees have an obligation to report apparent tax practitioner (e.g., attorney, enrolled agent, certified public accountant) misconduct to the OPR.

(3) For more information on tax practitioner misconduct and how to make a referral to the OPR, go to: https://irsgov.sharepoint.com/sites/OPR/SitePages/Doing-your-diligence-Refer-to-the-OPR-practitioners-who-aren’t-diligent(1).aspx .