5.20.8. Promoter/Preparer Investigations

(1) Purpose. This IRM provides guidance to Field Collection employees for referring potential Abusive Tax Avoidance Transactions (ATAT) promoter and preparer leads and outlines procedures on working promoter/preparer investigations.

(2) Audience. The audience is revenue officers in Small Business/Self-Employed (SB/SE) Field Collection.

(3) Policy Owner. The Director of Collection Policy is responsible for issuing policy for the ATAT Collection program.

(4) Program Owner. The program owner is Collection Policy, Global Strategic Compliance, an organization within SB/SE Division.

(5) Primary Stakeholders. The primary stakeholders are SB/SE Collection, SB/SE Lead Development Center (LDC) and Return Integrity & Compliance Services (RICS) in the Wage & Investment (W&I) Division.

(6) Program Goals. Promoter/preparer investigations are some of the highest priority cases for Collection ATAT. By following the procedures in this IRM, users will understand the process for making a referral to the LDC and will know the appropriate case actions when working promoter/preparer investigations.

(1) SB/SE Delegation Order 1-23-50, Functions Related to Potential Promoter, Preparer and Tax Shelter Cases, delegates authority to approve and refer all SB/SE abusive tax promoter investigations to the SB/SE LDC Program Manager.

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

(3) Leads to the SB/SE LDC are submitted using Form 14242, Report Suspected Abusive Tax Promotions or Preparers. Additional information on making a referral to the SB/SE LDC as well as an electronic copy of Form 14242 can be found on the Lead Development Center website at http://mysbse.web.irs.gov/examination/examorg/hq/ecs/ldc/default.aspx.

(4) A referral to the SB/SE LDC should be made once the revenue officer has gathered sufficient information to identify the possibility that the promotion of an abusive transaction or frivolous argument may exist. If the name of the promoter/preparer is known, it should be provided in the referral. However, that information is not always available and is not required when making a referral. If the referral is based on informant information or information secured from a client who was affiliated with the promotion, the revenue officer should try to gather as much information as possible during the interview. Secure information such as links to the promoter/preparer's web site and copies of promotional information. See Exhibit 5.20.8-1, List of Questions That Can Be Used as a Guide When Interviewing an Informant or Client in an Abusive Promotion.

(5) Revenue officers can provide assistance to other Service employees who are developing a referral to the LDC. A revenue officer can share information gathered on a promoter/preparer with other Service employees, including revenue agents and the Frivolous Return Program (FRP), to assist them in securing the information needed to make a referral to the LDC.

(6) Once the SB/SE LDC has received a referral and after completing the research and case development, each promoter/preparer lead is evaluated for promoter/preparer investigation potential. Multiple factors are considered when determining whether the SB/SE LDC authorizes an IRC 6700 or IRC 6701 investigation and issues the lead to the field. Some of the factors that are considered are:

• Type of promotion,

• Past activity of the promoter,

• Ongoing activity or likelihood of recurrence,

• The size of the promotion,

• Tax impact of the promotion,

• Possible tax law violations,

• Favorable public impact or compliance impact,

• Existing balance due liabilities including an open Collection assignment.

(1) Authorized investigations will be issued to the Field Examination Area Director and to the Area’s Planning & Special Program office for assignment of an examiner. The memorandum will include a request for the examiner to contact the local Collection ATAT Coordinator and provide a link to the website with a current list of coordinator names.

(2) The promoter/preparer investigation is initiated by the examination function to determine whether an individual aided in the promotion of an abusive tax avoidance transaction. See IRC 6700, Promoting Abusive Tax Shelters, etc. and IRC 6701, Penalties for Aiding and Abetting Understatement of Tax Liability. The investigation is not an income tax examination. The investigation is carried out to decide if the promoter/preparer is subject to penalties and injunctive action as a result of his involvement in abusive activities. The administrative investigation case file sent to the examination function includes:

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

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

(3) A copy of the Investigation Authorization Memorandum will be forwarded to the Collection ATAT Coordinator where the promoter/preparer resides. If there are balances due, the Collection ATAT Coordinator will determine if assignment to a revenue officer is appropriate. In most instances when there are no balances due, a CIP will not be opened absent a request from the examiner for assistance.

(1) IRM 4.32.3.4, Collection, requires examiners conducting promoter/preparer investigations to contact the Area Collection ATAT Coordinator through their group manager once the lead is approved for an IRC 6700 /IRC 6701 investigation. A list of Collection ATAT Coordinators can be found on the SB/SE Collection ATAT website at http://mysbse.web.irs.gov/Collection/toolsprocesses/CollATAT/contacts/default.aspx.

(2) When contacted by an examiner, Area Collection ATAT Coordinators will determine if an ATAT revenue officer should be assigned to assist in the investigation if one has not already been assigned. If the ATAT revenue officer needing to be assigned the investigation is not under the direct supervisory authority of the Area Collection ATAT Coordinator, the Area Collection ATAT Coordinator will coordinate with the revenue officer's direct supervisor to ensure inventory guideline concerns, etc. are addressed. See IRM 5.20.2, Abusive Tax Avoidance Transactions Time Reporting, for revenue officer time charging to an unassigned case.

Factors to consider when determining if a revenue officer should be assigned to assist in the investigation can include:

• The promoter/preparer has existing balance due liabilities.

• The examiner is having difficulty locating the promoter/preparer and is requesting assistance.

• The examiner has knowledge the promoter/preparer is liquidating assets or otherwise attempting to put them beyond the reach of the government.

Note: All IRC 6700/IRC 6701 promoter investigation and penalty cases have been prioritized as high priority cases and will be considered top priority case work for revenue officers. See IRM 5.20.1.10, Prioritization of ATAT Work.

(3) A cooperative investigation conducted jointly by Examination and Collection can save time and provide both functions valuable leads. Actions the revenue officer can take during the promoter/preparer investigation include, but are not limited, to:

1. participating in initial conference at commencement of promoter/preparer investigation,

2. interviewing promoters/clients,

3. sharing leads on income and assets identified,

4. assisting in possible jeopardy situations,

5. researching of ongoing or prior collection activities that could provide important context to the investigation.

(4) If the case is assigned as a CIP and there is no further action that the revenue officer can take to assist the examiner, the CIP will be closed.

(5) The Office of Tax Shelter Analysis (OTSA) oversees promoter investigations for Large Business and International (LB&I). Area Collection ATAT Coordinators may be contacted by OTSA, or an LB&I or TE/GE examiner, prior to the assessment of an IRC 6700or IRC 6701penalty.

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

(2) Parallel investigations are simultaneous civil and criminal investigations of a common individual or entity. See IRM 5.1.5, Balancing Civil and Criminal Cases.

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

(1) When the examiner has completed the promoter/preparer investigation and is considering assertion of penalties under IRC 6694(b), IRC 6700, or IRC 6701, IRM 4.32.3.4, Collection, requires the examiner to notify the local Collection ATAT Coordinator, who will assign a revenue officer if one has not already been assigned. Follow the guidance in IRM 5.20.1.10, Prioritization of ATAT Work. A list of Collection ATAT Coordinators can be found by accessing the Abusive Transactions website at http://mysbse.web.irs.gov/Collection/toolsprocesses/CollATAT/contacts/default.aspx.

(1) In cases where a promoter/preparer investigation is being conducted by an examiner and collection of the assessment could be jeopardized if delayed, the examiner will contact the Collection ATAT coordinator and a revenue officer will be immediately assigned to assist in the jeopardy assessment. The Area Director and the local Area Counsel will approve all jeopardy assessments. Follow jeopardy assessment procedures outlined in IRM 5.1.4, Jeopardy, Termination, Quick and Prompt Assessments, and IRM 5.17.15, Termination and Jeopardy Assessments and Jeopardy Collection. If the jeopardy situation is not discovered until after the assessment, see IRM 5.11.3, Jeopardy Levy without a Jeopardy Assessment.

(1) There are no pre-assessment appeal rights for IRC 6700 and IRC 6701 penalties. IRC 6700 and IRC 6701 penalties may be challenged by following the special claim for refund procedures of IRC 6703, Rules Applicable to Penalties under Sections 6700, 6701, and 6702. When an IRC 6700/6701 penalty is assessed, the promoter/preparer is billed for the amount(s) due. The billing notice advises the promoter/preparer that if 15% of the penalty is paid within 30 days, a claim for refund may be filed on Form 6118, Claim for Refund of Tax Return Preparer and Promoter Penalties, or Form 843, Claim for Refund and Request for Abatement. Under IRC 6703(c), collection action and the running of the statute of limitations on collection are suspended until the claim is resolved. Refer to IRC 6703, as well as IRM 4.32.2.12.9.1.1, Special Claim Procedures for Penalties Under IRC 6694(b), IRC 6700 and IRC 6701, for a full explanation of appeal rights for promoter/preparer penalties.

(2) The SB/SE examiner will verify that the Campus has input transaction code (TC) 470 closing code (CC) 95 on the applicable modules. If a TC 470 CC 95 has not been input on an applicable module, SB/SE examiner will request input.

(3) When a promoter/preparer indicates that a claim has been filed appealing assessment of a penalty, the revenue officer should notify the SB/SE LDC of the filing.

(4) A taxpayer may challenge the existence or amount of an IRC 6700 or IRC 6701 penalty in Collection Due Process (CDP) but only if the taxpayer did not receive a "prior opportunity" to contest the assessment. See IRC 6330(c)(2)(B). The taxpayer's receipt of notice and demand, providing specific procedures for requesting an abatement and obtaining judicial review under IRC 6703(c), constitutes a "prior opportunity" and would preclude the taxpayer from raising an issue challenging the liability in CDP. If a taxpayer requests a CDP hearing, forward any available documents establishing the taxpayer received notice and demand to Appeals. The taxpayer may raise other relevant issues in CDP when a challenge to the liability is precluded.

(1) A Notice of Federal Tax Lien (NFTL) may be filed in accordance with IRM 5.12, Federal Tax Liens. Even when the taxpayer has paid 15% of the penalty and submitted a timely claim for refund, IRC 6703 does not prohibit filing an NFTL. The revenue officer can also proceed with a special condition (i.e. nominee/alter ego/transferee) NFTL investigation but other collection actions should be suspended during the course of the appeal. This includes levying on property of the promoter/preparer or a nominee. The Service can not bring any type of collection suit until after the final resolution of the claim for refund in district court. (See IRM 5.12.7.6, Special Condition NFTLs (Nominee, Alter Ego, Transferee, Successor in Interest.)

(1) A promoter or preparer penalty may be assessed for the same conduct against more than one entity or individual. Application of penalties to more than one specific individual should be discussed with Counsel. The collection of the penalty amounts against all entities or individuals assessed should be collected in full. Unlike the trust fund recovery penalty, it is not necessary to coordinate the funds collected from one entity and reduce the penalty amount of the corresponding entity or individual.

(2) Although it is not necessary to coordinate the collection of the funds from the separate, yet somewhat related entities, it is important to coordinate with examination to ensure all promoter/preparer penalties that were assessed on an investigation are addressed as a whole when assigned for collection.

(1) Questions for Collection Taxpayers:

Taxpayer Name:

Taxpayer Address:

Taxpayer Telephone Number:

1. When did you first become aware of the transaction?

2. From whom did you receive the information?

   1. Did you receive it in person, or by e-mail, telephone or other method?

   2. If you attended a meeting, how many others were there?

   3. When and where did the meeting occur?

   4. Do you have any literature from these meetings?

   5. How did you learn of the meeting? (radio, book, internet, another person, etc.)

3. What did they tell you about their transaction?

4. Were you ever told that your tax liability could be reduced or eliminated?

5. How much did the information cost you? What was the method of payment - cash, check, wire, money order, or some other method? Can you provide a copy of the method of payment?

6. Did the person(s) only provide you with the information or did they have other clients? Do you know how many? Do you believe they work with others nationwide or only locally?

7. Are you still in contact with the individual(s) or organization that provided the information to you? If yes, is the contact by telephone, e-mail or meeting? If no, why not?

8. If you are still in contact with them, are they providing any additional advice or information to help you? Do you have their current address, telephone number, e-mail address and/or website address?

9. How has the information helped you resolve the tax liability?

10. Did you seek legal opinions from tax attorneys or CPAs regarding the issues in the materials provided? If so, from whom did you seek assistance?

11. Have you ever been involved in any reportable transactions or tax shelter transactions? If so, when and in what transaction?

12. Have you ever been charged criminally for any illegal conduct? If yes, what was the nature of those charges.