Criminal Tax Manual
2. Criminal Tax Practice and Procedures
6-1.100 - Department of Justice Policy and Responsibilities—Tax Division
The Assistant Attorney General for the Tax Division, subject to the general supervision of the Attorney General and under the direction of the Associate Attorney General, is responsible for conducting, handling, or supervising all matters arising under the internal revenue laws. 28 C.F.R. § 0.70.
The Department of Justice, including the United States Attorneys, is responsible for conducting all federal tax litigation in the federal bankruptcy, district, and appellate courts and in state courts. The Department's responsibilities include:
- prosecuting criminal tax cases
- defending refund suits
- litigating adversary proceedings and contested matters in bankruptcy and other insolvency proceedings
- litigating contested claims in probate proceedings
- defending actions involving property upon which there are federal tax liens, including mortgage foreclosure suits, interpleaders, and actions to quiet title to, partition or condemn property
- litigating collection suits against delinquent taxpayers
- obtaining orders enforcing administrative summonses and defending actions to quash administrative summonses
- obtaining orders allowing entry into private property to effect a levy or seizure of property
- obtaining orders allowing the administrative seizure of a personal residence
- defending actions for damages brought under the Internal Revenue Code
- defending actions for damages against IRS employees
Only attorneys whom the Department of Justice employs or authorizes to represent the United States may handle federal tax litigation in courts other than the Tax Court. Attorneys from the Office of the Chief Counsel, Internal Revenue Service (IRS), represent the Commissioner of Internal Revenue in Tax Court litigation, and may be appointed as Special Assistant United States Attorneys (SAUSAs) to handle certain tax-related bankruptcy litigation.
The information that the IRS provides to the Department of Justice for the Department's use in representing the United States in federal tax litigation is confidential. The Department may use that information only in accordance with 26 U.S.C. § 6103. Its attorneys and support staff must safeguard the information to prevent unauthorized disclosure and use. See Tax Information Security Guidelines for Federal, State, and Local Agencies (IRS Pub. 1075 (Rev. 2-07)).
[updated September 2007]
6-1.110 - Criminal Tax Cases
The Tax Division oversees all federal criminal tax enforcement and handles the investigation and/or prosecution of certain criminal tax cases. For a map reflecting the geographical assignments of the Tax Division Criminal Enforcement Sections, see Tax Resource Manual 1. For contact information, including mailing addresses and telephone and fax numbers, see Tax Resource Manual 2.
With certain exceptions set forth in this chapter, only the Tax Division may authorize grand jury investigations of potential criminal tax violations and the designation of any individual or entity as a target of the investigations. Only after the Tax Division has authorized a grand jury investigation, may a United States Attorney issue subpoenas and undertake other investigative actions. In addition, only after the Tax Division has authorized the prosecution of individuals and entities for criminal tax violations, may a United States Attorney seek an indictment or file any tax charges. Criminal tax violations include not only federal criminal charges arising under the internal revenue laws but also related statutes contained in provisions other than Title 26, United States Code. See USAM 6-4.200.
Once the Tax Division authorizes a tax investigation or prosecution, a United States Attorney generally has responsibility for handling the case. Upon the request of the United States Attorney, and provided that the Tax Division has sufficient resources, the Tax Division may assist the United States Attorney in investigating and/or prosecuting a tax case. The Tax Division may assign one or more of its highly qualified trial attorneys to handle the grand jury investigation and/or trial responsibilities or to work as co-counsel with an Assistant United States Attorney in one or more cases or investigations. If needed, the Tax Division can assign a Division attorney to assume responsibility for the United States Attorney's criminal tax docket for a period of time. Tax Division attorneys can also assist with criminal tax policy and litigation matters, including foreign evidence-gathering problems. Contact the Chief of the appropriate Criminal Enforcement Section for assistance.
[updated September 2007]
6-1.120 - Civil Tax Cases
Tax Division Responsibility. Attorneys in the Tax Division's Civil Trial Sections have primary responsibility for most civil tax litigation in the federal district and bankruptcy courts, as well as in state trial courts; attorneys in the Tax Division's Appellate Section have primary responsibility for civil tax cases in federal and state appellate courts. A United States Attorney's responsibilities in civil tax and tax-related bankruptcy cases will vary, depending on the nature of the case, local practice, and other circumstances. For a map reflecting the geographical assignments of the Tax Division Civil Trial Sections, see Tax Resource Manual 3. For contact information, including mailing addresses and telephone and fax numbers for the Civil Trial Sections, Appellate Section, and Office of Review, see Tax Resource Manual 4.
Counsel of Record. Generally, even when a Tax Division attorney has primary responsibility for the litigation, the United States Attorney will be listed as an attorney on the case. Depending on local practice, and after consultation, an Assistant United States Attorney may be listed as counsel of record in a particular case.
Tax Division Referrals. On occasion, the Chief or Assistant Chief of a Civil Trial Section may determine that the United States Attorney, rather than a Tax Division trial attorney, should represent the Government. When the Tax Division Chief or Assistant Chief authorizes the United States Attorney to handle a civil tax case, a Tax Division trial attorney may also be assigned to the case.
Direct Referrals by the IRS. The IRS refers some types of civil tax and tax-related bankruptcy cases directly to the United States Attorneys. These include certain types of bankruptcy proceedings, actions under 28 U.S.C. § 2410 (other than interpleaders), and some summons litigation. If the United States Attorney is unable to staff a civil tax case for which the United States Attorney has litigation responsibilities because of personnel shortages or for other uncontrollable circumstances, the United States Attorney should request assistance from the Tax Division. If, in certain bankruptcy matters, the Tax Division is unable to provide the requested assistance, the Office of the Chief Counsel, IRS, may permit one of its attorneys to assist the United States Attorney. In that case, the United States Attorney then may authorize the IRS attorney to act as a Special Assistant United States Attorney (SAUSA) for a limited period of time and for purposes of handling the particular matter for which the Tax Division could not provide assistance. The Tax Division can assist the United States Attorney in preparing the paperwork necessary to obtain IRS permission and/or appoint the SAUSA.
Special Assistant United States Attorneys. The United States Attorney's district, the United States Attorney and the IRS Counsel may arrange to have one or more IRS Counsel attorneys appointed as Special Assistant United States Attorneys to handle bankruptcy matters that the IRS would ordinarily refer to the United States Attorney. The Tax Division can assist the United States Attorney in preparing the paperwork necessary to obtain IRS permission and/or appoint the SAUSA.
[updated September 2007]
6-1.130 -Tax Division Manuals
The Tax Division has prepared several manuals that the United States Attorney may find useful
- Criminal Tax Manual (2008)—a comprehensive procedural and substantive guide to the handling of criminal tax cases, with jury instructions and other forms. Seehttp://www.justice.gov/tax/readingroom/2008ctm/TaxManual2008.htm.
- Judgment Collection Manual (2004)—a procedural guide to collecting tax judgments. Seehttp://www.justice.gov/tax/readingroom/JCM2004/JCM2004.pdf.
- Settlement Reference Manual (2009)—guidance and instructions for analyzing and processing settlements in civil tax matters, including tax-related bankruptcy cases. Seehttp://www.justice.gov/tax/readingroom/settlpdf/Settlement%20Reference%20Manual%202009.%2004-02-09.pdf.
- Summons Enforcement Manual (2006)—guiding legal principles, procedures, and sample forms for use in summons enforcement actions and in defending actions to quash IRS summonses. SeeTax Resource Manual 27.
- Tax Resource Manual (2007)—supplement to the USAM with contact information, background information, and materials referenced in the USAM
Should the above-listed manuals conflict with this Title of the USAM, this Title of USAM controls.
6-4.010 - Federal Criminal Tax Enforcement
The Government helps to preserve the integrity of this Nation's self-assessment tax system through vigorous and uniform criminal enforcement of the internal revenue laws. Criminal prosecutions punish tax law violators and deter other persons who would violate those laws. To achieve maximum deterrence, the Government must pursue broad, balanced, and uniform criminal tax enforcement. Uniformity in tax cases is necessary because tax enforcement potentially affects more individuals than any other area of criminal enforcement. Broad and balanced enforcement is essential to effectively deter persons of varying economic and vocational status, violators in different geographic areas, and different types of tax law violations.
To achieve uniform, broad, and balanced criminal tax enforcement, the Attorney General has authorized the Tax Division to oversee all federal criminal tax enforcement and to authorize or decline investigations and prosecutions in tax matters. See USAM 6-4.200. For a map reflecting the geographical assignments of the Tax Division Criminal Enforcement Sections, see Tax Resource Manual 1. For contact information, including mailing addresses and telephone and fax numbers, see Tax Resource Manual 2.
[updated September 2007] [cited in USAM 6-4.211]
6-4.011 - Criminal Tax Manual and Other Tax Division Publications
The Tax Division's Criminal Tax Manual (2008) contains comprehensive discussions of statutes, methods of proof, various specialized areas, and policies and procedures pertaining to criminal tax prosecutions. The Manual also contains indictment and information forms and jury instructions. All prosecutors involved in federal criminal tax cases should consult the Manual for guidance on handling criminal tax cases. The Criminal Tax Manual may be accessed at http://www.justice.gov/tax/criminal-tax-manual-title-page. The Tax Division also compiles other resources useful in criminal tax prosecutions. Should those resources conflict with this Title of the USAM, this Title of the USAM controls.
[updated February 2014]
6-4.110 - IRS Administrative Investigations
The special agents of IRS Criminal Investigation conduct the administrative investigations into allegations of criminal violations arising under the internal revenue laws and related provisions of Title 18, U.S.C. (e.g.,18 U.S.C. §§ 286, 287, 371, 1341). See Tax Resource Manual 5 and 6.
After an administrative investigation is completed, the special agent must prepare a special agent's report (SAR), together with exhibits, in order to recommend that the Government prosecute the matter. The SAR contains a detailed account of the investigation and the special agent's recommendations, and is reviewed by both the special agent's supervisors and the Chief Counsel, Criminal Tax Division (CT). CT then prepares a Criminal Enforcement Memorandum (CEM) that discusses the nature of the crime(s) for which the agent recommends prosecution, the evidence relied upon to prove the crime(s), technical or legal issues, anticipated difficulties in prosecution, and the special agent's specific recommendation. Thereafter, if CI concludes that the Government should prosecute the matter, the CI Special Agent-in-Charge (SAC) refers the matter to the Tax Division or, in some cases, the United States Attorney. See USAM 6-4.243. When the IRS directly refers a matter to the United States Attorney, it simultaneously forwards a copy of the transmittal letter to the Tax Division.
During an administrative investigation of a criminal tax case, the IRS may refer the case directly and simultaneously to both the United States Attorney and the Tax Division for an expedited guilty plea, if only legal source income is involved (i.e., neither narcotics nor organized crime), and the taxpayer's counsel states that the taxpayer wishes to enter such a guilty plea. The plea must be consistent with the Tax Division's major count policy. See Tax Resource Manual 7.
When the IRS refers a criminal matter to the Department of Justice, it may share returns or return information with the Department of Justice (see 26 U.S.C. § 6103(h)(2)). Once a criminal referral is made, the IRS, including CI, may not issue or commence an action to enforce an administrative summons with respect to the taxpayer for the same tax and the same taxable period. See 26 U.S.C. § 7602(d), Tax Resource Manual 8.
[updated September 2007]
6-4.120 - Grand Jury Investigations—Generally
Although a federal grand jury is empowered to investigate both tax and non-tax violations of federal criminal laws, the Tax Division must first approve and authorize the United States Attorney's use of a grand jury to investigate criminal tax violations (see 28 C.F.R. § 0.70). The Tax Division has delegated to the United States Attorneys, however, the authority to approve grand jury investigations of certain false and fictitious claims for tax refunds in violation of 18 U.S.C. § 286 and 18 U.S.C. § 287 (other than those investigations involving a professional tax return preparer). See Tax Division Directive No. 96 (December 31, 1991), Tax Resource Manual 9.
[updated September 2007] [cited in USAM 6-2.000]
6-4.121 - IRS Requests to Authorize Grand Jury Investigations
In addition to using administrative process to secure evidence in an investigation, CI also may request that the Tax Division authorize a grand jury investigation when CI either cannot complete its investigation or otherwise determines that it cannot feasibly gather evidence through the administrative process. The IRS's request to authorize a grand jury investigation constitutes a referral of the matter to the Department of Justice. Once a criminal referral is made, the IRS, including CI, may not issue or commence an action to enforce an administrative summons with respect to the taxpayer for the same tax and the same taxable period. See 26 U.S.C. § 7602(d).
[updated September 2007]
6-4.122 - United States Attorney's Grand Jury Investigations and Prosecutions
- Tax Division Referrals for Prosecution. The Tax Division authorizes the United States Attorney to conduct grand jury investigations into matters arising under the internal revenue laws to the extent necessary to perfect those tax charges that the Tax Division refers for prosecution.
- Tax Division Referrals for Grand Jury Investigation. The Tax Division authorizes the United States Attorney to conduct grand jury investigations into matters arising under the internal revenue laws to the extent necessary to 1) perfect the tax charges for which the Tax Division authorizes an investigation or 2) determine whether the Tax Division should authorize prosecution. See USAM 6-4.242.
- Expansion of Non-tax Grand Jury Investigation to Possible Federal Criminal Tax Violations. The Assistant Attorney General, Tax Division, has delegated limited authority to the United States Attorney to expand non-tax investigations in order to inquire into possible federal criminal tax violations, designate targets (subjects), determine the scope of the expanded investigation, and terminate such proceedings. Before a United States Attorney may file an information or seek the return of an indictment on matters arising under the internal revenue laws in an expanded investigation, however, the Tax Division must first authorize the specific tax charges. See Tax Division Directive No. 86-59 (October 1, 1986),Tax Resource Manual 10.
- IRS Direct Referrals for Prosecution. In limited categories of cases, the Tax Division authorizes the IRS to refer certain matters arising under the internal revenue laws directly to the United States Attorney for prosecution. See USAM 6-4.243. In turn, the Tax Division authorizes the United States Attorney to conduct grand jury investigations into these matters, to the extent necessary to perfect the charges that the IRS has directly referred.
[updated September 2007] [cited in USAM 6-4.212]
6-4.123 - Joint United States Attorney—IRS Request to Expand Tax Grand Jury Investigation
The United States Attorney may not, without Tax Division approval, expand grand jury investigations into matters arising under the internal revenue laws to include targets that the Tax Division did not previously authorize. The United States Attorney, together with the IRS, must submit a written request to obtain Tax Division approval. The request must establish the basis for the Tax Division to authorize expansion of the investigation. See USAM 6-4.211(B).
6-4.125 - IRS Transmittal of United States Attorney's Recommendation, Special Agent's and Criminal Tax Counsel's Reports, and Exhibits from Grand Jury Investigation
When a grand jury investigation is complete and the United States Attorney concludes that the Government has gathered sufficient evidence to proceed with prosecution, the United States Attorney should request that the special agent assigned to the matter prepare a SAR. After the SAR is completed, the special agent should request that CT Counsel review the SAR and prepare a CEM. Then, the SAC must forward the SAR, with copies of the relevant exhibits, and the CEM to the Tax Division for review and authorization. At the same time, the United States Attorney or the SAC must forward to the Tax Division the United States Attorney's written recommendation regarding prosecution of a target(s) for tax violations. See USAM 6-4.200. Whenever possible, the Tax Division will complete its review of the prosecution recommendation within thirty (30) days of receiving the transmittal letter, reports, and exhibits. See USAM 6-4.242.
The IRS also must transmit a recommendation against prosecution resulting from a grand jury investigation to the Tax Division for evaluation. Alternatively, the IRS must advise the Tax Division that it has no recommendation. See IRM 220.127.116.11.2(3); see also USAM 6-4.242. The Tax Division will complete its evaluation of the matter and authorize declination or other actions within thirty (30) days of receiving the recommendation.
[updated September 2007] [cited in USAM 6-4.242]
6-4.126 - Restriction on Disclosure of Grand Jury Matters to IRS for Civil Use
Federal Rule of Criminal Procedure 6(e)(3)(C)(i) prohibits the United States Attorney from disclosing "matters occurring before the grand jury" to the IRS for use in civil tax audit or administrative collection proceedings. See United States v. Baggot, 463 U.S. 476 (1983). The court may grant the Government's motion for disclosure of grand jury matters for use in certain civil proceedings, if the United States Attorney satisfies the exception requirements set forth in Rule 6(e)(3)(C)(i)(I), which require the Government to show that it will make the disclosure "preliminarily to or in connection with a judicial proceeding...." and that it has a "particularized need" for the requested materials. See United States v. John Doe, Inc. I, 481 U.S. 102, 108 (1987). Information that is not deemed to be "matters occurring before the grand jury" may be disclosed consistent with the requirements of 26 U.S.C. section 6103. See Tax Resource Manual 11.
[updated September 2007]
6-4.130 - Search Warrants
The Assistant Attorney General, Tax Division, has delegated to the United States Attorney and other specified supervisory officials in United States Attorney's Offices the authority to approve search warrants in many matters arising under the internal revenue laws: a warrant directed at an office, structure, or premises of a target or subject of an investigation; a warrant directed to a provider of electronic communication services or remote computing services and relating to a subject or target of a criminal investigation; and a warrant directed to a disinterested third party owning a storage space business or similar business and relating to a subject or target of a criminal investigation. See Tax Division Directive No. 52 (modified March 17, 2008) and related documents in Tax Resource Manual 12 and 13. The United States Attorney must, however, submit a written request and obtain the approval of the Tax Division for any search warrant where the target or subject is reasonably believed to be
- an accountant
- a lawyer
- a physician
- a public official/political candidate
- a member of the clergy
- a news media representative
- a labor union official or
- an official of an organization exempt from tax under 26 U.S.C. § 501(c)(3)
Except as provided above, the United States Attorney must also submit a written request and obtain the approval of the Tax Division for any search warrant directed at an office, structure, or premises of a third party, i.e., a person who is not a target or subject of the investigation.
[updated April 2008]
6-4.200 - Tax Division Jurisdiction and Procedures
The Assistant Attorney General, Tax Division, has responsibility for all criminal proceedings arising under the internal revenue laws, with the exception of proceedings that pertain to: misconduct of IRS personnel; taxes on liquor, narcotics, firearms, coin-operated gambling and amusement machines, and wagering; forcible rescue of seized property (26 U.S.C. § 7212(b)); corrupt or forcible interference with an officer or employee acting under the internal revenue laws (26 U.S.C. § 7212(a) (but not the "omnibus clause")); unauthorized disclosure of information (26 U.S.C. § 7213); and counterfeiting, mutilation, removal, or reuse of stamps (26 U.S.C. § 7208). See 28 C.F.R. § 0.70. The Tax Division must approve any and all criminal charges that a United States Attorney intends to bring against a defendant in connection with conduct arising under the internal revenue laws, regardless of which criminal statute(s) the United States Attorney proposes to use in charging the defendant. See 28 C.F.R. § 0.70.
[updated September 2012]
6-4.209 - Stolen Identity Refund Charges
In Stolen Identity Refund Fraud ("SIRF") cases, the Assistant Attorney General, Tax Division, has delegated to the United States Attorney the authority to (1) open tax-related grand jury investigations; (2) charge by criminal complaint persons engaged in SIRF crimes; and (3) seek and obtain seizure warrants for forfeiture of criminally derived proceeds arising from SIRF crimes, without prior approval from the Tax Division. SeeTax Division Directive No. 144, Tax Resource Manual 36. The Internal Revenue Service, Criminal Investigation, may or may not participate in the SIRF investigation. All subsequent charging decisions by way of indictment, information, or superseding indictment/information must be authorized in advance by the Tax Division. Expedited review procedures between the United States Attorneys' Offices and the Tax Division are available for proposed indictments/informations arising from SIRF investigations. (SeeMemorandum dated September 18, 2012, from AAG Kathryn Keneally to All United States Attorneys re: Expedited and Parallel Review of Proposed Indictments Arising from Stolen Identity Refund Fraud, Tax Resource Manual 37.)
SIRF cases involve a fraudulent claim (or attempted claim) for a tax refund wherein the fraudulent claim for refund (i.e. tax return) is in the name of a person whose personal identification information appears to have been stolen or unlawfully used to make the claim, and the claim is intended to benefit someone other than the person to whom the personal identification information belongs. SIRF cases also include the negotiation (or attempted negotiation), possession, or transfer, of refund proceeds resulting from the above-defined scheme. See Tax Division Directive No. 144, Tax Resource Manual 36, describing the types of cases that fall within and without the definition of SIRF cases.
For purposes of illustration, SIRF crimes generally implicate the following criminal statutes: 18 U.S.C. § 286 (conspiracy as to false claims), 18 U.S.C. § 287 (false claims), 18 U.S.C. § 510 (Treasury check forgery), 18 U.S.C. § 641 (theft of public money), 18 U.S.C. § 1028 (identity theft), 18 U.S.C. § 1028A (aggravated identity theft), 18 U.S.C. § 1029 (access device fraud), 18 U.S.C. § 1341 (mail fraud), 18 U.S.C. § 1343 (wire fraud), 18 U.S.C. § 1708 (theft or receipt of stolen mail) and/or 18 U.S.C. § 1709 (mail theft by postal employee).
[new September 2012]
6-4.210 - Tax-Related Mail, Wire, or Bank Fraud, RICO, or Money Laundering Charges
A United States Attorney must obtain Tax Division approval before bringing mail, wire or bank fraud charges, either alone or as the predicate to RICO or money laundering charges, if the conduct arises under the internal revenue laws. Conduct arising under the internal revenue laws includes a defendant's submission of a document or information to the IRS. A United States Attorney also must obtain Tax Division approval to bring charges based on state tax violations if the case involves parallel federal tax violations. See Tax Division Directive No. 128 (October 29, 2004), Tax Resource Manual 14.
- Mail, Wire or Bank Fraud Charges. The Tax Division may approve mail, wire or bank fraud charges in tax-related cases involving schemes to defraud the Government or other persons if there was a large fraud loss or a substantial pattern of conduct and there is a significant benefit to bringing the charges instead of or in addition to Title 26 violations. See generally USAM 9-43.100. Absent unusual circumstances, however, the Tax Division will not approve mail or wire fraud charges if a case involves only one person's tax liability or when all submissions to the IRS were truthful.
Examples of situations where, with Tax Division approval, a United States Attorney may appropriately use mail, wire or bank fraud charges in a tax case include:
- when a target has filed multiple fraudulent returns seeking tax refunds, using fictitious names, or using the names of real taxpayers without their knowledge, appropriate charges may include mail fraud (18 U.S.C. § 1341) or wire fraud (18 U.S.C. §1343);
- when a target has promoted a fraudulent tax scheme, appropriate charges may include mail fraud (18 U.S.C. § 1341) or wire fraud (18 U.S.C. §1343);
- when a target has induced a financial institution to approve refund anticipation loans on the basis of the fraudulent information submitted to the IRS, appropriate charges may include bank fraud charges (18 U.S.C. § 1344).
- Racketeering and Money Laundering Charges Based on Tax Offenses. The Tax Division will not authorize the use of mail, wire or bank fraud charges to convert routine tax prosecutions into RICO or money laundering cases, but will authorize prosecution of tax-related RICO and money laundering offenses when unusual circumstances warrant such a prosecution. A United States Attorney who wishes to bring a RICO charge (18 U.S.C. § 1962) in any criminal matter arising under the internal revenue laws, must first obtain the authorization of the Tax Division and the Criminal Division's Organized Crime and Racketeering Section. See USAM 9-110.101. This requirement also applies to RICO cases where the predicate act is a state tax violation and there is a parallel federal violation. A United States Attorney who wishes to bring a money laundering charge (18 U.S.C. § 1956) based on conduct arising under the internal revenue laws, must first obtain the authorization of the Tax Division and, if necessary, the Criminal Division's Asset Forfeiture and Money Laundering Section. See USAM 9-105.300.
[updated September 2012] [cited in USAM 6-2.000]
6-4.211 - Standards of Review
- Prosecution. The Principles of Federal Prosecution set forth the standards that govern the Tax Division's review of a criminal tax matter to determine whether to authorize prosecution. Under these principles, before authorizing a prosecution, the Tax Division must conclude that the Government has: 1) sufficient evidence to support a prima facie case; and 2) a reasonable probability of conviction. See USAM 9-27.220. The Tax Division also considers factors such as uniformity, balanced and broad enforcement goals, and Department and IRS priorities and policies in criminal enforcement matters. See generally USAM 6-4.010.
- Grand Jury Investigation. When it reviews a criminal tax matter to decide whether it should authorize a grand jury investigation, the Tax Division considers whether articulable facts support a reasonable belief that a target or subject is committing or has committed a tax crime.
6-4.212 - Categories of Matters Reviewed
- IRS Referrals. The Tax Division utilizes a complex/non-complex case designation procedure to expedite the review of administrative criminal tax matters that the IRS has referred while maintaining uniformity of prosecution standards.
- Complex Matters. The Tax Division designates as "complex" referrals that have the following characteristics: a) the IRS utilized an indirect method of proof in developing the case; b) the facts or legal issues are complicated; or c) the case contains technical and/or sensitive issues or tax or policy issues. A docket attorney from one of the three regional Criminal Enforcement Sections reviews each complex referral and prepares a prosecution memorandum ("pros. memo") that analyzes the evidence, highlights procedural and/or substantive problems with the case, and makes recommendations for further action. At least one senior Criminal Enforcement Section attorney reviews each pros. memo. The Tax Division then decides to authorize or decline prosecution.
- Non-complex Matters. Non-complex matters are referrals that are relatively straightforward and uncomplicated and that do not present technical tax or sensitive policy issues. Senior Criminal Enforcement Section attorneys review these referrals to ensure that they do not present issues that require in-depth review. The Tax Division transmits a non-complex matter to the appropriate United States Attorney within two weeks of receiving the referral from the IRS. In turn, the United States Attorney must consider the matter within 90 days. See USAM 6-4.244.
- United States Attorney Requests for Grand Jury Authorization. When a United States Attorney requests that the Tax Division authorize a grand jury investigation into a matter arising under the internal revenue laws, Criminal Enforcement Section personnel review the request and then approve or deny it. SeeUSAM 6-4.122 and 6-4.123.
[updated September 2007]
6-4.213 - Review of Direct Referrals
The Tax Division monitors all matters that the IRS refers directly to the United States Attorneys. SeeUSAM 6-4.243. If the Tax Division determines that the IRS has improperly referred a matter to the United States Attorney, the Tax Division will inform the United States Attorney to forward the matter to the Tax Division for review.
[updated September 2007] [cited in USAM 6-4.213]
6-4.214 - Conferences
If time and circumstances permit, the Tax Division generally grants a taxpayer's written request for a conference with the Division in Washington, D.C. If the taxpayer makes the request for a conference after the Tax Division has forwarded the matter to the United States Attorney, the Tax Division will deny the request and suggest that the taxpayer ask the United States Attorney for a conference. The United States Attorney has discretion to grant or deny a taxpayer's request for a conference. On rare occasions, the Tax Division may ask a United States Attorney to hold a conference and submit a written recommendation about whether the Division should change its decision regarding prosecution.
During the conference, the Tax Division usually advises conferees of the proposed charges, the method of proof, and the income and tax computations that the IRS recommended. The Division also advises them that these may change. The taxpayer or the taxpayer's representative may present explanations or evidence for the Tax Division to consider in reaching a decision regarding prosecution. The conferees may not use the conference, however, as an opportunity to explore the Government's evidence.
The Government may use any statements made by the taxpayer at the conference not only to evaluate the matter, but also in any court proceeding, whether criminal or civil. See Fed. R. Evid. 801(d)(2). The Government does not, however, use in general court proceedings statements made at these conferences by attorneys for the taxpayer, i.e., vicarious admissions,. The Government may also develop investigative leads from any information provided at the conference. The Tax Division permits plea negotiations during conferences in non-grand jury cases. A plea obtained in such a case must be consistent with the Tax Division's major count policy and the policies of the appropriate United States Attorney's Office. See Tax Division Directive No. 86-58 (May 14, 1986), Tax Resource Manual 15, supplemented byTax Resource Manual 38.
[updated January 2014]
6-4.217 - On-Site Review
The United States Attorney may request that the Tax Division perform an on-site review of a matter by personally submitting a written request that outlines the reasons for the review. The Division grants such a request only in exceptional circumstances. Criminal Enforcement Section personnel will perform the approved review.
[updated September 2007]
6-4.218 - Tax Division Authorizations and Declinations
The final authority for the prosecution or declination of all criminal matters arising under the internal revenue laws rests with the Assistant Attorney General, Tax Division. 28 C.F.R. § 0.70.
[updated September 2007] [cited in USAM 6-2.000]
6-4.219 - Assistance of Criminal Enforcement Section Personnel
The Tax Division will consider the following reasons in support of a United States Attorney's request for litigation assistance:
- Recusal of the United States Attorney and his/her office; and
- The United States Attorney's lack of sufficient resources, personnel or expertise.
The Tax Division generally expects the United States Attorney to handle non-complex matters that have been accepted for prosecution. See USAM 6-4.244.
[updated September 2007] [cited in USAM 6-4.244]
6-4.240 - United States Attorney's Responsibilities
The United States Attorney is normally responsible for the investigation and prosecution of criminal tax matters that the Tax Division has authorized.
[updated September 2007]
6-4.242 - Recommendation Following a Grand Jury Investigation
At the conclusion of a tax or joint tax and non-tax grand jury investigation, the United States Attorney should submit to the Tax Division a written analysis of the investigation, along with a recommendation regarding whether the Government should bring charges or decline prosecution. If the United States Attorney is recommending that the Government should bring non-tax charges as well, the analysis must explain how the non-tax charges relate to the tax charges. See USAM 6-4.125.
The United States Attorney must ensure that the Tax Division receives the material at least 60 days prior to the expiration of the statute of limitations.
6-4.243 - Review of Direct Referral Matters
The Tax Division authorizes the IRS to refer directly to the United States Attorney to conduct a grand jury investigation or for prosecution the following categories of matters:
- Excise taxes. This category includes all 26 U.S.C. and 18 U.S.C. offenses involving taxes imposed under Subtitles C, D, and E of the Internal Revenue Code (26 U.S.C.), except taxes imposed under Chapter 24 (withholding from wages), 32A parts I through III (motor and aviation fuels), and 38D (ozone-depleting chemicals).
- Multiple filings of false and fictitious returns claiming refunds. This category includes all 18 U.S.C. §§ 286 and 287 charges that arise when a taxpayer files, in a single tax year, two or more returns on which false refunds are claimed. This category does not include, and the IRS may notdirectly refer to the United States Attorney, cases involving return preparers who falsified returns to claim refunds or cases involving persons who submitted false or fictitious claims for refund to the IRS through the Electronic Filing (ELF) program. (18 U.S.C. §§ 286 and 287).
- Trust fund matters. This category involves alleged violations of the trust fund laws. (26 U.S.C. §§ 7215 and 7512).
- "Ten percenter" matters. This category includes wage-related cases in which the holder of a winning bet pays a nominee a percentage of winnings in exchange for the nominee's redemption of the winning bet. The IRS may directly refer such cases to the United States only if they involve an arrest that occurs at the time of the offense. (26 U.S.C. § 7206(2)).
- IRS Form 8300 Returns. This category involves cases in which a taxpayer who receives cash in a trade or business and is required under 26 U.S.C. § 6050I to file an IRS Form 8300, fails to file or files a false Form 8300. With some exceptions, the Tax Division authorizes direct referrals in such cases to prosecute violations under 26 U.S.C. §§ 7203 and 7206. See Tax Division Directive No. 87-61 (February 27, 1987), Tax Resource Manual 16.
The United States Attorney may initiate or decline prosecution of direct referral matters without first obtaining Tax Division approval, but in all other tax matters may initiate proceedings only after the Tax Division authorizes prosecution. Once a prosecution of any tax matter, including a direct referral matter, is initiated, however, the United States Attorney may not dismiss the indictment, information, or complaint unless and until the Tax Division authorizes dismissal. See USAM 6-4.246.
6-4.244 - Review of Non-complex Matters
Within 90 days of receiving a designated non-complex matter, a United States Attorney must either initiate proceedings or request that the Tax Division decline the matter (see USAM 6-4.245) or handle it (see USAM 6-4.219).
6-4.245 - Request to Decline Prosecution
- Request by United States Attorney. A United States Attorney who concludes that the Government should not prosecute a particular tax matter must submit a written recommendation to the Tax Division for consideration. The Assistant Attorney General, Tax Division, will then evaluate the matter and determine whether the matter should be prosecuted or declined. If the Assistant Attorney General determines that the matter should be prosecuted, the United States Attorney will be requested to proceed. If the United States Attorney declines to proceed, Criminal Enforcement Section personnel from the Tax Division will handle the matter. The United States Attorney must send the recommendation to the Chief of the appropriate Criminal Tax Enforcement Section sufficiently in advance of the expiration of the statute of limitations or any other deadlines to give the Assistant Attorney General, Tax Division, sufficient time to consider the recommendation and to give Tax Division personnel sufficient time to prepare for prosecution.
- Grand Jury No Bill. Once a grand jury returns a no bill or otherwise acts on the merits in declining to return an indictment, the United States Attorney must not present the same matter (i.e., same transaction or event and the same putative defendant) to another grand jury or present it again to the same grand jury without the prior approval of the Assistant Attorney General, Tax Division. Ordinarily, the Assistant Attorney General does not give that approval unless the Government finds additional or newly-discovered evidence or there would be a clear miscarriage of justice if the Government did not make a second attempt to obtain an indictment.
6-4.246 - Request to Dismiss Prosecution
The United States Attorney may not dismiss an indictment, information, or complaint unless and until the Tax Division approves the dismissal. There are two exceptions to this rule: 1) the grand jury returns a superseding indictment; or 2) the defendant has died. In all other cases, an Assistant United States Attorney must submit to the Tax Division a written request for dismissal which outlines the reasons for the request and indicates that the United States Attorney concurs with the request.
6-4.247 - United States Attorney's Protest of Declination
If a United States Attorney disagrees with the Tax Division's decision to decline prosecution of a matter arising out of a grand jury investigation, the United States Attorney may submit a written request for reconsideration explaining why prosecution is warranted.
[updated September 2007]
6-4.248 - Status Reports
After the Tax Division refers a criminal tax case to the United States Attorney, it is essential that the United States Attorney keep the Division apprised of all developments through periodic case status reports. See Tax Resource Manual 17. As the case progresses, the Tax Division requires the following information:
- A copy of the indictment returned (or no billed), or the information filed that reflects the date of the return (or no bill) or filing;
- The date of arraignment and kind of plea;
- The date of trial;
- The verdict and date verdict returned;
- The date and terms of sentence;
- The date of appeal and appellate decision; and
- copy of any press release.
It is important for the United States Attorney to provide the Tax Division with timely and regular updates regarding developments in pending cases. The Tax Division's files must reflect the true case status so that, upon completion of the criminal case, the Division can close the criminal case in a timely manner and return it to the IRS.
[updated September 2007]
6-4.249 - Return of Reports and Exhibits
After obtaining both a final judgment from the trial court and a final appellate decision, the United States Attorney should take the following actions:
- Retain grand jury materials under secure conditions, in accordance with the requirements of Federal Rule of Criminal Procedure 6(e) for maintaining the secrecy of grand jury material;
- Return all exhibits and other materials that the Government obtained from witnesses; and
- Return to the SAC, by certified mail, return receipt requested, all non-grand jury reports, exhibits, and other materials that the IRS furnished for use in the investigation or trial.
[updated September 2007]
6-4.270 - Criminal Division Responsibility
The Criminal Division of the Department of Justice is responsible for prosecuting persons who have committed the following tax-related offenses:
- liquor tax
- stamp tax
- coin-operated gambling and amusement machines
- malfeasance offenses that IRS personnel have committed
- forcible rescue of seized property
- corrupt or forcible interference with an officer or employee acting under the internal revenue laws (but not omnibus clause)
- counterfeiting, mutilation, removal, or misuse of stamps
See 28 C.F.R. § 0.70.
[updated September 2007]
6-4.310 - Major Count Policy in Plea Agreements
Disposition of tax cases through pleas. The Government disposes of an overwhelming percentage of all criminal tax cases by entry of a plea of guilty. The Tax Division authorizes the United States Attorney to accept a plea of guilty to the major count(s) of the indictment or information, without first obtaining Tax Division approval. The United States Attorney also may seek a plea to more than the major count(s) if he or she thinks the Government should accept such a plea. In most cases, the Tax Division identifies the major count(s) that have been authorized for prosecution in the Tax Division's prosecution memorandum or in its case transmittal letter.
Major Count Designations. When it designates the major count, the Tax Division primarily considers the following:
- Felony counts have priority over misdemeanor counts.
- Tax evasion counts (26 U.S.C. § 7201) have priority over all other substantive tax counts.
- The count charged in the indictment or information that carries the longest prison sentence is the major count.
- As between counts under the same statute, the count involving the greatest financial detriment to the United States (i.e. , the greatest additional tax due and owing) is the major count.
- As between counts, if the financial detriment does not differ significantly, the relative flagrancy of the offense is determinative.
The United States Attorney may request the Tax Division to consider other factors not included above.
Other Factors in Designating Major Count. The Tax Division may need to designate more than a single count as a major count when the computed guideline sentencing range exceeds the maximum sentence that the court can impose under a single count.
If the Government charges both tax and non-tax counts, the Tax Division's selection of which tax count to designate as the major count may not have any effect on the applicable guideline range. This lack of effect occurs when the offense level of the group or groups of non-tax offenses is nine (9) or more levels higher than the offense level of the group containing the tax charges. See U.S.S.G. §§ 3D1.2 and 3D1.4. In such a case, if its designation will not affect the applicable guideline range, the Tax Division may designate a less serious tax offense in the group as the major count.
If all of the tax charges are not part of the same course of conduct or common scheme or plan, the Department's plea policy for Sentencing Guidelines cases may require that the Tax Division either designate one count from each group of unrelated counts as major counts or designate one count from one of the groups of unrelated counts as the major count and have the prosecutor obtain a stipulation from the defendant establishing the commission of the offenses in the other group. See U.S.S.G. § 1B1.2(c). The Tax Division engages in this process to determine the combined offense level for the case under U.S.S.G. § 3D1.4.
No Reduction From Felony to Misdemeanor. When the major count of a tax indictment charges a felony offense, the United States Attorney may not accept a plea to a lesser-included offense nor substitute a misdemeanor offense for the felony offense charged. Absent unusual circumstances, the Tax Division will not approve the reduction of a charge from a felony to a misdemeanor merely to secure a plea.
Post-Plea Dismissal of Remaining Counts. After the court accepts a defendant's guilty plea to one or more major counts and imposes a sentence, the United States Attorney may move to dismiss the remaining counts of the indictment or information.
Pleas Taken in Advance of Indictment or Information. A defendant who has not yet been charged sometimes indicates an intent to enter a guilty plea to the major count(s). If this occurs, the United States Attorney, when presenting the factual basis for the prosecution, in compliance with Federal Rule of Criminal Procedure 11, must include the full extent of the defendant's tax violations on all of the counts in order to demonstrate the defendant's actual criminal intent. In most cases, all of the tax charges are related. Consequently, even if the defendant pleads to only a single count, the court should take into account the tax loss from all of the years when it determines the tax loss for the offense to which the defendant pleads.
[updated September 2007] [cited in USAM 6-2.000]
6-4.320 - Nolo Contendere Pleas
Under Department of Justice policy, all government attorneys must oppose the acceptance of nolo contendere pleas. In cases involving tax charges, the United States Attorney may not consent to a plea of "nolo contendere" except in the most unusual circumstances and only after the Assistant Attorney General, Tax Division, has approved a written request. See USAM 9-16.010 and 9-27.500. The United States Attorney also must oppose dismissal of any charges to which the defendant does not plead nolo contendere.See USAM 9-27.530.
There are several reasons for the Government's opposition to nolo pleas. When pleading "nolo," the defendant may create the impression that the Government has only a technically adequate case that the defendant elects not to contest. Further, a standard guilty plea permits the Government to use collateral estoppel in subsequent civil proceedings (e.g., when a defendant contests a civil fraud penalty). When it obtains a "nolo" plea, however, the Government will not be able to use collateral estoppel in the civil proceeding.
[updated September 2007] [cited in USAM 6-2.000]
6-4.330 - Alford Pleas
In North Carolina v. Alford, 400 U.S. 25 (1970), the Supreme Court held that a trial court may accept a defendant's plea of guilty over the defendant's claims of innocence. The United States Attorney should discourage Alford pleas by refusing to agree to terminate prosecutions in situations where a defendant proffers a plea to fewer than all of the pending charges. The United States Attorney may not consent to a so-called Alford plea except in the most unusual circumstances and only after the Assistant Attorney General, Tax Division, or a higher Departmental official, has approved a written request. See USAM 9-16.015 and 9-27.440.
Furthermore, if a defendant tenders an Alford plea to fewer than all of the charges and the court accepts it over the Government's objection, the United States Attorney must proceed to trial on all of the remaining counts that are not barred on double jeopardy grounds, unless the Assistant Attorney General, Tax Division, approves dismissal of the remaining charges.
[updated September 2007] [cited in USAM 6-2.000]
6-4.340 - Sentencing
Rule 32(i)(4)(A)(iii) of the Federal Rules of Criminal Procedure permits the Government to make a statement to the court at the time of sentencing. The United States Attorney should make a full statement of the facts, including the amount of tax that the defendant evaded for all relevant conduct, including how the defendant perpetrated and concealed the fraud, the defendant's past criminal record, and all other information that the court may consider important in imposing an appropriate sentence.
Because a jail sentence provides the maximum deterrent value, the Tax Division prefers that the United States Attorney's sentencing recommendation request that the court impose a jail sentence in addition to a fine and the costs of prosecution. A court's order of probation and a defendant's payment of any civil tax liability in addition to a fine and costs, do not constitute a satisfactory disposition of a criminal tax case.
Notwithstanding the foregoing, the United States Attorney may agree to a sentence of probation (preferably with alternative conditions of confinement) when: 1) the defendant pleads guilty; 2) the sentencing guidelines range is 0-6 months (and within Criminal History Category I); and 3) the United States Attorney personally signs and approves a written memorandum that identifies those unusual and exceptional circumstances that support the appropriateness of agreeing to probation. Examples of exceptional circumstances include the need to secure cooperation against a more culpable party or a serious, post-indictment degradation in the evidence available for trial (such as the death of a witness or the loss or suppression of evidence). The United States Attorney must keep this memorandum in the case file and must forward a copy to the Tax Division when closing the case.
[updated September 2007]
6-4.350 - Costs of Prosecution
Congress has provided that, after a jury or court convicts a defendant of any of the principal substantive criminal tax offenses (e.g, 26 U.S.C. §§ 7201, 7203, 7206(1) and (2)), the court must order the defendant to pay the Government's costs of prosecution. Thus, the United States Attorney should seek recovery of the costs of prosecution in criminal tax cases.
[updated September 2007]
6-4.360 - Compromise of Criminal Liability/Civil Settlement
While statutory authority under 26 U.S.C. Sec. 7122(a) does exist for the Attorney General, after referral of a case to the Department, to enter into agreements to compromise criminal tax cases without prosecution, as a matter of longstanding policy, such authority is very rarely exercised. If it is concluded that there is a reasonable probability of conviction and that prosecution would advance the administration of the internal revenue laws, any decision to forgo prosecution on the ground that the taxpayer is willing to pay a fixed sum to the United States, would be susceptible to the attack that a taxpayer who is able to pay whatever amount of money the government demanded had been given preferential treatment.
Consequently, proposed criminal tax cases are reviewed without any consideration being given to the matter of civil liability or the collection of taxes, penalties, and interest. In short, proposed criminal tax cases are examined with the view to determining whether a violation has occurred, to the exclusion of any consideration of civil liability.
Absent extraordinary circumstances, such as permanent loss of tax revenues unless immediate protective action is taken, settlement of the civil liability is postponed until after sentence has been imposed in the criminal case, except when the court chooses to defer sentencing pending the outcome of such settlement. In this event, the IRS should be notified so that it can begin civil negotiations with the defendant.
However, the Tax Division strongly encourages, but does not require, that a plea agreement include certain civil admissions by the defendant, including: (1) admission of either receipt of enumerated amounts of unreported income or claimed enumerated amounts of illegal deductions or improper credits for years set forth in the plea agreement; (2) a stipulation that defendant is liable for the fraud penalty imposed by the Internal Revenue Code (26 U.S.C. Sec. 6663) on the understatements of liability for the years involved; and (3) an agreement by the defendant to file, prior to sentencing, complete and correct initial or amended personal returns for the years subject to the above admissions and, if requested, to provide the IRS with information regarding the years covered by the returns and to pay, at sentencing, all additional taxes, penalties and interest which are due and owing; and (4) an agreement by the defendant not to file any claims for refund of taxes, penalties, or interest for amounts attributable to the returns filed incident to the plea.
[updated September 2007] [cited in USAM 6-6.200]
6-4.370 - Restitution
The Department of Justice authorizes and encourages United States Attorneys to seek restitution in criminal tax cases. In May 2005, the Attorney General issued new Guidelines on Victim and Witness Assistance. Those Guidelines require that prosecutors in all cases "must consider "requesting that the defendant provide full restitution to all victims of all charges contained in the indictment or information, without regard to the counts to which the defendant actually plead[s]." (Pub. L. No. 104-132 § 209; 18 U.S.C. § 3551 note).
A Joint IRS/DOJ Task Force on Restitution developed standard language for the restitution portion of a plea agreement and a proposed restitution order for use by prosecutors in criminal tax cases involving defendants who agree or are ordered to pay restitution. For the Task Force Memorandum, standard restitution plea language, optional restitution plea language, and the recommended form for a restitution, seeTax Resource Manual 18 through 21.
A United States Attorney should direct any questions about restitution in criminal tax cases to the Criminal Appeals and Tax Enforcement Policy Section (CATEPS) of the Tax Division. See Tax Resource Manual 2.
[updated September 2007]
6-4.400 - Parallel Proceedings
Consistent with the Department's policies for coordinating criminal, civil, and administrative actions, the Tax Division uses all available judicial remedies and procedures to enforce the tax laws. These actions include criminal prosecutions, civil injunction actions, summons enforcement actions, collection actions, and the defense of civil refund suits. The Government may take these actions simultaneously or sequentially.See Tax Resource Manual 22.