This section focuses on administrative investigations ( i.e., investigations worked outside of the grand jury process). Most administrative investigations involve Title 26 and tax-related Title 18 violations. Administrative investigations may be worked whenever a special agent anticipates working without the cooperation of other agencies.
Also discussed in this section are general investigative issues and rules of evidence applicable to all types of investigations, including grand jury investigations.
Administrative investigations may be initiated whenever information indicating possible violations of tax, money laundering, or bank secrecy laws is received or developed by the Lead Development Center (LDC) and/or the Fraud Detection Center (FDC).
Administrative investigations are initiated (numbered) as general investigations (GI), primary investigations (PI), or subject criminal investigations (SCI). For detailed descriptions of these three types of investigations (see IRM 9.4.1, Investigation Initiation).
The Special Agent in Charge (SAC) or the SACís designee should select for investigation all information items which, after evaluation and screening, are deemed to warrant further inquiry (see IRM 9.9.1, Employee Criminal Investigation Management Information System (CIMIS) Responsibilities and Procedures).
A brief summary of the basis for opening the investigation should be prepared and retained in the administrative file. At the discretion of the SAC, the summary may be contained in a separate document, such as a memorandum prepared by the evaluating special agent, or it may be incorporated in an existing document used in the field office's investigation initiation process. Document Manager contains a primary evaluation memorandum template for the investigation summary and referral recommendation.
The automated data processing (ADP) Code 914 must be placed on the appropriate master file module(s) for all Title 26 and tax-related Title 18 subject criminal investigations. Controls and procedures are discussed in Criminal Investigation Law Enforcement Manual (LEM) 9.14.4 - Automated Data Processing Account Controls (on CI Connection in CASE (Communities Accessing and Sharing Expertise)).
All assigned investigations are subject to sufficient investigative inquiry to support the disposition recommendation in the report, except when surveyed.
Procedures in Financial Investigations
Financial investigations, especially tax investigations, differ from most other types of criminal investigations in that (with the exception of crimes involving identity theft) the investigator generally begins with a known person and attempts to determine whether or not that person has committed a crime. In other types of criminal investigations, the investigator generally begins with a known crime and attempts to determine who committed it.
The purpose of a special agent's investigation is to obtain facts and evidence to determine whether the person under investigation has committed a criminal violation.
The special agent should first determine:
Which criminal statute or statutes are alleged to have been violated.
By whom, when, where, and by what means the offense was committed.
The elements of each alleged offense, what evidence must be obtained to establish the elements, and the probable sources of the evidence.
The timing and sequence of key interviews and service of summonses. Form 6085, Investigative Workplan, should be used to prepare a workplan.
Whether the subject will be contacted for an initial interview.
In a Title 26 or tax-related Title 18 investigation, whether the subject's books and records have been previously examined.
What controls are currently in place on the ADP individual master file/business master file (IMF/BMF) accounts.
The special agent should begin each investigation quickly and complete it as expeditiously as possible.
The initial investigative activity should involve inspecting the subject's books and records and conducting other related inquiries to assess whether the investigation has criminal potential. These inquiries should include a review of the files of all relevant operating divisions -Small Business/Self Employed (SB/SE), Wage and Investment (W&I), Large Business and International (LB&I), Tax Exempt & Government Entities (TE/GE), and Criminal Investigation (CI) - to determine whether there is a pending or previous civil examination or criminal investigation relating to the subject. Other pertinent sources of information should be consulted (e.g., Treasury Enforcement Computer System (TECS), El Paso Intelligence Center (EPIC), Detroit Computing Center) to determine whether the subject is/was under investigation by another government agency.
The EPIC inquiries are limited to narcotics investigations and must be made by/on behalf of a special agent.
When the services of a cooperating revenue agent are necessary, the SAC should submit a request to the appropriate operating division Territory Manager where the subject is located (see subsection 184.108.40.206.1.5 regarding joint investigations with a cooperating examiner/officer).
Investigations should be conducted impartially and thoroughly to obtain all pertinent information and evidence, including any exculpatory evidence.
If the criminal investigation is conducted jointly with a civil operating division, the special agent should interview the cooperating examiner/officer to obtain all pertinent facts relating to developments preceding the joint investigation, such as statements made by the subject in the presence of the cooperating examiner/officer.
If the investigation involves an alleged false or fraudulent return or other document, the special agent should obtain a statement under oath from the person who prepared the return or document.
When the net worth method of proof is used to show an underreporting of income, the subject's filing record and copies of available income tax returns should be obtained for at least five years preceding and all years subsequent to the first year of the violations. In the event any of these returns are not available, and if the amount of income reported cannot be determined from other sources, the operating division Area Director's office should be asked to provide a list of the amounts of income tax paid (including payments of estimated taxes). In such cases, the amount of tax paid should be used to compute the maximum net income that could have appeared on the returns. Prior reports bearing on the matter should also be examined.
Interview with Subjects of Investigations
The special agent must obtain the original return or returns at issue, if any were filed for the pertinent period, prior to independently interviewing a subject, the subjectís representative, one of the subjectís present employees or the subjectís return preparer, and prior to inspecting the subjectís books and records.
Exceptions to the requirement that original returns, rather than copies, be obtained may be made in investigations where an examination is extended to include taxable periods for which the original return is not available and the examination is based on the subject's retained copy, or where the use of copies is approved in writing by the SAC.
In most administrative Title 26 or tax-related Title 18 investigations, the subject should be contacted for an initial interview to confront him/her with the allegations and to identify potential defenses or other weaknesses in the case before making further investigative contacts. Contact with the subject should be made within the first 30 days of numbering a subject criminal investigation. A decision not to contact the subject should be documented in management's investigation review files. The initial interview of the subject may take place at the same time as the initial interview with the return preparer and the accountant.
All contacts with the subject or the subjectís representative must be documented. Special agents should avoid contact with the subject or the subjectís representative without a witness for the government, preferably another special agent, present.
The special agent should monitor developments that could hinder or terminate the prosecution, such as the subjectís death or sudden serious illness, his/her absence from the jurisdiction of the US courts or the contamination of evidence.
Additional Inspection of Taxpayers Records
Title 26 USC ß7605(b) provides that no taxpayer may be subjected to unnecessary examinations or investigations, and only one inspection of a taxpayer's books of account may be made for each taxable year, unless the taxpayer requests otherwise or, after investigation, the taxpayer is notified in writing that an additional inspection is necessary. Pursuant to Delegation Order 4-7 (formerly DO-57, Rev. 9) authority has been delegated to the relevant operating division Territory Managers to sign the notice of additional inspection (Letter 939 (DO)).
Once signed by the appropriate operating division Territory Manager, the notice of additional inspection should be delivered to the subject of an investigation by the special agent or the cooperating revenue agent or revenue officer at the time the inspection is begun.
In general, the Service will not reopen any case closed after examination unless information is developed that indicates fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact (see Policy Statement 4-3 in IRM 1.2.13).
Form 4505, Reopening Memorandum, should be used when requesting authority to reopen a case. Form 4505 is usually prepared by the examiner; however, situations may arise in which a special agent may be a co-initiator. The SAC may be listed in the routing block entitled ďOtherĒ on Form 4505. The special agent and the cooperating examiner/officer should jointly prepare one Form 886-A, Explanation of Items, to provide a narrative justification for the request.
Title 26 USC ß4423 specifically excludes wagering tax investigations from the provisions of 26 USC ß7605(b). It provides that the books of account of any person liable for taxes on wagering may be examined and inspected as frequently as necessary for the enforcement of the wagering tax provisions.