part25-9
- 25.1.9.1
Overview - 25.1.9.2
Fraud in Employee Plans - 25.1.9.3
Fraud in Exempt Organizations - 25.1.9.4
Taxpayer Defined - 25.1.9.5
Criminal Provisions - 25.1.9.6
Referrals to Cl - 25.1.9.7
Joint Investigations - 25.1.9.8
Identifying Penalty File Examination Cases
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This section outlines guidelines which apply to
TEGE determination letter applications and returns under the TEGE jurisdiction. -
Abuses or fraudulent practices and self dealing
in the employee plans and exempt organizations areas jeopardize both employee
pensions and the collection of tax revenues. -
Coordination with the examination function and
the fraud referral specialist (FRS) is required (see IRM 7.6.1.5). IRM Sections
25.1.1 through 25.1.3 provide specific guidelines for developing and referring
potential fraud cases.
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The Employee Retirement Income Security Act of
1974 (ERISA) provides criminal and civil penalties for specified violations.
The IRS (under Title II) and the Department of Labor (under Title I) share
jurisdiction over ERISA. -
The Secretary of Labor also has authority to investigate
Title 29 offenses. These offenses relate to reporting, disclosure, participation,
vesting, funding and fiduciary responsibilities. Consequently, the Secretary
of Labor and the Secretary of Treasury may be involved in prosecuting the
same case. -
Qualified employee plans receive favored tax treatment
through a deduction for contributions by the employer, tax exemption for the
related trust and deferral of income by the employee. These tax advantages
can be used in criminal cases to meet the requirements that a tax be due and
owing as described in IRC 7201 (Attempt to Evade or Defeat Tax) and that damage
inures to the Government as described in IRC 7206 (Fraudulent or False Statement
— See IRM 9.5.3.3.2(2). -
IRC 6058 governs the filing of Form 5500, Annual
Return/Report of Employee Benefit Plan. Cl has jurisdiction over Form 5500
violations.
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The Tax Reform Act of 1969 imposed new and stringent
requirements with respect to exempt organizations. Penalties were established
for:-
Failure to file information returns
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Repeated and willful violations of Chapter 42 provisions
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Willful violation of annual reporting requirements
of private foundations
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IRC 6033 governs the filing requirements of exempt
organizations. IRC 6011 requires the filing of certain returns by exempt organizations.
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Health care fraud is an area of noncompliance.
Cl participates in the DOJ-mandated Health Care Fraud Task Force under the
direction of the United States Attorneys’ offices nationwide. TEGE will
also participate, as necessary, in the Health Care Fraud Task Force. -
Cl investigations cover a wide range of frauds,
including false claims, kickbacks/bribes, durable medical equipment schemes,
staged/caused accidents, clinic mills, drug diversion, rolling labs, and psychiatric
mills.
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The term taxpayer for TEGE purposes is anyone
who participates in any way in filing an application for exempt status or
determination, preparing required returns, operating a plan, trust or organization.
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IRC 7206(1) (Declarations under penalties of perjury)
is the criminal provision most useful to TEGE.-
IRC 7206(1) applies to tax returns as well as other
documents. See US v Holroyd, 732 F.2d 1122 for a discussion of application
of IRC 7206(1) when the taxpayer filed a false statement as opposed to a false
return. A prima facie violation of IRC 7206(1) can be
proven in the absence of a provable tax deficiency. -
Applications for qualification of employee plans
and exempt organizations, and information returns and reports are subscribed
under the penalty of perjury.
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For example, filing a determination letter application
containing false statements or submitting falsified documents in support of
such an application or submitting a falsified annual return for an employee
plan (or exempt organization) would give rise to a potential IRC 7206(1) prosecution
if the falsifications are shown to be willful and material. -
Under IRC 7201, filing a false determination letter
application, annual return or registration statement can also be an act leading
to tax evasion. -
Under IRC 7203, failure to file any required return/statement
dealing with an employee plan may be subject to criminal penalties in addition
to civil penalties. -
Many return/reports are prepared by third parties.
Under IRC 7206(2), preparers of false pension plan documents can be prosecuted.
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Use Form 2797 (Referral Report for Potential Criminal
Fraud Cases) to refer cases to CI through the FRS. Adapt the form for TEGE’s
use by inserting
“TEGE”
wherever the word
”
audit”
or
“examination”
appears. -
If a case involving a collateral examination results
in a fraud referral, TEGE and the examination function will coordinate the
referrals.
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TEGE responsibilities with respect to any case
referred for investigation by Cl include –-
Determining the qualification status
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Analyzing legal documents (plan and trust agreements,
enabling document, etc.) -
Examining trust or organization operations or proposed
operations -
Inspecting annual returns under TEGE jurisdiction
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Protecting the statutory period for assessment of
TEGE returns -
Providing technical advice
-
Assisting the special agent in interviews and other
areas as needed
-
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See IRM 25.1.4 for additional guidelines regarding
joint investigations.
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To facilitate identification by service centers
of closed TEGE fraud cases to be filed in the penalty file, TEGE must attach
Form 3198, Special Handling Notice, to the folder of each case file of:-
Taxpayers who have been prosecuted whose civil liabilities
(tax and additions) are determined and whose cases are closed by TEGE; and -
Taxpayers whose underpayment of tax is determined
and whose cases are closed in TEGE with assertion of an additional 75% (see
IRC 6663(a) of the underpayment due to fraud but without involving prosecution.
Note:
Form 3198 should be annotated,
“Civil Penalty Assessment.”
See IRM 20.1.8.1.3.1 for additional
TEGE Penalty Processing Procedures. -
