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Criminal TAX case procedures

On December 19, 2022, in Uncategorized, by admin

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 JM 6-4.200. For a map reflecting the geographical assignments of the Tax Division Criminal Enforcement Sections, see here. For contact information, including mailing addresses and telephone and fax numbers, see Criminal Tax Manual 1.13.

[updated June 2020] [cited in JM 6-4.211]

6-4.011 – Criminal Tax Manual and Other Tax Division Publications

The Tax Division’s Criminal Tax Manual (2012) 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 from the Tax Division’s FOIA Library web page. The Tax Division also compiles other resources useful in criminal tax prosecutions. Should those resources conflict with this Title of the JM, this Title controls.

[updated June 2020]

6-4.110 – IRS Administrative Investigations

The special agents of IRS Criminal Investigation (CI) 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).   CI generally initiates investigations as a result of one of the following:

  • Fraud referrals from other divisions within the IRS;
  • Information provided by other government entities;
  • Information provided by private parties; or/and
  • Matters or projects developed within CI.

CI approves for investigation matters that it finds to have criminal fraud prosecution potential or that it deems to warrant further inquiry.  Special agents pursue those matters to the extent available resources permit.

Special agents conduct joint investigations in cooperation with representatives of IRS operating divisions.  Special agents usually investigate matters jointly with revenue agents when taxpayers have filed false returns or have willfully failed to file tax returns.  Joint investigations with revenue officers usually evolve from a willful failure to pay tax.

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 Counsel). CT Counsel 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’s Office. See JM 6-4.243. When the IRS directly refers a matter to the United States Attorney’s Office, 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’s Office 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 JM 6-4.310.

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).

When the Tax Division declines a matter that the IRS referred to it for prosecution, the IRS can take whatever administrative action it thinks is appropriate under the circumstances, including further investigation by CI.  Should CI choose to investigate the declined matter further, its agents can use IRS summonses when conducting that investigation.  26 U.S.C. § 7602(d).  The IRS may resubmit the matter to the Tax Division as a new referral.

[updated June 2020]

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 Office’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’ Offices, 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).

[updated June 2020] [cited in JM 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 February 2018]

6-4.122 – United States Attorney’s Grand Jury Investigations and Prosecutions

  1. Tax Division Referrals for Prosecution. The Tax Division authorizes the United States Attorneys’ Offices 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 possible prosecution.
  2. Tax Division Referrals for Grand Jury Investigation. The Tax Division authorizes the United States Attorneys’ Offices 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 JM 6-4.242.
  3. 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 Attorneys’ Offices 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’s Office 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), available in Criminal Tax Manual, Chapter 3.
  4. 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’s Office for prosecution. See JM 6-4.243. In turn, the Tax Division authorizes the United States Attorney’s Office to conduct grand jury investigations into these matters, to the extent necessary to perfect the charges that the IRS has directly referred.

[updated June 2020] [cited in JM 6-4.212]

6-4.123 – Joint United States Attorney—IRS Request to Expand Tax Grand Jury Investigation

The United States Attorney’s Office 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’s Office, 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 JM 6-4.211(B).

[updated June 2020] [cited in JM 6-2.000; 6-4.212]

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’s Office concludes that the Government has gathered sufficient evidence to proceed with prosecution, the United States Attorney’s Office 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’s Office or the SAC must forward to the Tax Division the United States Attorney’s Office’s written recommendation regarding prosecution of a target(s) for tax violations. See JM 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 JM 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 9.5.14.12.2(3); see also JM 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 June 2020] [cited in JM 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’s Office 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’s Office 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. § 6103.

The United States Attorney’s Office must name all IRS personnel to whom grand jury material has been disclosed in a list provided to the district court that empaneled the grand jury whose material has been so disclosed.  See Fed. R. Crim. P. 6(e)(3)(B).  Grand jury material is disclosed to IRS personnel under the following conditions:

  • Grand jury material remains under the aegis of the United States Attorney’s Office or Tax Division;
  • Disclosure of grand jury material may be made only to IRS personnel assisting the government attorney in the criminal investigation and only for the purpose of enforcing federal law;
  • All grand jury material, and any copies made thereof, must be returned to the United States Attorney’s Office or Tax Division at the conclusion of the grand jury investigation.

[updated June 2020]

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 Attorneys’ 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 (2008), available at Criminal Tax Manual, Chapter 3. The United States Attorney’s Office 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’s Office 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.

Aside from questions of strict legality, search warrants in tax investigations involve potential problems and issues intrinsic to tax cases.  The concept of seizing personal or business books and records as the evidence or instrumentality of a crime is not as direct or simple as the seizure of a contraband.  These documents usually contain much personal and confidential information and these very same documents, which, by their own nature, are not unusual, illegal, or dangerous, will be the evidence of or the instrumentality of the crime to be charged.  In addition to the controversial nature of such a seizure of documents, the requirement that the items to be seized must be named with specificity is more difficult to meet.  In addition to specifying the items to be seized and the place searched, the warrant must also specify a time frame.

[updated June 2020]

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’s Office intends to bring against a defendant for conduct arising under the internal revenue laws, regardless of which criminal statute(s) the United States Attorney’s Office proposes to use in charging the defendant. See 28 C.F.R. § 0.70.

[updated February 2018]

[cited in JM 6-1.110; 6-2.000; 6-4.010; 6-4.125; 6-4.210]

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’s Office 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.  The IRS-CI 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. See Tax Division Directive No. 144 and Memorandum 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, available at Criminal Tax Manual, Chapter 3.

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.

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).

[updated June 2020]

6-4.210 – Tax-Related Mail, Wire, or Bank Fraud, RICO, or Money Laundering Charges

A United States Attorney’s Office 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.

  1. 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 JM 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’s Office may appropriately use mail, wire or bank fraud charges in a tax case include:

  1. 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);
  2. 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);
  3. 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).

The Government may derive significant benefits at different stages of the litigation by using mail, wire or bank fraud charges. First, at the charging stage, the charges may support the Government’s effort to forfeit the proceeds of the fraud scheme or may enable the Government to describe the entire scheme in the indictment. Second, at trial, the charges may support the Government’s presentation of all relevant evidence of the scheme or permit flexibility in the Government’s choice of witnesses. And third, at sentencing, the charges may support the Government’s efforts to obtain full restitution.

  1. 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’s Office 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 JM 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’s Office 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 Money Laundering and Asset Recovery Section. See JM 9-105.300.

[updated June 2020] [cited in JM 6-2.000]

6-4.211 – Standards of Review

  1. 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. See JM 9-27.220.  In addition to those Principles, 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 JM 6-4.010.
  2. 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.

[updated June 2020] [cited in JM 6-2.000; 6-4.123]

6-4.212 – Categories of Matters Reviewed

  1. 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.
    1. 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.
    2. 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’s Office within two weeks of receiving the referral from the IRS. In turn, the United States Attorney’s Office must consider the matter within 90 days. See JM 6-4.244.
  2. 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 in a timely manner. See JM 6-4.122 and 6-4.123.

[updated February 2018]

6-4.213 – Review of Direct Referrals

The Tax Division monitors all matters that the IRS refers directly to the United States Attorneys’ Offices. See JM 6-4.243. If the Tax Division determines that the IRS has improperly referred a matter to the United States Attorney’s Office, the Tax Division will inform the United States Attorney’s Office to forward the matter to the Tax Division for review.

[updated February 2018] [cited in JM 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’s Office, the Tax Division will deny the request and suggest that the taxpayer ask the United States Attorney’s Office for a conference. The United States Attorney’s Office 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’s Office 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), supplemented by Memorandum dated October 1, 2013, available at Criminal Tax Manual, Chapter 3.

[updated June 2020

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 JM 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 Office’s request for litigation assistance:

  1. Recusal of the United States Attorney and his/her office; and
  2. The United States Attorney’s Office’s lack of sufficient resources, personnel or expertise.
    The Tax Division generally expects the United States Attorneys’ Offices to handle non-complex matters that they have accepted for prosecution. See JM 6-4.244.

[updated February 2018] [cited in JM 6-4.244]

6-4.240 – United States Attorneys’ Offices’ Responsibilities

The United States Attorneys’ Offices are normally responsible for the investigation and prosecution of criminal tax matters that the Tax Division has authorized.

[updated February 2018]

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’s Office 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’s Office 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 JM 6-4.125.

Where possible, the United States Attorney’s Office must ensure that the Tax Division receives the material at least 60 days prior to the expiration of the statute of limitations.

[updated February 2018] [cited in JM 6-2.000; 6-4.122; 6-4.125]

6-4.243 – Review of Direct Referral Matters

The Tax Division authorizes the IRS to refer directly to the United States Attorney’s Office to conduct a grand jury investigation or for prosecution the following categories of matters:

  1. 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).
  2. 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 not directly refer to the United States Attorney’s Office, 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).
  3. Trust fund matters. This category involves alleged violations of the trust fund laws. (26 U.S.C. §§ 7215 and 7512).
  4. “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).
  5. 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), available at Criminal Tax Manual, Chapter 3.

The United States Attorney’s Office 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’s Office may not dismiss the indictment, information, or complaint unless and until the Tax Division authorizes dismissal. See JM 6-4.246.

[updated June 2020] [cited in JM 6-4.110; 6-4.122]

6-4.244 – Review of Non-complex Matters

Within 90 days of receiving a designated non-complex matter, a United States Attorney’s Office must either initiate proceedings or request that the Tax Division decline the matter (see JM 6-4.245) or handle it (see JM 6-4.219).

[updated February 2018] [cited in JM 6-4.212; 6-4.219]

6-4.245 – Request to Decline Prosecution

  1. Request by United States Attorney’s Office. A United States Attorney’s Office 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’s Office will be requested to proceed. If the United States Attorney’s Office declines to proceed, Criminal Enforcement Section personnel from the Tax Division will handle the matter. The United States Attorney’s Office 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.
  2. 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’s Office must not present the same matter (i.e., the 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.

[updated February 2018] [cited in JM 6-2.000; 6-4.244; 9-27.640]

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.

[updated September 2007] [cited in JM 6-2.000; 6-4.243]

6-4.247 – United States Attorney’s Office’s Protest of Declination

If a United States Attorney’s Office disagrees with the Tax Division’s decision to decline prosecution of a matter arising out of a grand jury investigation, the United States Attorney’s Office may submit a written request for reconsideration explaining why prosecution is warranted.

[updated February 2018]

6-4.248 – Status Reports

After the Tax Division refers a criminal tax case to the United States Attorney’s Office, the United States Attorney’s Office should keep the Division apprised of all developments through periodic case status reports.  As the case progresses, the Tax Division requires the following information:

  1. 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;
  2. The date of arraignment and kind of plea;
  3. The date of trial;
  4. The verdict and date verdict returned;
  5. The date and terms of sentence;
  6. The date of appeal and appellate decision; and
  7. copy of any press release.

It is important for the United States Attorney’s Office to provide the Tax Division with timely and regular updates regarding significant 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 February 2018]

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’s Office should take the following actions:

  1. 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;
  2. Return all exhibits and other materials that the Government obtained from witnesses; and
  3. 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 February 2018]

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
  • narcotics
  • stamp tax
  • firearms
  • wagering
  • 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. §§ 0.55, 0.70.

[updated February 2018]

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’s Office 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’s Office also may seek a plea to more than the major count(s) if it 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:

  1. Felony counts have priority over misdemeanor counts.
  2. Tax evasion counts (26 U.S.C. § 7201) have priority over all other substantive tax counts.
  3. The count charged in the indictment or information that carries the longest prison sentence is the major count.
  4. 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.
  5. As between counts, if the financial detriment does not differ significantly, the relative flagrancy of the offense is determinative.

The United States Attorney’s Office 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’s Office 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’s Office 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’s Office, 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 June 2020] [cited in JM 6-2.000]

6-4.320 – Nolo Contendere Pleas

Under Department of Justice policy, all government attorneys should oppose the acceptance of nolo contendere pleas unless the United States Attorney and the appropriate Assistant Attorney General conclude that the circumstances of the case are so unusual that acceptance of such a plea would be in the public interest. In cases involving tax charges, the United States Attorney’s Office 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 JM 9-16.010 and 9-27.500. The United States Attorney’s Office also should oppose dismissal of any charges to which the defendant does not plead nolo contendere. See JM 9-27.530.

[updated February 2018] [cited in JM 6-2.000]

6-4.330 – Alford Pleas

The United States Attorney’s Office 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 JM 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’s Office 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 February 2018] [cited in JM 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’s Office should make a full statement of the facts, including the amount of tax that the defendant evaded for all relevant conduct, 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.

As stated in the United States Sentencing Guidelines, see U.S.S.G. § 2T1.1, intro. comment, “because of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying [the] guidelines.” Because of the exceptional importance of general deterrence in criminal tax prosecutions, and because a sentence commensurate with the gravity of the offense acts as a deterrent to would-be violators, a sentencing recommendation advocating for a term in prison is almost always warranted in a criminal tax case. A court’s order of probation and a defendant’s payment of civil tax liability rarely constitutes a satisfactory disposition of a criminal tax case, especially because the IRS and the Tax Division considered the sentencing factors under 18 U.S.C. § 3553(a) in determining that the case warranted criminal prosecution.

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 the defendant has a Criminal History Category of 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  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’s Office must keep this memorandum in the case file and must forward a copy to the Tax Division when closing the case.

[updated February 2018]

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’s Office should seek recovery of the costs of prosecution in criminal tax cases.

[updated February 2018]

6-4.360 – Compromise of Criminal Liability/Civil Settlement

While statutory authority under 26 U.S.C. § 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, consistent with the Principles of Federal Prosecution, 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. § 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 February 2018] [cited in JM 6-6.200]

6-4.370 – Restitution

Section 209 of the Mandatory Victims Restitution Act mandates that when negotiating plea agreements, prosecutors must give consideration “to seeking 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; see also Attorney General Guidelines for Victim and Witness Assistance; Principles of Federal Prosecution, JM §§ 9-16.320. To assist prosecutors with this statutory and Department requirement, standard language for the restitution portion of plea agreements in tax cases is included in the Criminal Tax Manual, Chapter 44.09.

A United States Attorney’s Office should direct any questions about restitution in criminal tax cases to the Criminal Appeals and Tax Enforcement Policy Section (CATEPS) of the Tax Division.

[updated November 2022]

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.

Link: https://www.justice.gov/jm/jm-6-4000-criminal-tax-case-procedures

 

To read more Links:
1. https://inns.innsofcourt.org/media/185986/ctm_combined_updated_august_2018_v1_0.pdf
2. https://www.govinfo.gov/content/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleF-chap61-subchapB-sec6103.pdf
3. https://www.supremecourt.gov/opinions/URLs_Cited/OT2009/08-969/US_Attorneys_Manual.PDF

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