7 August 2001

See contents of full IRS Handbook of Criminal Investigation: http://cryptome.org/irs-ci/irs-ci.htm

Handbook 9.5
The Investigative Process


Chapter 11
Other Specialized Investigations

Contents

[9.5] 11.1  (04-09-1999)
Overview

  1. This chapter details investigations categorized as "other specialized investigations." These investigations are outlined as follows:
    • Bribery
    • Forcible Rescue of Seized Property
    • Offers In Compromise
    • Wagering
    • Excise Tax
    • Collateral Investigations

[9.5] 11.2  (04-09-1999)
Bribery

  1. The text of the law under this section is set forth in Handbook 9.1, Chapter 3.

[9.5] 11.2.1  (04-09-1999)
Elements of Offer to Bribe

  1. The principal elements of a bribe are: Promising, offering, or giving of a thing of value to an officer or an employee or a person acting for or on behalf of the United States for the purpose of influencing his or her official conduct.
  2. To "offer" and to "give" bribes are distinct crimes even when part of a single transaction. The test of whether a single transaction includes distinct offenses of offering and of giving a bribe is whether separate acts have been committed with requisite criminal intent.
  3. The statute is violated when a bribe is given or an offer to bribe is made regardless of the occasion, provided the acceptor or offeree of the bribe is a person described in the statute.

[9.5] 11.2.2  (04-09-1999)
Investigation of Attempted Bribery or Solicitation of a Bribe by Service Employees

  1. Treasury Inspector General for Tax Administration (TIGTA) and the Federal Bureau of Investigation (FBI) investigate alleged solicitation of gratuities by Internal Revenue Service (IRS) employees, and extortion or bribes received by employees.
  2. TIGTA investigates all charges of attempted bribery of IRS employees.
  3. TIGTA should notify IRS Criminal Investigation (CI) of any attempt to bribe IRS personnel when the bribe attempt may have tax-related issues within CI jurisdiction. This notification will be done when TIGTA determines that the tax investigation or other action by CI will not interfere with or affect the investigation of the attempted bribery.
  4. When there has been an allegation of an acceptance of a bribe, CI may work in a joint investigation with TIGTA by inquiring into attempted evasion of income tax on the amount of bribe received and possible tax violation which the alleged bribe was made to conceal.

[9.5] 11.2.3  (04-09-1999)
Attempted Bribery

  1. Except in raid and arrest situations, when a special agent is offered a bribe, or believes that an offer will be made, the agent will:
    1. Avoid any statement or implication that he or she will or will not accept the bribe and attempt to hold the matter in abeyance.
    2. Immediately report the matter, by telephone, to TIGTA and his or her Group Manager.
    3. Submit as soon as possible a memorandum to TIGTA reporting the full circumstances concerning the matter. The routing of this memorandum will be made as directed by the TIGTA Regional Inspector or his or her representative on a case-by-case basis.
    4. Avoid any unnecessary discussion of the investigation with anyone, and cooperate with TIGTA in the investigation.

[9.5] 11.2.3.1  (04-09-1999)
Attempted Bribery During a Raid or an Arrest

  1. If a bribe offer occurs during a raid or an arrest, the special agent must prepare a sworn statement as to what was said by the offerer. It is essential to establish beyond any question, from the words and conduct of the offerer, that his or her intent was that of offering a bribe to a special agent. The special agent should, therefore, be able to testify with absolute certainty about the conduct of the parties, their conversations, and any transactions that took place.
  2. If during a raid the bribe offer is made by someone other than the person under arrest, the individual making the offer should also be placed under arrest and charged with offer of a bribe.
  3. If the offer is made by someone already under arrest, additional charges for offering the bribe should be recommended against him or her.
  4. If money has been handed to the special agent, he or she should make a list of the serial numbers and denominations in the presence of at least one other special agent and note any other distinguishing features.
    1. The special agent should then put the money in an envelope or in some other suitable container and seal it in a way that the seal will have to be broken to get to the contents.
    2. The special agent should take the container to the district office cashier or cashier's representative for safekeeping.
    3. The cashier or cashier's representative must keep the container in its exact state of condition in which it was received.
    4. The special agent should explain the chain of custody procedure to the cashier or the cashier's representative so that the chain of custody will be preserved.
  5. IRS-CI will notify TIGTA of the event as soon as possible.

[9.5] 11.2.3.2  (04-09-1999)
Attempted Bribery in Grand Jury Investigations

  1. If an allegation or overture of bribery is made during a grand jury investigation, CI will inform TIGTA that an allegation or overture of bribery has been made and will advise TIGTA of the name of the government attorney assigned to the investigation.
  2. The information provided in the initial report should be limited to the information detailed in (1) above.
  3. CI will inform the government attorney of the incident and that the matter has been reported to TIGTA, pursuant to Document 7098, Rules of Conduct.
  4. TIGTA will contact the government attorney regarding the allegation or overture, and any subsequent investigation by TIGTA will be coordinated with the government attorney and CI.

[9.5] 11.3  (04-09-1999)
Forcible Rescue of Seized Property

  1. CI has the responsibility for conducting investigations involving forcible rescue or dispossession of property seized under the Internal Revenue laws, except property seized by the Bureau of Alcohol, Tobacco and Firearms (ATF).
  2. However, theft of government property is within the responsibilities of the FBI, including seized property which has been adjudicated as government property and seized property which has been turned over to the United States Marshal in a libel proceeding.

[9.5] 11.3.1  (04-09-1999)
Forcible Rescue (IRC 7212(b))

  1. The essential elements of this offense are:
    1. That there is a forcible rescue or attempt to forcibly rescue.
    2. That the property is under valid seizure under Title 26.
  2. The text of this statute is set forth in Handbook 9.1, Chapter 3.

[9.5] 11.3.1.1  (04-09-1999)
Rescue of Seized Property (18 USC 2233)

  1. The essential elements of the offense under the Criminal Code (18 USC 2233) are:
    1. That there is a forcible rescue or dispossession or an attempt to forcibly rescue or dispossess.
    2. That the property has been taken, detained, or seized under the authority of a revenue law of the United States, or by any person authorized to make searches and seizures.
  2. The text of this statute is set forth in Handbook 9.1, Chapter 3.
  3. Prosecution recommendation may be made under this section if:
    1. There has been a seizure, levy, or other taking which is sufficient to put the taxpayer on notice that the property is under process of seizure for taxes.
    2. There is a retaking by physical force, stealth, or in any other manner which indicates a willful defiance of the legal process.

[9.5] 11.3.2  (04-09-1999)
Investigation of Forcible Rescue Cases

  1. Cases interpreting forcible rescue under both IRC 7212(b) and 18 USC 2233 permit prosecution for rescuing or dispossessing, or attempting to rescue or dispossess property of which the government has taken legal possession against a stranger as well as a former owner.
  2. By present practice, determination of whether an alleged forcible rescue is to be investigated by CI or the FBI depends on whether the property was taken before or after it was adjudicated government property. Before undertaking an investigation, the special agent should first determine if it is to be handled by CI, as prescribed in section 11.3 paragraphs (1) and (2) above.
  3. Upon determining the case is within CI jurisdiction, the special agent should promptly establish whether the property was a valid seizure under the Internal Revenue Code (IRC) when rescued, and whether it was forcibly rescued or there was an attempt to forcibly rescue it.
  4. The seizure must be valid on its face for it to be considered a forcible rescue case under 18 USC 2233 or IRC 7212. It should be shown that the person retaking the property had knowledge of the seizure or of the fact that the property is in the possession of the government. A seizure valid on its face will generally support a rescue conviction even if the seizure could be invalidated by court proceedings. It is not a defense that the person retaking the property claims to be the real owner or claims that the property was seized by mistake. A person's remedy is judicial, not self-help.
  5. "Forcible" does not necessarily mean actual physical violence to an officer. It includes threatening language, or conduct intended to intimidate the revenue officer to make him or her stop the performance of his or her official duty. It has been held that a forcible rescue, under IRC 7212(b), includes the use of force against property, such as the breaking of a bank window, the removal of the Service's seal on a safe deposit box, and the removal of the box and its contents from the bank.
  6. To determine whether the property has been validly seized:
    1. Examine the file relating to the seizure and obtain certified copies of all the documents giving legal basis to the seizure.
    2. Interview under oath all officers, employees, and other persons having any knowledge of the circumstances leading up to and including the seizure, concerning all facts pertinent to the accomplishment of the seizure.
    3. Establish that a notice of seizure was attached to the property.
  7. To determine whether there has been a forcible rescue or attempt to forcibly rescue, the special agent should:
    1. Interview under oath all individuals who witnessed the forcible rescue regarding the circumstances leading up to and including the forcible rescue, with a recital of any threatening language as well as a description of any menacing gestures, instruments, or weapons used.
    2. Obtain any instruments or weapons used by the assailant and get the names and addresses of witnesses who can identify them.
    3. Establish what knowledge the defendant had that the property was under seizure when the forcible rescue was committed or attempted.
  8. See text in IRM Handbook 9.4 Chapter 12 Section 12.7 for information regarding arrest in forcible rescue investigations.

[9.5] 11.3.2.1  (04-09-1999)
Corrupt or Forcible Interference (IRC 7212(a))

  1. The text of the law under this section is set forth in Handbook 9.1, Chapter 3.
  2. The elements essential to constitute an offense under this section are: Corruptly, or by force, or by threats of force (including any threatening letter or communication) endeavored to impede or obstruct the due administration of the IRC.
  3. This section provides for the punishment of threats or threatening acts against agents of the IRS or any other officer or employee of the United States or members of the families of such persons on account of the performance by such agents or officers or employees of their official duties.
  4. The Conference Committee's Report (House and Senate) states that: "Subsection (a) of Section 7212 is broader than Section 111, Title 18, of the United States Code relating to persons assaulting, resisting, or impeding certain officers or employees of the United States while engaged in the performance of their official duties, in that 7212(a) covers force or threats of force (including any threatening letter or communication) or corrupt solicitation. Threats of force have been defined as meaning threats of bodily harm to the officer or employee of the United States or members of the families of such persons, on account of the performance by such agents or officers or employees of their official duties."
  5. "Corruptly" characterizes an attempt to influence any official in his or her official capacity under this title by any improper inducement. For example, an offer of a bribe or a passing of a bribe to an Internal Revenue employee for the purpose of influencing him or her in the performance of his or her official duties is corrupt interference with the administration of federal laws.

[9.5] 11.3.2.2  (04-09-1999)
Assault, Resisting, or Impeding Certain Officers or Employees

  1. The text of this statute is in Handbook 9.1, Chapter 3. Although there is some overlapping between it and IRC 7212(a), the latter is broader because it includes use of force or threats of bodily harm to the officer or employee of the United States acting in an official capacity under the Internal Revenue laws, or any member of his or her family.
  2. A mere threat of force under IRC 7212(a) may be chargeable only as a misdemeanor, even if the threat consists of pointing a rifle at the agent.
  3. Title 18 USC 111 makes it an offense to assault, resist, oppose, impede, intimidate, or interfere with officers or employees designated under 18 USC 1114 (including IRS employees), and provides a much more severe punishment when the act is committed with a deadly or dangerous weapon.
  4. Cases under 18 USC 111 have not required proof of knowledge of the official capacity of the person assaulted.

[9.5] 11.3.2.3  (04-09-1999)
Investigative Responsibility

  1. TIGTA has investigative responsibility of IRC Section 7212(a) corrupt interference allegations which involve actions designed to harass IRS employees or interfere with activities or functions or IRS personnel such as filing of harassing liens which are designed to intimidate, influence tamper with or retaliate against Service employees and their families or other related persons such as witnesses and informants.
  2. CI has investigative responsibility for IRC Section 7212(a) corrupt interference allegations which involve substantive tax violations of non-employees or interference with the activities within the responsibility of IRS CI. CI also has investigative responsibility for forcible rescues 7212(b).
  3. All reports of assaults or threats against IRS employees must go either directly or through appropriate supervisory channels to TIGTA.
  4. CI will assist TIGTA in urgent or emergency situations. The TIGTA Regional Inspector will evaluate the situation and when, in the view of the TIGTA Regional Inspector, the deployment of TIGTA personnel is not required may request assistance from CI to conduct the investigation of the alleged threat or assault. TIGTA will be provided with a copy of the investigative report.
  5. In emergency forcible interference situations, where an employee is in imminent danger of physical harm, CI will respond immediately.
  6. If forcible interference takes place during an armed escort assignment, or during an arrest or raid in connection with a matter pending before CI, CI will conduct the necessary investigation.

[9.5] 11.3.2.4  (04-09-1999)
Reporting the Incident

  1. When an employee believes he or she has been assaulted, threatened, or harassed, the employee should personally visit or telephone the servicing TIGTA office as soon as is practicable to report the circumstances of the incident. The employee should furnish the taxpayer's full name and Social Security Number (SSN) and Employer Identification Number (EIN), if appropriate. If not immediately available, provide this information as soon as possible.
  2. A Form 8273, Assault, Threat, Harassment Incident Report, will be prepared by the investigating TIGTA Special Agent on all situations involving potentially dangerous taxpayers, and will be forwarded to the TIGTA Assistant Inspector General for Investigation, for input to the centralized computer database.

[9.5] 11.3.2.5  (04-09-1999)
Reporting Assaults, Threats, or Forcible Interference Against Service Employees

  1. Employees must report to TIGTA all assaults, threats, or forcible interference against them in the course of their official duties and all assaults or threats against members of their families when made to impede the performance of the employee's official duties.
  2. In addition, Form 4652, Assault, Threat of Assault, or Harassment Report, must be submitted when any of the above situations occur. Form 4652, designed for Collection use, will be used with the following modifications:
    1. Block 4-insert Taxpayer's SSN; and
    2. Block 6-insert Taxpayer's EIN (when applicable).
  3. Distribution of completed Form 4652 will be as follows:
    1. Part 1 to TIGTA Regional Inspector;
    2. Part 2 to Chief, Collection Division, for input of TC-148 and alert data onto the IDRS (and subsequently the IMF) system;
    3. Part 3 to Director, Office of Resources and Development, for statistical monitoring; and
    4. Part 4 to be retained by initiator.
  4. Document 7410, "Assaults and Threats: A Guide For Your Personal Safety," is available to IRS employees for further guidance on this subject.

[9.5] 11.3.2.6  (04-09-1999)
Investigation of Interference Cases

  1. Interference cases may arise quite suddenly in federal tax proceedings, such as during a seizure or some other enforcement, levy, or collection activity. Ordinarily, the information causing this type of investigation comes directly to the Chief, who, thereafter, because of the hazard involved to the investigating officer as well as the peril in which the enforcement system of the IRS is placed in a violation of this nature, keeps abreast of the developments of the investigation. This is necessary because every action taken has to be planned with utmost circumspection. Prompt action is of the essence.
  2. It must be established that the assaulted or threatened officer was engaged in the performance of official duties when the assault or threats occurred and, at least, if prosecution is intended under IRC 7212(a), that the assault or threats were intended to impede or obstruct the performance of those duties. If the assault or threat is in connection with official duties, it is immaterial whether the act occurred during the agent's official working hours. The investigating special agent should promptly:
    1. Examine the file relating to the assignment of the case, and obtain from it copies of all records and data pertaining to the date and circumstances of the assignment.
    2. Obtain from the assaulted or threatened officer a sworn statement concerning whether he or she was engaged in the performance of official duties in pursuance of such assignment when the assault or threats occurred.
    3. Ascertain if there had been any prior ill will or altercation between the assailant and the government officer and if so, find out the nature of it.
    4. Obtain from the assaulted or threatened officer, or any other person who witnessed either the assault, or the menacing gestures, or heard any threats of force, sworn testimony of knowledge of the incidents and circumstances leading up to and accompanying the assault or threats of force.
    5. Obtain possession of such instruments or weapons and get the names and addresses of witnesses who can identify them.
    6. Interview the person who allegedly made the threat or assault.
  3. The special agent should draw a diagram of the premises where an assault, menacing gestures, and threatening language occurred.
  4. The special agent must apprise his or her Group Manager of the developments, so that together they will determine what further investigation is required or what further action should be taken.

[9.5] 11.3.2.7  (04-09-1999)
Potential Dangerous Taxpayer System

  1. TIGTA is responsible for the operation, management, and oversight of the Potential Dangerous Taxpayer System (PDT).
  2. The PDT system will identify taxpayers who pose a threat to the safety of Service employees whose official duties may require personal contact with such taxpayers, or who may pose a threat to the Service employees' families.

[9.5] 11.4  (04-09-1999)
Offers In Compromise

  1. The text of the laws relating to compromise is set forth in IRC 7121, 7122, 7123, and 7206(5). Compromise procedures are also discussed in IRM 5700, Offers in Compromise.

[9.5] 11.4.1  (04-09-1999)
Criminal Investigation Responsibility

  1. CI is concerned with the following types of offers in compromise:
    1. Alleged fraudulent offers.
    2. Offers involving joint investigations by CI with the District Examination or Collection functions and in which the criminal aspects have been disposed of.
    3. Offers made while criminal proceedings are pending.
  2. Special agents should acquaint themselves with the contents of the sections of the IRC dealing with Offers in Compromise and the pertinent sections of IRM 5700, Offers in Compromise.

[9.5] 11.4.2  (04-09-1999)
Alleged Fraudulent Offers

  1. This type of case is referred either by the Examination Division or by the Collection Division upon discovery of indications of the falsity of material statements made in, or in connection with, any offer in compromise.
  2. The text of the law under IRC 7206 relating to criminal penalties for concealment of property, false statements, or falsifying and destroying records in connection with any compromise, or offer of compromise is stated in Handbook 9.1, Chapter 3.
  3. The principal offenses are the willful:
    1. Concealment from any officer or employee of the United States of any property belonging to the estate of a taxpayer or any other person liable in respect to the tax.
    2. Receiving, withholding, destruction, mutilation or falsification of any book, document, or record of the taxpayer or any other person liable in respect of the tax.
    3. Making a false statement relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax.
  4. CI shall investigate, report, and process such cases in the same manner as other tax fraud cases. (See text 11.4.5 of this Chapter.)
  5. Cases of concealment entail the unearthing of all assets belonging to the taxpayer or to any other person liable in respect of the tax. The matter of establishing willfulness and intent is accomplished in the same manner as in other tax fraud cases using techniques set forth in Handbook 9.1, Chapter 3.
  6. Cases involving the receiving, withholding, destruction, mutilation, or falsification of any book, document, or record are investigated similarly to any other tax fraud case. The special agent will assemble documentary or oral evidence to establish the commission of the act and that the act was committed willfully, with intent to defraud the government.
  7. The techniques to be applied in the investigation of false statements are similar to those used in the investigation of violations of 18 USC 1001 and 1621, "False Statements" and "Perjury," respectively.

[9.5] 11.4.3  (04-09-1999)
Offers in Closed Investigations

  1. Offers involving joint investigations with the district Examination or Collection functions and in which the criminal aspects have been disposed of will be examined solely by the district Examination Division. Except as noted in (2) below, the Chief of that division will, after completion of the examination, refer the entire file to the Chief, CI, for concurrence or comment when all of the following conditions exist:
    1. The merits of the ad valorem fraud or negligence penalty are involved.
    2. The offer involves an investigation in which the special agent has written the final report and recommended the assertion of such a penalty.
    3. The Examination Division of the District Director's office contemplates recommending acceptance of the offer.
  2. If the sole issue presented by the Offer in Compromise is the ability to pay, referral to CI will not be made.
  3. If the Chief, CI, concurs in the recommended disposition of the offer, the concurrence shall be indicated by memorandum and the entire file should be returned to the District Examination Division for processing. If the Chief, CI, does not concur and no agreement can be reached with the Examination Division as to the disposition of the offer, the entire file will be forwarded to the District Director for resolving any differences. Guidelines concerning the disposition of Offers in Compromise are contained in IRM 5700, Offers in Compromise.

[9.5] 11.4.4  (04-09-1999)
Offers in Pending Criminal Proceedings Cases

  1. The Chief Counsel represents the Commissioner in the consideration of Offers in Compromise relating to situations in which there is either pending litigation or in connection with which litigation will ordinarily arise, including investigations in which recommendation for prosecution has been made. The Chief Counsel has authorized District and Regional Counsel to process such matters.
  2. The District Director will record all such Offers in Compromises and forward the offer to the appropriate District Counsel. Investigation of the offer will be made thereafter only as specifically requested by the Counsel office having jurisdiction.
  3. Requests may be made by Counsel for an examination or investigation of a taxpayer's financial status in connection with an Offer in Compromise submitted in a case in which criminal proceedings are pending in cases in his or her office, in the Department of Justice (DOJ), or with the United States Attorney. When such an examination or investigation is conducted, it shall be conducted jointly by CI and Examination functions.
  4. Reports of joint investigations of a taxpayer's financial status in connection with an Offer in Compromise are of such varied type that no format is prescribed. Agents preparing such reports will be guided by the particular request and by the instructions contained in IRM 5700.

[9.5] 11.4.5  (04-09-1999)
Offers in Compromise Reports

  1. Reports relating to offers in compromise in joint investigations, in which the criminal aspects have been closed and in which the Chief concurs in the disposition recommended by the district Examination or Collection function, will be returned to the referring division along with a memorandum of concurrence for further processing.
  2. If the Chief does not concur in the recommended disposition, and agreement cannot be reached with the referring division as to the disposition of the offer, the file will be forwarded to the District Director for resolving any differences. Thereafter, the report will be processed in accordance with regular Examination, Collection, Appellate, and District Counsel procedures.
  3. Reports relating to Offers in Compromise in which criminal proceedings are pending in the District Counsel's office, in DOJ, or with the United States Attorney, shall be forwarded by the Chief to the District Counsel. The latter will forward such reports through the Chief Counsel to DOJ in cases pending with that Department, or with the United States Attorney.

[9.5] 11.5  (04-09-1999)
Wagering

  1. Each Chief, CI, is responsible for identifying and taking appropriate action to combat local noncompliance situations in the wagering tax area.
  2. The Chief, CI, shall maintain liaison with local and state law enforcement officials to keep current in regard to wagering enforcement problems in his or her district and to identify violators which warrant action by CI. In all such contacts, IRS personnel shall adhere to existing disclosure provisions; particularly Sections 4424 and 6103 of the Code.

[9.5] 11.5.1  (04-09-1999)
Coordination With The U.S. Attorney

  1. The Department of Justice has taken the position that wagering excise or occupational tax cases are not generally high priority cases. The Chief, CI, will meet with the United States or Strike Force Attorney to discuss these types of wagering tax investigations to determine if they are prosecutable under Department of Justice standards. Disclosure of information for this purpose is permissible under IRC 4424.
  2. The government attorney should be informed that any information gleaned from data subject to IRC 4424 must be used only for the administration of Civil or Criminal Enforcement of the IRC, and that such information may not be used for intelligence or prosecutorial purposes such as the enforcement of gambling offenses set forth in Title 18 U.S.C. or any other non-tax administration purpose.
  3. Because of limited available manpower, primary enforcement efforts of CI will be aimed at independent initiation and development of investigations against important operators and situations involving widespread noncompliance. Cases developed by local and State authorities will not be adopted for criminal investigation unless they present instances of flagrancy or situations where there is high deterrent potential.
  4. Information which lacks CI potential but which concerns major operators or individuals engaged in substantial operations will be referred to Collection if wagering tax returns have not been filed and an audit of books and records is not involved. If returns have been filed and wagering excise tax is involved, or if books and records must be audited, the entire matter will be referred to Examination for disposition. Information items which do not concern major operators or individuals engaged in substantial operations or which lack CI potential will be forwarded to the Chief, Collection, for further screening as to possible tax potential.

[9.5] 11.5.2  (04-09-1999)
Civil Wagering Taxes And Penalties

  1. Wagering taxes include 3 types of "excise taxes." The applicable taxes are:
    1. The wagering excise tax (IRC 4401) is applicable to the acceptor of wagers (principal).
    2. The special tax (IRC 4411) applies to both the acceptor and the receiver of wages (agent).
    3. The wagering registration (IRC 4412) on Form 11C is required of anyone who has to pay the special tax.

[9.5] 11.5.2.1  (04-09-1999)
Wagering Excise Tax

  1. IRC 4401 imposes an excise tax on wagers. Prior to January 1, 1983, the excise tax on wagers was 2 percent. Effective January 1, 1983, the excise tax on wagers which are authorized under state law is reduced to 0.25 percent. The excise tax on wagers which are not authorized under state law remains at 2 percent. Where both authorized and unauthorized wagers are involved, the 0.25 percent rate will apply only to those wagers which are authorized under state law. The remaining (or unauthorized) wagers will be taxed at 2 percent.
  2. The wagering excise tax (IRC 4401) is applicable to the acceptor of wagers (principal), while the special tax (IRC 4411) applies to both the acceptor and the receiver of wagers (agent). In addition, under IRC 4401(c), any person who as agent for a principal is liable under IRC 4411 for the special tax and who fails to disclose his or her principal, becomes liable for the excise tax imposed by IRC 4401. IRC 4412 provides that each person required to pay a special tax under IRC 4411 shall register with the District Director in charge of the Internal Revenue District where the wagering business is conducted. Form 11C is used for the registration.

[9.5] 11.5.2.1.1  (04-09-1999)
Definitions of Wagering Terms

  1. Wager --The term "wager" means any wager with respect to a sports event or a contest placed with a person engaged in the business of accepting such wagers; any wager placed in a wagering pool with respect to a sports event or a contest, if such pool is conducted for profit; and any wager placed in a lottery conducted for profit.
  2. Lottery --The term "lottery" includes the numbers game, policy, and similar types of wagering. The term does not include:
    1. Any game of a type in which usually the wagers are placed, the winners are determined, and the distribution of prizes or other property is made in the presence of all persons placing wagers.
    2. Any drawing conducted by an organization exempt from tax under IRC 501 and 521, if no part of the net proceeds derived from such drawing inures to the benefit of any private shareholder or individual.

[9.5] 11.5.2.1.2  (04-09-1999)
Elements of Wagering Tax Violations

  1. The elements of a wagering tax violation subject to the criminal sanctions of IRC 7203 are:
    1. The wagering activity must be subject to the wagering tax laws (IRC 4421).
    2. Failure of the person to register and pay the special tax before accepting the wager and/or failure of the person to file wagering excise tax returns and pay tax.
    3. Evidence to prove that the person willfully failed to comply with the law.
  2. In addition to proving the above elements, the government must prove affirmative acts which indicate a willful intent to evade or defeat the tax in order to sustain a violation of IRC 7201.
  3. No proof of willfulness is required for a violation under IRC 7262, which provides a $1,000 to $5,000 fine for doing an act which makes a person liable for the special tax without having paid such tax.

[9.5] 11.5.2.1.3  (04-09-1999)
Amount of Wager

  1. In determining the amount of any wager, all charges incident to the placing of such wager shall be included; except that if the taxpayer establishes, in accordance with regulations prescribed by the Secretary or his delegate, that an amount equal to the tax has been collected as a separate charge from the person placing such wager, the amount so collected shall be excluded.

[9.5] 11.5.2.1.4  (04-09-1999)
Persons Liable for Wagering Excise Tax

  1. Every person required to pay the excise tax imposed by IRC 4401 shall keep a daily record showing the gross amount of all wagers on which he is liable in addition to all other records required pursuant to IRC 6001. An agent or employee who received wagers for or on behalf of another person shall keep a daily record of bets received, commissions retained, and amount turned over to his principal. The records required to be maintained by principal and agent shall at all times be open for inspection by revenue officers, and they shall be maintained for a period of at least three years from the date the wager was received.
  2. Monthly returns of the excise tax on wagers must be filed on Form 730. The taxes are due and payable to the District Director, without notice from the District Director, on or before the last day of the month following that for which it is made.
  3. Each person who is engaged in the business of accepting wagers shall be liable for and shall pay the tax on all wagers placed with him or her. Each person who conducts any wagers, pool or lottery shall be liable for and shall pay the tax on all wagers placed in such pool or lottery.
  4. A person is engaged in the business of accepting wagers if they make it a practice to accept wagers with respect to which they assume the risk of profit or loss depending upon the outcome of the event or the contest with respect to which the wager is accepted. It is not intended that to be engaged in the business of accepting wagers a person must be engaged to the exclusion of all other activities or even primarily engaged.
  5. The courts have ruled that a single transaction without additional evidence does not constitute engaging in the business. However, a single wagering transaction made under circumstances which indicate that it is made in the usual course of business may make the person liable for the special tax. The chance for successful prosecution is better where there is evidence that the person accepted several wagers and competent witnesses are available to testify as to the passage of money and its acceptance as wagers.

[9.5] 11.5.2.1.5  (04-09-1999)
Exclusions From Wagering Excise Tax

  1. No excise tax shall be imposed on:
    1. Any wager placed with, or any wager placed in a wagering pool conducted by, a pari-mutuel wagering enterprise licensed under state law.
    2. Any wager placed in a coin-operated device or on any amount paid in lieu of inserting a coin, token, or similar object to operate such a device.
    3. Any wager placed with the state or with its authorized employees or agents in a sweepstakes, wagering pool, or lottery which is conducted by that state agency acting under the authority of State law.

[9.5] 11.5.2.1.6  (04-09-1999)
Territorial Extent of Wagering Excise Tax

  1. The tax imposed by IRC 4401 applies only to wagers which are:
    1. Accepted in the United States.
    2. Placed by a person who is in the United States.
    3. Placed by a person who is a citizen or resident of the United States.
    4. Placed by a person in a wagering pool or lottery conducted by a person who is a citizen or resident of the United States.

[9.5] 11.5.2.2  (04-09-1999)
Wagering Special Tax

  1. IRC 4411 imposes a special tax of $500 per year to be paid by each person who is liable for tax under IRC 4401, or who is engaged in receiving wagers for or on behalf of any person so liable. Effective July 1, 1983, in states where wagers are authorized, the special tax will be $50 per year. However, in order to qualify for the $50 rate, all wagers accepted must be specifically authorized by the state wherein the wagers are accepted; otherwise, the $500 rate will apply.
  2. The application of IRC 4411 may be illustrated by the following examples:
    1. "A" is engaged in the business of accepting horse race bets, employs ten persons to receive on his or her behalf wagers which are transmitted by telephone. "A" also employs a secretary and a bookkeeper. "A" and each of the ten persons who receive wagers by telephone on behalf of "A" are liable for special tax. The secretary and bookkeeper are not liable for the special tax unless they also receive wagers for "A" .
    2. "B" operates a numbers game and has an arrangement with ten persons, who are employed in various capacities, such as bootblacks, elevator operators, news dealers, etc., to receive wagers from the public on his or her behalf. "B" also employs "C" to collect from the ten persons referred to the wagers received by them on "B's" behalf and to deliver such wagers to "B" . "C" performs no other services for "B.""B" and the ten persons who receive wagers on his or her behalf are liable for the special tax. "C" is not liable for the special tax since he or she is not engaged in receiving wagers for "B" .
  3. The special tax imposed by IRC 4411 must be paid before an individual or firm engages in accepting wagers. The special tax is computed as of the first day of July in each year, or the first day that wagers are accepted. In the former case, the special tax shall be computed for one year and in the latter case it shall be prorated from the first day of the month in which wagers were accepted, to and including the 30th day of June following.

[9.5] 11.5.2.3  (04-09-1999)
Wagering Registration

  1. IRC 4412 provides that each person required to pay a special tax under IRC 4411 shall register with the District Director in charge of the Internal Revenue District where the wagering business is conducted. In the event a firm or company conducts the wagering business, the names and places of residence of the several persons constituting the firm or company shall be registered.
  2. Form 11C is used for the registration and requires:
    1. The name and place of residence of taxpayer.
    2. If he or she is liable for the excise tax.
    3. Each place of business where the wagering activity is carried on.
    4. The name and place of residence of each person who is engaged in receiving wagers for him or her.
    5. If he or she is engaged in receiving wagers for or on behalf of any person subject to the excise tax.
    6. The name and place of residence of each such person.

[9.5] 11.5.3  (04-09-1999)
Civil Fraud Penalties

  1. See IRM 20 Sections 200 and 570 for penalties relating to failure to file tax returns and failure to pay taxes.

[9.5] 11.5.4  (04-09-1999)
Processing Wagering Tax Information

  1. The Chief, CI, will ensure that leads involving major customers of bookmakers are followed up for income tax purposes. Information with income tax consequences obtained by a special agent during a wagering investigation will be summarized on Form 3949, Criminal Investigation Information Item, and submitted to his or her Group Manager.
  2. In determining whether information received during wagering investigations has tax consequences, data reported on tax returns and results of prior investigations may need to be considered. If tax returns or other data (see paragraph (4) below) are not immediately available, the items of information may be placed in a pending status until tax returns are obtained. These pending items should be attached to the retained copies of Form 2275, Records Request Charge and Recharge, or other document evidencing the request of tax returns and held in the Group Manager's files until returns are received.
  3. Upon receiving the required returns, the Group Manager will forward the information item to the Chief, CI, for processing. The Chief, CI, may defer acting on leads involving customers until the criminal investigation against the bookmaker is concluded. The Chief, CI, in determining when to act on these leads, should consider such factors as the civil and criminal statutes of limitations and the effect Service action would have on pending investigations.
  4. There is a provision that photocopies of all wagering tax stamp applications received in the service center will be forwarded to the center's Criminal Investigation Branch (CIB).
  5. Quarterly printouts, in duplicate, of Forms 730 (Tax on Wagering) and Forms 11C (Special Tax Return and Application for Registry Wagering) are provided to the Chief, CIB. The Chief, CIB forwards these printouts to the districts. These printouts contain only the new filings for each quarter and are sorted first by service center, then district office, and then by alpha. The following information is provided on the printouts:
    1. Taxpayer Identification Number (TIN).
    2. Name and address of the filer.
    3. Tax period ending date.
    4. Form number.
    5. Amount of tax reported.
    6. Transaction Code.
    7. Document Locator Number.

[9.5] 11.5.5  (04-09-1999)
Criminal Investigations of Wagering Excise Statutes

  1. Primary enforcement efforts in the wagering tax area shall be aimed at the independent initiation and development of criminal cases against major operators and financiers and in other situations involving widespread noncompliance. Service efforts will strive to promote balanced enforcement with respect to investigations of wagering occupational, wagering excise and income tax violations on identified subjects.
  2. Generally, a major wagering operation is one comprised of five or more individuals who conduct, finance, manage, supervise, direct or own all or a part of a gambling business and meets one or more of the following criteria:
    1. Has a daily gross of over $2000.
    2. Conducts business at more than one location.
    3. Actively handles lay-off bets.
    4. Is a principal of the operation.
    5. Is notorious or powerful with respect to local criminal activity.
  3. Cases not meeting the criteria may be investigated and recommended for prosecution only if they are associated with and submitted for prosecution simultaneously as a package with a case meeting the criteria.
  4. The most frequently used criminal statutes in wagering tax violations are:
    1. Willful attempt to evade or defeat the payment of wagering tax (IRC 7201).
    2. Willful failure to file return or supply information (IRC 7203).
    3. Failure to pay special wagering tax (IRC 7262).

[9.5] 11.5.6  (04-09-1999)
Venue and Statute of Limitations on Wagering Taxes

  1. Violation of IRC 7262, which provides a maximum penalty of $5,000 for not paying the special tax imposed by IRC 4411, is committed in the judicial district where the wager was accepted. Therefore, venue lies in the judicial district where the wager was accepted without regard to the location of the District Directors' offices.
  2. The statute of limitations with regard to both excise and occupational wagering taxes (IRC 7201 or 7203) begins to run on the day following the last overt act and ends six years from that date.
  3. Collateral violations in regard to wagering, such as filing false claims, conspiracy, and false statements, may also incur penalties prescribed by sections 287, 371, and 1001 of Title 18, U.S. Criminal Code.
  4. IRC 4424 was intended to remove any constitutional problems regarding enforcement of the wagering taxes resulting from improper disclosure of wagering tax information.

[9.5] 11.5.7  (04-09-1999)
Investigative Techniques used in Wagering Investigations

  1. Investigations of wagering tax violations usually require surveillance of violators and localities to obtain probable cause for issuances of search warrants. In the affidavit for a search warrant, the special agent must include in the affidavits that the IRS records were searched, and by whom, for the wagering tax stamp. See Handbook 9.5, Investigative Techniques for information concerning affidavits for search warrants.
  2. If during the course of the investigation, a special agent participates in any type of game which requires continuous play and is exempt from wagering excise tax (i.e., blackjack, poker, craps or roulette), the accountability for amounts wagered, won or lost will be determined at the conclusion of play. The computation will be made by comparing the amount on hand at the conclusion of the wagering activity to the amount at the outset of play.
  3. Winnings on wagers placed by special agents may be treated the same as other profits which inure to the government in ongoing undercover operations. If winnings are to be held for use as evidence, the special agent will follow procedures for the safekeeping, control, and disposition of seized money as discussed in Handbook 9.7, Asset Seizure and Forfeiture Handbook.

[9.5] 11.6  (04-09-1999)
Excise Tax

  1. An excise tax is a duty or impost levied upon the manufacture, sale, or consumption of commodities within the country, and upon certain occupations.
  2. A few excise taxes are merely regulatory and some are imposed for both regulatory and revenue purposes. Most excise taxes, however, are levied exclusively for the purpose of revenue.

[9.5] 11.6.1  (04-09-1999)
Excise and Income Taxes Distinguished

  1. Income taxes are based on net income or net profits and are graduated. Excise taxes are not graduated, and they can be based upon any of the following factors: selling price of merchandise or facilities; services sold or used; number, weight, or volume of units sold; and nature of occupation.

[9.5] 11.6.1.1  (04-09-1999)
Tax Period

  1. Certain excise tax returns are required to be filed on either a fiscal-year or calendar-year basis. In general, excise tax returns are filed on a calendar quarter-year basis. Income tax returns are required to be filed on either a fiscal-year or calendar-year basis.

[9.5] 11.6.1.2  (04-09-1999)
Additional Taxes and Penalties

  1. Assessments of additional or delinquent excise taxes are referred to as "additional taxes." In income tax cases, such assessments are known as "deficiencies." There are many types of civil penalties specifically applicable to excise tax cases. Civil penalties in income tax cases are limited to three types: delinquency; negligence; and fraud.

[9.5] 11.6.1.3  (04-09-1999)
Court Appeals

  1. Income tax cases may be appealed to the Tax Court of the United States without prepayment of the taxes, but excise tax cases cannot be appealed to the Tax Court. All court appeals by excise tax litigants must be made to either the U.S. Court of Claims or to the U.S. District Court, and then only upon prepayment of the taxes.

[9.5] 11.6.2  (04-09-1999)
Excise Tax Categories

  1. The excise tax categories of interest to CI include:
    1. Manufacturers excise taxes: Automotive and related items (gasoline, gasohol sales, gasoline sales used for gasohol, and tires); coal from underground mines and from surface mines; and recreational equipment such as firearms (pistols, revolvers, other firearms, shells and cartridges) and sporting goods (fishing equipment, bows, arrows and related equipment).
    2. Occupational taxes: Wagering; brewers; retail liquor dealers; retail dealers in beer; wholesale liquor dealers; wholesale dealers in beer; and limited retail dealers.
    3. Facilities and services: Communications (local and toll telephone service and teletypewriter service); and transportation (transportation of persons by air, inland waterways, and transportation of property).
    4. Heavy trucks and trailers retailers taxes: Truck parts and accessories installations; truck chassis or body; truck trailer or semitrailer chassis or body.
    5. Miscellaneous excise taxes: Seabed mining; environmental taxes; highway motor vehicle use tax; foreign insurance policies; wagering taxes; liquor taxes; and tobacco taxes.
  2. The preceding excise taxes on alcohol, tobacco, and firearms are not under the jurisdiction of CI. Those items are taxed under Subtitle E of the IRC. Responsibility for the enforcement of excise taxes on alcohol, tobacco, machine guns, and certain other firearms is vested exclusively with ATF.

[9.5] 11.6.3  (04-09-1999)
Excise Tax Investigations

  1. Excise tax returns, unlike those for income taxes, do not admit to ready analysis to determine the possible existence of tax violations. The information contained in quarterly excise tax returns on Form 720 is limited to the kind of tax, the gross tax, the credit for overpaid tax in prior returns, and the net tax due.
  2. Excise tax investigations which relate to false or fraudulent returns usually result from referrals following field audits of taxpayers' books and records. As violations applicable to excise taxes often occur simultaneously with income tax offenses, field audits conducted by the Examination Division in income tax matters often disclose violations with respect to excise taxes.
  3. Referrals in such cases often relate to both excise and income tax violations. Investigations of offenses involving willful failure to file excise tax returns, or willful failure to collect and pay over excise tax, are usually based upon referrals from the Collection or Examination Division.
  4. Excise tax violations also are disclosed through surveys conducted by CI, and by information obtained by special agents during their investigation of income tax offenses. As most excise tax offenses are committed in conjunction with income tax violations, investigation of both types of cases usually arise from the same sources.

[9.5] 11.6.4  (04-09-1999)
Techniques of Excise and Income Tax Investigations Compared

  1. Although the criminal penalties for most violations of the excise taxes are imposed by the same IRC Code sections as relate to income taxes, the nature of the evidence to sustain prosecution of excise tax cases differs in many respects from that required in income tax cases.
  2. Excise tax is based on specifically enumerated articles or services, whereas income tax is based strictly on income.
  3. For this reason, the established methods of determination of income in income tax cases may be inadequate to sustain criminal prosecution for evasion of the excise tax on specifically enumerated articles or services.
  4. Under certain circumstances the specific item method of proving income may be effectively used in excise tax cases, especially if an adequate breakdown of records is maintained by the taxpayer.
  5. Furthermore, any other method of proving income may be used if the circumstances are such that the evidence thus developed will serve to establish or buttress proof of violation of the excise tax on the specifically enumerated articles or services involved.
  6. In general, the investigative techniques applicable to income tax cases may be used in excise tax investigations.

[9.5] 11.6.5  (04-09-1999)
Jeopardy Assessment in Excise Tax Cases

  1. IRC 6862 provides that if the Secretary believes that the collection of any tax (other than income tax, estate tax, gift tax, and the excise taxes imposed by chapters 41, 42, 43, and 44) under any provision of the Internal Revenue Laws will be jeopardized by delay, he should, whether or not the time otherwise prescribed by law for making return and paying such tax has expired, immediately assess such tax.

[9.5] 11.6.6  (04-09-1999)
Criminal Penalties for Excise Tax Violations

  1. Criminal penalties for most violations of excise taxes are imposed by the same IRC sections as related to income taxes, which, in general, cover offenses such as willful failure to file a return, pay tax, supply information, or keep records; willful failure to account for, collect, and pay over a particular tax; and willful attempts to defeat the tax in any manner.
  2. The IRC also provides specific penalties which have a limited application to the various excise taxes. (The various criminal penalties are enumerated in Handbook 9.1, Chapter 3.) For example, IRC 7215 and 7512, which relate to Offenses With Respect to Collected Taxes, cover noncompliance with an official notice to collect and deposit "trust fund" taxes.

[9.5] 11.7  (04-09-1999)
Collateral Investigations

  1. A request for collateral investigation addressed by one CI function office to another should be specific as to the information and data needed and should include a statement of all facts and background information considered necessary or useful in the making of the desired inquiries, including TINs.
  2. In determining whether or not to request a collateral investigation, consideration should be given to the feasibility of communicating essential background information as well as to the scope of the inquiries that must be made. If knowledge of a complex set of circumstances is a prerequisite, or if extensive inquiries must be made, the dispatching of a special agent should generally be preferred to the requesting of a collateral investigation.
  3. A request for collateral investigation will be addressed to the Chief, CI, of the district where the desired information is thought to be available. The request will bear the originating special agent's signature, telephone number, and the signature of an official of the originating district authorized to approve such requests.
  4. The request should include the mailing address to be used by the responding office, if the requesting district wants the response to go directly to a post of duty. In such a case, the following format for the conclusion of the request is suggested:

    (Signature of originating special agent)
    (Originating special agents' phone number)
    Approved:
    (Signature)
    (Title)
    Mail Reply To:
    (Name)
    (P.O. Box or street and number)
    (City, State, Zip Code)

  5. A reply to a request for collateral investigation will be addressed to the Chief, CI, of the district that made the request and should bear the signature and the telephone number of the special agent who made the collateral investigation. The reply shall include the number of hours charged to the collateral investigation by each agent assigned. The reply and any accompanying exhibits or schedules will be mailed to the headquarters office of the requesting district unless a different mailing address is specified in the request. In the latter event, however, a copy of the reply will be sent to the headquarters office of the requesting district.
  6. A request for collateral investigation should be complied with expeditiously, within 30 days if possible. The requesting office should be promptly notified in any case in which it becomes apparent that the request cannot be complied with within 60 days after receipt.
  7. If a collateral investigation relates to one or more investigations, the investigation number or numbers must be shown in the request for the collateral investigation as well as in the reply.
  8. The names of individuals, corporations, partnerships, and other business or taxable entities will be typed in capital letters whenever used in requests for collateral investigation, replies thereto, and related correspondence.
  9. When requesting a collateral investigation, the official of the initiating or requesting district with authority to obligate at the estimated payment level of the collateral summons, will obligate funds for the payment of that summons. (See text in the IRM multifunctional Summons Handbook, 109.1) The transmittal letter accompanying the summons should indicate the level of obligation authority of the approving official.
  10. The requesting district will forward a completed Form 2039, Summons, with all information provided except for the time and place for appearance and the official before whom the witness is to appear. The requesting district, as appropriate, will also forward an envelope(s) containing thereon the last known address of any noticee(s).
  11. In the event the replying district believes the Form 2039 to be incomplete, they should communicate this information to the requesting district. With concurrence, the replying district may prepare a revised Form 2039 or the requesting district may prepare and forward another Form 2039, as appropriate. In the event the replying district prepares a revised Form 2039, that district should observe the level of obligation authority as stated in the transmittal letter unless otherwise authorized in the requesting district.
  12. If the official of the receiving district determines prior to third-party compliance with the summons that the anticipated costs will exceed the obligational amount for which the approving official has authority, he or she will advise the requesting district of the need for the approval of an official with higher obligation authority.
  13. When the official of the district serving the summons in coordination with the issuing official of the requesting district determines that the summons has been satisfactorily complied with, the summoned materials will be submitted to the requesting district, along with the original of the summons. A copy of the summons will be retained by the replying district.
  14. The third party will then submit its bill through the serving official to the official in the requesting district who originally authorized the summons. If the actual bill exceeds the obligational authority of the approving official, it will be that official's responsibility to obtain subsequent approval at the required level.
  15. The issuing official will review the bill for accuracy and reasonableness and then certify the bill for payment. (See the IRM multifunctional Summons Handbook, 109.1) The bill will then be forwarded to Fiscal Management for payment processing.
  16. For additional information concerning summonses issued in connection with collateral investigations, see the IRM multifunctional Summons Handbook, 109.1.
  17. See Handbook 9.5, Chapter 2, with regard to collateral investigations in grand jury investigations.

Internal Revenue Manual  

Hndbk. 9.5 Chap. 11 Other Specialized Investigations

  (04-09-1999)


05/02/2001 14:30:35 EST