Since the earliest days of the Internal Revenue Code almost ninety years ago, there has been an ongoing battle between the Government and taxpayers over the assessment and collection of taxes. As courts became involved in refereeing the fight, concepts of "tax avoidance" and "tax evasion" emerged. "Tax avoidance" generally referred to legally permissible conduct to reduce one's tax liability while "tax evasion" connoted willfully and knowingly fraudulent actions designed also to reduce one's tax liability. A classic description of "tax avoidance" was penned by Judge Learned Hand:

Anyone may arrange his affairs that his taxes shall be as low as possible. He is not bound to choose the pattern which best pays the Treasury, there is not even a patriotic duty to increase one's taxes. Over and over again courts have said that there is nothing sinister in so arranging affairs has to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes a public duty to pay more than the law demands.(1)

While the IRS has conceded that "avoidance of taxes is not a criminal offense" and "any attempt to reduce, avoid, minimize or alleviate taxes by legitimate means is permissible," the IRS has established two tracks by which to determine whether one person's "tax avoidance" has become the Government's alleged "tax evasion." These two tracks - civil fraud audit and criminal investigation - do not operate strictly on parallel courses but instead can intersect at various junctures. This article examines the various factors that are common between the IRS' civil fraud and criminal treatment of cases and the process by which an audit into civil fraud can transform into a criminal investigation.

In the Internal Revenue Manual, the IRS itself has noted the "fine distinction" between tax avoidance and evasion. After highlighting this delicate distinction, the Manual paints a fairly black-and-white picture distinguishing the two groups:

One who avoids tax does not conceal or misrepresent. He shapes events to reduce or eliminate tax liability and, upon the happening of the events, makes a complete disclosure. Evasion on the other hand involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events, or make things seem other than they are. For example, the creation of a bona fide partnership to reduce the tax liability of a business by dividing the income among several individual partners is tax avoidance. However, the facts of a particular case may show that an alleged partnership was not in fact established and that one or more of alleged partners secretly returned his/her share of the profits to the real owner of the business, who in turn did not report this income. This would be an instance of attempted evasion.(2)

In understanding what constitutes tax evasion for civil or criminal purposes, the starting point is the elements of tax evasion set forth under Internal Revenue Code Section 7201,(3) namely, (1) the existence of a tax deficiency, (2) an affirmative act constituting an evasion or attempted evasion of the tax, and (3) willfulness.(4)

It is well settled that the taxpayer's state of mind or mens rea required for the imposition of the civil fraud penalty is identical to what must be proven in a criminal prosecution for tax evasion under Code Section 7201.(5) While "willfulness" for criminal purposes is defined as a "voluntary, intentional violation of a known legal duty,"(6) "willfulness" in the civil fraud arena has been similarly defined as an "intentional wrongdoing on the part of the taxpayer with the specific purpose to evade a tax believed to be owing."(7)



While a conviction under Code Section 7201 requires an affirmative act evidencing an intent to conceal income from the imposition of tax,.(8) a civil fraud penalty may be imposed even where a taxpayer did not commit any affirmative acts of fraud.(9) The better view, however, is that some affirmative act is also required to impose the civil fraud penalty.(10) Thus, for all practical purposes, the Government has to prove virtually the same elements to establish civil fraud as it has to evidence criminal tax evasion.

A key distinction, however, between civil and criminal fraud is the different burdens of proof. In a criminal prosecution, fraud must be proven beyond a reasonable doubt.(11) In a civil fraud penalty case, however, the government must prove civil fraud by "clear and convincing evidence."(12) However, if the government establishes that any portion of an underpayment of tax is attributable to fraud, then the entire underpayment is treated as attributable to fraud, unless the taxpayer establishes by preponderance of the evidence that it is not attributable to fraud.(13)

The timing of which case goes first can prove to be crucial. If the criminal case proceeds first, then a conviction after a jury verdict or guilty plea under Code Section 7201 precludes the defendant from litigating the issue of civil fraud in a subsequent civil tax proceeding, for the taxable year of conviction.(14) The defendant, however, may still litigate the deficiency amount in the civil proceeding.(15) The collateral estoppel doctrine which results in a finding of civil fraud is based on the fact that the willfulness requirement of Code Section 7201 includes the specific intent to evade or defeat the payment of tax, which is the standard for proving fraud for purposes of the civil fraud penalty.(16) If the Government proves willfulness under Code Section 7201 beyond a reasonable doubt in the criminal case, then that finding necessarily meets the clear and convincing standard of the civil fraud case. On the other hand, a conviction for only subscribing to a false return under Code Section 7206 does not collaterally estop a taxpayer from contesting the civil fraud penalty since the elements for this offense do not mirror those for the civil fraud penalty(17)

How does a case work its way from a civil audit to a criminal investigation? Historically, the Internal Revenue Service has maintained a fraud referral program involving cases initiated by the examination and collection functions of the IRS as civil matters, that are subsequently transferred to Criminal Investigations ("CI") for criminal investigation and prosecution. When a revenue agent or revenue officer investigates a case and determines there are "firm indications of fraud," the agent or officer was required to transfer or "refer" the case to CI for criminal investigation of the target.(18) The number of quality criminal cases referred from examination and collection to CI has declined over the last 20 years. The percentage of CI criminal investigations commenced through a civil audit declined from 30% in 1979 to less than 20% in 1988, while the percentage of CI prosecutions that began as civil audits declined from nearly 30% to 14% during the same time period.(19) Moreover, the Webster Report cited systemic disincentives in the civil audit process for making CI referrals. For example, the civil revenue agent was responsible for ensuring that no civil statute of limitations expires without written notification to the taxpayer, but once CI had accepted a referral for investigation, the civil agent lost control over this significant legal issue. As such, a civil agent was likely to simply keep the case, finish the audit and settle it with the taxpayer to avoid any statute of limitations issues.(20)

It became clear after the Webster Report's review of the fraud referral program that it needed to be improved. As a result, within the SB/SE Division,(21) Fraud Referral Specialists ("FRS"), both on the civil audit side and the collection side, have been selected to target civil fraud cases for civil fraud penalty and criminal referral potential. There are now approximately 64 Fraud Referral Specialists who act as consultants to revenue agents conducting civil audits. It is the job of the FRS to help the examining agent identify badges of fraud and develop them through the gathering of documentation and the interviewing of witnesses, including the taxpayer.

Knowing that an FRS could be consulting on an audit having issues with criminal potential, the issue of whether the taxpayer should submit to an interview by the civil agent is quite sensitive. The taxpayer may be forced to submit to an interview,(22) but if asked a question which may tend to incriminate the taxpayer, the taxpayer may assert constitutional protections to avoid answering the questions. The claiming of a Fifth Amendment privilege, however, may merely confirm the agent's suspicions and could be considered as a factor leading to a referral to CI. Thus, often the best course of action is to allow experienced tax counsel to handle the dealings with the agent in hopes of persuading the agent to gather information through alternative means.

The "badges of fraud" that the FRS may be reviewing with the civil agent during the course of a civil audit cover a wide range of issues. The Internal Revenue Manual now provides a lengthy list of these badges of fraud to assist agents in a variety of settings. These badges of fraud, set forth in the Fraud Handbook(23) fall into six categories: (1) income, (2) expenses or deductions, (3) books and records, (4) allocations of income, (5) conduct of taxpayer, and (6) methods of concealment.

Under badges of fraud dealing with income, the FRS will be focusing on situations ranging from where taxpayers omitted entire sources of income or had unexplained increases in their net worth over a period of years to taxpayers who spent substantially more on themselves compared to their available resources or who had bank deposits from unexplained sources substantially exceeding their reported income. Other indicia of fraud in this area include taxpayers who cash checks representing income at check cashing places or banks other than their own or taxpayers who fail to deposit receipts for their business, contrary to normal practices..

With regard to badges of fraud for expenses or deductions, taxpayers who deduct substantial amounts of personal expenditures as business expenses, claim fictitious deductions, or file for dependency exemptions for non-existent, deceased or self-supporting persons will certainly attract the attention of the FRS.

Similarly, with respect to badges of fraud related to books and records, the FRS is sure to highlight taxpayers who keep the classic two sets of books (e.g., one for their bank inflating their net income and one for the IRS deflating the same income), or monkey around and falsify their invoices, purchase orders, gift receipts, etc. Also meriting extra scrutiny are taxpayers who books and tax returns do not reconcile, who move income or deductions out of the correct account and into a more taxpayer-friendly line item, or who issue checks to third parties that are then returned and endorsed back to the taxpayer.

For badges of fraud related to allocations of income, the FRS' fraud spotlight will be directed at, for example, distributions of profits to fictitious parties or inclusions of income or deductions in a related taxpayer's return, where the difference in tax rates is substantial.

The conduct of the taxpayer him or herself is one of the more important factors that can rapidly transform a civil inquiry into a criminal investigation. These badges of fraud include taxpayers who try to hinder examinations by failing to answer important questions, repeatedly cancelling appointments, refusing to provide records or consistently omitting key records, or even threatening potential witnesses. For taxpayers who argue a good faith reliance on their accountant or lawyer, the FRS will analyze whether the taxpayer actually followed the advice given or made a full disclosure of the relevant facts to his/her professional. The FRS will also consider the tax sophistication, education, training and experience of the taxpayer, whether there was any attempt to transfer or conceal assets either before or during the audit, and whether the amounts involved as well as the time period at issue were so substantial as to negate a claim of innocence or mistake.

As for the different badges of fraud dealing with methods of concealment, if any of these apply, the likelihood of a criminal referral looms large. Such badges of fraud include placing assets in others' names, transferring assets in anticipation of a tax assessment or during an investigation, use of secret bank accounts or entities, particularly off-shore entities, to disguise the source and destination of a financial transaction, and use of nominees for property or banking transactions.

If a civil audit unearths a "firm indication" of fraud, the civil revenue agent is directed to suspend the civil audit without telling the taxpayer the reason for the suspension, and prepare a Form 2797 ("Referral Report of Potential Criminal Fraud Cases"). The FRS is available to assist the agent in preparing this report which sets forth a detailed factual presentation of those factors that support the fraud referral, including but not limited to: (1) affirmative acts of fraud; (2) taxpayer's explanation of the affirmative acts; (3) estimated criminal tax liability; and (4) method of proof used for income verification.(24)

The fraud referral report is then transmitted to a CI Lead Development Center and within ten days of receipt, there is a conference between the referring civil agent, his/her group manager, the evaluating CI special agent, his/her supervisory special agent and the FRS. At this meeting, tax returns, evidence and factors leading to the referral are reviewed and discussed. Within thirty workdays thereafter, the same parties meet again at a disposition conference to discuss CI's decision to accept or decline the referral. IRS Area Counsel may also be invited to this meeting to offer legal advice, if it is deemed necessary.(25) A final decision as to whether the referral meets or does not meet the criminal criteria should be made no later than thirty workdays after the disposition conference. This period of time, when the fraud referral is being considered, is usually marked by a long, unexplained silence on the part of the civil agent, which may indicate to the taxpayer's representative that a referral has been made to CI.

What are the potential warning signs that the civil agent has consulted with an FRS and is contemplating a fraud referral? As noted above, a long, unexplained period of silence after much investigative activity by the revenue agent or officer should set off warning bells that an FRS has been consulted. Since civil agents are almost uniformly discreet about informing the taxpayer's representative that the agent is contemplating a referral, experienced representatives have learned to identify certain activities by the agent, prior to the period of silence, as indicating a potential referral to CI.

In cases involving allegations of unreported income, the agent's request and summonsing and photocopying of all bank account information could raise the specter of a criminal referral, especially if the agent has stumbled upon a "side account" which was not accounted for in determining the taxpayer's income. By summonsing the information, the agent ensures that his/her file will include copies of bank statements, deposited items, deposit slips, bank wire confirmations and canceled checks, which could be evidence of the unreported income.

A civil agent's questions about the taxpayer's "lifestyle," expenditures and other information may indicate that the agent is undertaking a financial status audit(26) to determine whether the income reported on the return supports the taxpayer's lifestyle.

If the revenue agent requests information as to the taxpayer's assets and liabilities at the beginning and end of a given year, this could suggest that the agent has determined that the taxpayer's books and records do not adequately reflect income and that an indirect method of proof of income, such as a net worth method, is being considered. The net worth and expenditures method is a recognized indirect method of proof that has been used in reconstructing income in criminal tax cases.(27)

A taxpayer's representative may be alerted to the fact that a criminal referral is being contemplated when the civil agent requests information such as supplier invoices, price lists, customer ledger cards, and other information that could be used as circumstantial evidence to prove unreported gross receipts.

Also, if the civil agent requests the taxpayer to either submit to an interview or answer questions in writing that relate to the taxpayer's knowledge or intent of the facts and circumstances surrounding the alleged unreported income or false deduction; or the agent refuses to discuss in detail the status of the audit and the possibility of concluding the audit in the near future, a criminal referral may be under consideration.

If a fraud referral report is being considered by CI, what factors are most likely to influence a decision to proceed with a criminal investigation? As noted above, a necessary element of every criminal tax felony, including tax evasion, is willfulness. This element is usually proven through evidence of the taxpayer's conduct. The more egregious the conduct, the more likely it is that the prosecution will be successful. Thus, CI looks for understatements of income or nonfiling over a period of years (usually three or more) as evidence of willfulness.(28) In contrast, where a taxpayer understated income for a single year and claims there was a miscommunication with a bookkeeper or gives some other plausible explanation for the income understatement, the Government is presented with a more difficult case to prove willfulness. A mere understatement of income by itself, even if it occurs over a pattern of several years, is generally not enough to justify a CI investigation. To buttress its argument for willfulness, the government often looks for other badges of fraud such as acts of concealment, destruction of records, altered documents and other conduct from which willfulness may be inferred.

Another factor CI considers in assessing whether to accept a criminal referral is the amount of the tax loss involved. The Internal Revenue Manual section on fraud referrals states that the primary objective of CI is the prosecution, conviction and incarceration of individuals who violate criminal tax laws and related offenses.(29) The Manual further states that since the Federal Sentencing Guidelines tie the period of incarceration to the monetary value of a tax violation, the amount of "tax loss" must be higher than minimum criteria set forth in the government's internal Legal Enforcement Manual. Moreover, CI recognizes that United States Attorneys are reluctant to use their offices' resources to prosecute individuals who could not be sent to prison.(30) The Manual, therefore, instructs persons reviewing a criminal referral to determine whether, based on the tax loss the taxpayer is likely to be incarcerated if convicted.

How much "tax loss" is enough to make incarceration likely? The answer is that under the Federal Sentencing Guidelines, the threshold amount for requiring incarceration is surprisingly low. For tax crimes committed from November 1, 1993 through October 31, 2001, a tax loss (generally defined as 28% of the amount of unreported income or false deduction)(31) of between $40,000 and $70,000 would result in a sentencing offense level requiring the defendant to serve at least four months of incarceration and an additional four months in home detention or at a community correction facility.(32) Unfortunately for defendants convicted of tax crimes committed on or after November 1, 2001, a tax loss from $30,000 to $80,000 would result in a sentence of at least five months in custody and five months in home detention or at a community correction facility.(33) With CI investigating primarily multiple year cases, one would quickly conclude that practically all cases investigated for criminal tax violations have the probability of landing the targeted individual in jail. Since the amount of tax loss is the primary factor in determining the amount of jail time, it is easy to see why the tax loss amount figures prominently in a determination to criminally investigate a taxpayer.

CI enforcement initiatives also play a large role in determining whether a civil fraud referral is accepted for criminal investigation. The first and largest category of enforcement priorities relate to legal source tax crimes. These involve the traditional "garden variety tax criminal" who is involved in a legitimate business, but engages in illegal conduct to divert income, evade filing and payment obligations or assist others in similar conduct. This tax compliance program is actively focused on abusive trust schemes(34) which are elaborate tax evasion schemes set up to give the appearance of legitimacy through the use of a series of trusts, diversion of unreported income to offshore banks and other foreign financial institutions,(35) health care fraud,(36) employment tax fraud,(37)

nonfiler cases,(38) and tax return preparer cases.(39)

The second general enforcement program is referred to as the illegal source financial crimes program, and it includes narcotics-related investigations,(40) money laundering investigations,(41) and task forces aimed at investigating the use and movement of funds to support terrorist activities.(42) Moreover, over the years certain industries have been the focal point of significant CI activity. These industries include the restaurant industry,(43) the construction industry,(44) and insurance and medicare fraud in the medical profession.(45) Although not currently stated as an enforcement priority, CI has historically investigated a number of cases involving the garment industry, attorneys and doctors involved in handling personal injury cases and others.

All the factors that make up "who you are" may play a role in whether CI accepts a criminal referral. It is the government's objective in criminal tax prosecutions to get the maximum deterrent value from every case that is prosecuted(46) and this is accomplished, in part, by targeting individuals who are perceived as being "highly visible." Whether to accept a case for criminal investigation may be influenced by the taxpayer's occupation, level of education, visibility within a particular community, high standing in a particular industry, either perceived or actual financial success, notoriety in a non-tax field, previous criminal background and other factors that could cause the government to "make an example" of a particular defendant. Criminal tax jurisprudence is replete with individuals who may have been prosecuted more for who they were, rather than for what they did. The most famous example is Al Capone(47) who was known as "Public Enemy No. 1" in the 1920's and 30's.

The prosecution of Al Capone and others in his crime syndicate is also an example of how CI may also look to "who you associate with" in determining whether to initiate a criminal investigation. During the mid- to late-1990's, CI investigated a number of National Basketball Association referees for criminal tax violations relating to their exchanging of first class airline tickets for lesser priced coach tickets. The government achieved significant deterrence from these cases when an article concerning the investigations and how they affected the lives of the targeted referees was featured in Sports Illustrated magazine.(48) Other sports figures who have made the headlines for their criminal tax prosecutions have included professional baseball player Darryl Strawberry,(49) Pete Rose, Brooklyn Dodger great, Duke Snider, and others.



Persons who are highly visible in industries at key points in time have also found themselves under criminal tax scrutiny. Many of the figures in the savings and loan debacle became targets of criminal tax investigations; leading figures in various public corruption scandals over the years have also encountered criminal tax problems. Thus, the government's goal of "deterrent effect" has been served by pursuing persons in highly visible positions and obtaining publicity of these cases to achieve the broadest possible impact on compliance.(50)

CONCLUSION

Answering the question of whether a client under civil examination will end up the target of a criminal investigation is like predicting where lightening will strike or when a tornado will land. One can master the meteorological data or, in the tax field, the facts of a case, and study the trends and patterns involved, but divining precisely where the lightening bolt will hit, when the twister will touch down, or which civil audit will get numbered for criminal investigation are difficult, if not impossible, questions to answer. It is, however, crucial that tax practitioners understand the process by which a civil tax case works its way through the system, who are the decision-makers, and what factors they consider. There is no substitute for mastering the facts and anticipating which, if any, "badges of fraud" may arise so as to prepare a cogent response should the civil agent discover these during his/her examination. Of equal importance, counseling a client not to adorn him or herself with more badges of fraud during the investigation, including falsifying, destroying or altering records, continuing questionable practices into the present and future years, or transferring or concealing assets under investigation may stave off the final badge that would have tipped the balance toward a criminal referral.











Endnotes

1. Helvering v. Gregory, 69 F.2d 809, 810 (2nd Cir. 1934), aff'd 290 U.S. 465 (1935).

2. IRM 9781 412 (January 18, 1980).

3. All references to the Internal Revenue Code refer to the Internal Revenue Code of 1986, as amended.

4. Sansone v. U.S., 380 U.S. 343 (1965).

5. Kahr v. Commissioner, 414 F.2d 621, 627 (2nd Cir. 1969) look for better case authority

6. 429 U.S. 10, 12 (1976).

7. McGee v. Commissioner, 61 T.C. 249, 256 (1976), aff'd. 519 F.2d 1121 (5th Cir. 1975).

8. U.S. v. Hook, 781 F.2d 1166 (6th Cir., 1986), cert. denied, 479 U.S. 882 (1986).

9. Paddock v. Commissioner, 51 T.C.M. 17, Dec. 42512(M), T.C. Memo 1985-586.

10. Zel v. Commissioner, 763 F.2d 1139, 1143, 1145-46 (10th Cir. 1985) (mere failure to file not sufficient to impose fraud penalty, but penalty could be imposed on taxpayer who filed withholding certificate); Solomon v. Commissioner, 732 F.2d 1459, 1461-62 (6th Cir. 1984); Miller v. Commissioneri 94 T.C. 316, 335-37 (1990) (nonfiling of returns, even over a long period of time is not subject to the fraud penalty; but failure to file accompanied by the affirmative act of filing false Forms W-4 to prevent withholding did justify imposition of the fraud penalty).

11. Holland v. U.S., 348 U.S. 121, 126 (1954).

12. Code Section 7454(a); Rule 142(b) of the United States Tax Court Rules of Practice & Procedures; Edelson v. Commissioner, 829 F.2d 828, 832 (9th Cir. 1987) aff'g. T.C. Memo 1986-223; Castillo v. Commissioner, 84 T.C. 405, 408 (1985).

13. Morrow v. Commissioner, T.C. Memo 1967-242. See also Code Section 6663(b).

14. Tomlinson v. Lefkowitz, 334 F.2d 262 (5th Cir. 1964), cert. denied, 379 U.S. 962 (1965); McKinon v. Commissioner, T.C. Memo 1988-323 (granting summary judgment against taxpayer for fraud penalties on account of conviction for all years).

15. Delgado v. Commisioner, T.C. Memo 1988-66.

16. Code Section 6663.

17. Wright v. Commissioner, 84 T.C. 636 (1985) ("Thus, the crime is complete with the knowing, material falsification, and conviction under Section 7206(1) does not establish as a matter of law that the taxpayer violated the legal duty with an intent, or in an attempt, to evade taxes.").

18. Review of the Internal Revenue Service's Criminal Investigation Division, April 1999 (the "Webster Report"), citing IRM 104.2.4.3; IRM 4.4565.21(1).

19. The Webster Report, citing Dubin, Graetz & Wild, The Changing Face of Tax Enforcement, 1978-1988, 43 Tax Lawyer 893 (Summer 1990).

20. Webster Report at 20. The Webster Report also noted that the civil agent's "cycle time" (the duration of an audit) was also unreasonably increased by the referral of a case to CI, because the CI investigation time was included in the computation of cycle time and this collided with civil examination management objectives to keep cycle time down on all civil case.

21. Small Business/Self-Employed Division.

22. Code Section 7602.

23. IRM 25.1.2.2 (01-01-2003) Indicators of Fraud.

24. IRM 25.1.3.2 Preparation of Form 2797 (01-01-2003).

25. IRM 25.1.3.3 Referral Evaluation (01-01-2003).

26. See Code Section 7602(e).

27. IRM 9.5.8.6.2 Net Worth Investigation (03-19-1999); Holland v. U.S., 348 U.S. 121 (1954).

28. Holland v. U.S., 348 U.S. 121 (1954); U.S. v. Magnus, 365 F.2d 1007 (2nd Cir. 1966). [find better cite]

29. IRM 25.1.3.1.1 Background Criminal Referrals (01-01-2003).

30. Id.

31. Federal Sentencing Guideline 2T1.1(c)(1).

32. This example assumes the defendant pleaded guilty and obtained the benefit of a 2-level decrease in the offense level for acceptance of responsibility under SG 3E1.1(a) for acceptance of responsibility, resulting in a total offense level of 11 in Zone C of the federal sentencing table. It should also be noted that pursuant to a change in Bureau of Prison policy announced December _______ 2002, defendants sentenced at Zone 11 must serve at least half of their sentence in jail regardless of whether the federal district sentencing judge recommends a lesser sentence of home detention or community correction center.

33. In this example, the federal sentencing guidelines in effect for November 1, 2001 to the current date for defendant having a tax loss in the $30,000 - $80,000 range would be sentenced to an offense level of 12, Zone C, after taking into account the 2-level decrease for acceptance of responsibility. The five months of incarceration and five months in home detention and/or community correction center is the best sentence one can receive at this offense level.

34. IRM 9.5.3.2.4 Foreign and Domestic Trusts (4-9-1999).

35. See Rev. Proc. 2003-11 dated ________ which provided for an amnesty period for the reporting of credit cards and debit cards tied to offshore bank accounts and other foreign arrangements used to evade income tax. Since the amnesty period expired on April 15, 2003, the Internal Revenue Service Civil and Criminal Divisions are focused on taxpayers who did not come forward to voluntarily disclose their unreported income maintained in offshore banks.

36. IRM 9.5.3.2.7 Health Care Fraud (7-16-2002).

37. IRM 9.5.3.3.1 et seq. Employment Tax Initiative (4-9-1999). Criminal employment tax investigations are focused on employee leasing companies that failed to pay over taxes withheld from employees, the pyramiding of employment taxes by businesses that use multiple corporate and other entities to stay at least one step ahead of the taxing authorities, failure to withhold social security taxes and other employment taxes based on time-warn tax protestor arguments, and other similar cases.

38. (will find text)

39. IRM 9.5.3.2.11 Return Preparers (7-16-2002). The primary purpose of the return preparer fraud program is to protect revenue by identifying and pursuing investigations of abusive return preparers. Preparer fraud generally involves the orchestrated preparation and filing of false federal income tax returns by return preparers who claim excessive expenses, deductions, credits and other false statements on returns while diverting a portion of the refund, charging excessive fees and engaging in other fraudulent conduct.

40. (find text)

41. (find text)

42. (find text)

43. Internal Revenue Service Fact Sheet - Tax Fraud in the Restaurant Industry, www.treas.gov/irs/ci.

44. Internal Revenue Service Fact Sheet - Construction Industry, www.treas.gov/irs/ci.

45. The medical profession and tax schemes FS-2003-12, May, 2003, www.treas.gov/irs/ic.

46. U.S. Department of Justice Criminal Tax Manual, The Federal Tax Enforcement Program, Section 6-4.010, p. 2-5 (1994).

47. Capone v. U. S., 56 F.2d 927 (7th Cir.) cert. denied 286 U. S. 553 (1932).

48. "Called for Traveling" by Leigh Montville, Sports Illustrated, April, 1998.

49. 892 F.Supp 519 (SDNY 1995).

50. U.S. Department of Justice Criminal Tax Manual, The Federal Tax Enforcement Program, Section 6-4.010, p.2-5.