22.00 FALSE, FICTITIOUS, OR FRAUDULENT CLAIMS

Updated June 2001

22.01 STATUTORY LANGUAGE:  18 U.S.C. §§ 287, 286

22.02 GENERALLY

22.03 18 U.S.C. § 287 -- ELEMENTS

22.03[1] Claim Against the 

United States

22.03[2] False, Fictitious, or Fraudulent Claim

22.03[2][a] False, Fictitious or Fraudulent

22.03[2][b] Materiality

22.03[3] Knowledge -- Intent -- Willfulness

22.04 18 U.S.C. § 286 -- ELEMENTS

22.05 VENUE

22.06 STATUTE OF LIMITATIONS

22.07 THE MECHANICS OF A FALSE RETURN

22.08 AUTHORIZATION OF INVESTIGATIONS AND PROSECUTIONS

22.08[1] Authorization of Grand Jury Investigations -- 

         Tax Division Directive No. 96

22.08[2] Authorization of Prosecution in False Claims Cases

22.09 SENTENCING GUIDELINES CONSIDERATIONS

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       22.01 STATUTORY LANGUAGE:  18 U.S.C. §§ 287, 286

      §287.  False, fictitious or fraudulent claims

            Whoever makes or presents to any person or officer in the civil,

      military, or naval service of the 

United States

, or to any department or

      agency thereof, any claim upon or against the 

United States

, or any

      department or agency thereof, knowing such claim to be false, fictitious,

      or fraudulent, shall be imprisoned not more than five years, and shall be

      subject to a fine in the amount provided in this title.

      §286.  Conspiracy to defraud the Government with respect to

                  claims

            Whoever enters into any agreement, combination, or conspiracy to

      defraud the 

United States

, or any department or agency thereof, by

      obtaining or aiding to obtain the payment or allowance of any false,

      fictitious or fraudulent claim, shall be fined under this title or

      imprisoned not more than ten years, or both. [FN1]

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                            22.02 GENERALLY 

      The United States Attorneys' Manual (USAM) contains a general

explanation of section 287 of Title 18.  USAM, Sec. 9-42.160.  This

section focuses on the use of the false claims statute and false claims

conspiracy statute in the prosecution of false claims for tax refunds.  

      The purpose of 18 U.S.C. § 287 is to protect the government from

false, fictitious, or fraudulent claims.  

United States

 v. Montoya,

716 F.2d 1340, 1344 (10th Cir. 1983).  See also 

United States

v. Computer Science Corp., 689 F.2d 1181, 1187 (4th Cir. 1982).  The majority

of tax false claims cases are brought against individuals who, within the same

year, file multiple, fictitious income tax returns claiming refunds of income

tax.  The introduction of electronic filing (ELF) of income tax returns has led

to a proliferation of multiple defendant, multiple return cases.  Many false

claim for refund cases could also be charged as violations of 26 U.S.C.

§ 7206(1) or as violations of 18 U.S.C. § 1001.  Sections 286 and 287,

however, are the preferred charges when one or more false claims for refund are

made on false or fictitious income tax returns.

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                22.03 18 U.S.C. § 287 -- ELEMENTS 

      In order to establish a violation of 18 U.S.C. § 287, the following 

elements must be proved beyond a reasonable doubt:

      1.    The defendant made or presented a claim to a department or agency of

            the United States for money or property;

      2.    The claim was false, fictitious or fraudulent;

      3.    The defendant knew at the time that the claim was false, fictitious

            or fraudulent.

Johnson v. 

United States

, 410 F.2d 38, 46 (8th Cir. 1969);  United

States v. Computer Science Corp., 511 F. Supp. 1125, 1134 (E.D. Va. 1981),

rev'd on other  grounds, 689 F.2d 1181 (4th Cir. 1982). 

See also United States v. Drape, 668 F.2d 22, 26 (1st Cir. 

1982);  United States v. Miller, 545 F.2d 1204, 1212 n.10 (9th Cir. 

1976).

22.03[1] Claim Against the 

United States

  

      To establish a violation of section 287, the government must prove that the

defendant filed or caused to be filed a claim against the 

United States

, or any

department or agency of the 

United States

, for money or property.  United

States v. Neifert-White Co., 390 
U.S.
 228 (1968);  

United States

 v.

Mastros, 257 F.2d 808, 809 (3d Cir. 1958);  Johnson v. 

United States

,

410 F.2d 38, 44 (8th Cir. 1969).  A tax return seeking a refund is a claim

against the 

United States

.  

United States

 v. Drape, 668 F.2d 22, 26

(1st Cir. 1982).  Proof that a return was filed may include the IRS transcript

of the account in which the refund claim was made.  See 

United States

v. Bade, 668 F.2d 1004, 1005 (8th Cir. 1982).  

      A claim must be made or presented to fall within section 287.  For paper

returns, the indictment may charge that the false claim was made by filing a

return with the IRS.  Although an ELF return is not a complete return until both

the electronic portion and the paper Form 8453 are filed with the IRS, a section

287 violation is complete when the electronic portion of an ELF return is

received by the IRS.  Therefore, ELF indictments should charge the filing or

causing to be filed with the IRS of a false claim for a refund of income taxes,

without specifying that a "return" was filed. [FN2]

      Although the language of the statute would appear to require that the

government receive the claim, it does not require that the defendant present it

directly to the government. See 

United States

 v. Blecker, 657 F.2d

629, 634 (4th Cir. 1981), holding that presentation of the claim to an

intermediary authorized to accept the claim for presentation to the government

satisfies the "presentation" requirement of section 287:

      [T]here was substantial evidence that . . . [one of the defendants]

      submitted  invoices for hourly rates based on falsified resumes with

      knowledge that . . . [defendant's corporation] would seek reimbursement

      for the payment of the invoices from the GSA.  This evidence amply

      supported the  government's charge that . . . [defendants] violated

      section 287 by submitting false claims to the government through an

      intermediary, and we find that theory of prosecution to be consonant with

      the language and meaning of the false claims statute.

      ELF returns can only be filed through an approved preparer or electronic

return originator (ERO).  Preparers and electronic return originators should be

considered intermediaries, and should not be characterized as "agents" of the

IRS.  See 

United States

 v. Hebeka, 89 F.3d 279, 283-284 (6th Cir.

1996); Blecker, 657 F.2d at 634; 

United States

 v. Catena, 500 F.2d

1319, 1322 (3d Cir. 1974)..  The defendant need not be the person who actually

filed the claim for refund.  See 18 U.S.C. § 2. 

See also  Blecker, 657 F.2d at 633; Scolnick v. United

States, 331 F.2d 598 (1st Cir.  1964); .  The offense is complete on the

filing of the claim with the government.  The statute does not require that the

government pay or honor the claim.  Thus, violations of section 287 are

chargeable even if the government has not lost money due to the false or

fictitious claim.  

United States

 v. Coachman, 727 F.2d 1293, 1302

(D.C. Cir. 1984); United States v. Miller, 545 F.2d 1204, 1212 n.10

(9th Cir. 1976).

22.03[2] False, Fictitious, or Fraudulent Claim

      22.03[2][a] False, Fictitious or Fraudulent

      Section 287 is phrased in the disjunctive.  Thus, charges under the statute

may be based on proof that a claim submitted to the government is either false,

fictitious, or fraudulent.  

United States

 v. Murph, 707 F.2d 895, 897

(6th Cir. 1983)  ("the government may prove and the trial judge may instruct in

the disjunctive form used in the statute"); United States v. Blecker,

657 F.2d 629, 634 (4th Cir. 1981); 

United States

 v. Irwin, 654 F.2d 671,

683 (10th Cir. 1981); 

United States

 v.  

Milton

, 602 F.2d 231, 233 n.5

(9th Cir. 1979); 

United States

 v. Maher, 582 F.2d 842, 847 (4th Cir.

1978).  The conduct proscribed by section 287 has been defined as follows in

Irwin, 654 F.2d at 683 n.15:

      A claim is false or fictitious within the meaning of Section  287 "if

      untrue when made, and then known to be untrue by the person making it or

      causing it to be made." A claim is fraudulent "if known to be untrue, and

      made or caused to be made with the intent to deceive the Government agency

      to whom submitted." United States v. Milton, supra, 602 F.2d

      at 233 & n.6 quoting 2 E. Devitt & Blackmar, Federal Jury Practice and

      Instructions  §28.04 (3d ed. 1977).

See 

United States

 v. Haynie, 568 F.2d 1091 (5th Cir. 1978)

(duplicate returns).  A return may be false or fictitious under the statute if

the facts and figures used on the return are fictitious, even though the taxpayer

might be entitled to a refund if a true return were filed.  For example, an

individual who recruits others to file false returns based on fictitious reports

of wages and withholding (Form W-2) could be charged under section 287 even if

the recruited taxpayers are legally entitled to refunds.  See United

States v. Gieger, 190 F.3d 661, 667 (5th Cir. 1999); 

United States

 v.

Leahy, 82 F.3d 624, 634 n.11 (5th Cir. 1996) (contractor violated section 286

even though the false claims were irrelevant to the total amount paid by the

government to the contractor).  The returns filed are false, and the taxpayers

are not entitled to refunds on the facts represented on those returns. 

Similarly, a return may be false under the statute if the defendant files a

correct return in the name of another taxpayer in an attempt to obtain for

himself the refund that is due to the other taxpayer.  See, e.g.,

Kercher v. 

United States

, 409 F.2d 814, 818 (8th Cir. 1969), ("What

Kercher was trying to do . .  . was to lay claim . . . to what were claims of the

taxpayers against the government.  Therein lies the falsity . . . .").

      22.03[2][b] Materiality

      Section 287 does not specifically require that a claim be false as to a

"material" matter.  Several circuits have expressly held that materiality is not

an essential element of section 287 and need not be alleged in an indictment

charging a violation of that statute.  
United States
 v. 

Logan

, 250 F.3d

350, 358 (6th Cir. 2001); 

United States

 v. Nash, 175 F.3d 429, 433-34 (6th

Cir.), cert. denied, 528 U.S. 888 (1999); United States v. Upton,

91 F.3d 677, 684-685 (5th Cir. 1995); 
United States
 v. 

Taylor

, 66 F.3d

254, 255 (9th Cir. 1995); 

United States

 v. Elkin, 731 F.2d 1005, 1009

(2d Cir.); 

United States

 v. Irwin, 654 F.2d 671, 682 (10th Cir. 1981). 

The Eighth Circuit has held that although materiality is an element of the crime,

it is an issue for the trial judge to handle as a question of law.  United

States v.  Pruitt, 702 F.2d 152, 155 (8th Cir. 1983). [FN3]  The Eleventh

Circuit, on the other hand, has held that the issue is for the trial judge to

decide, even assuming it is an element of the offense.  

United States

 v.

White, 27 F.3d 1531, 1535 (11th Cir. 1994).  The Fourth Circuit has stated,

in dictum, that materiality is an element of section 287.  

United States

 v.

Snider, 502 F.2d 645, 652 n.12 (4th Cir. 1974).  

      The materiality issue has been drawn in question by several recent Supreme

Court decisions.  In 
United States
 v. Gaudin, 515 

U.S.

 506, 522-23 (1995),

the Supreme Court, applying the rule that the Constitution gives a defendant the

right to have a jury determine the defendant's guilt of every element of the

crime with which he is charged, concluded that the element of materiality in a

prosecution under 18 U.S.C. 1000 had to be submitted to and decided by the jury. 

Thus, in those circuits which have held that materiality is an element of section

287, the issue must be submitted to the jury. 

      In 
United States
 v. Neder, 527 

U.S.

 1, 27 (1999), the Supreme Court

held that materiality was an element of the mail fraud, wire fraud, and bank

fraud statutes, despite the fact that the term "materiality" was not mentioned

in any of them. [FN4]  The Court noted that the term "defraud" had a settled

meaning at the common law that included the requirement of materiality and that

the inference was that Congress meant to incorporate the established meaning of

that term.  Thus, applying Neder, a court may read the term "fraudulent"

in section 287 to require that the claim be material and that this question be

submitted to the jury.  See 

United States

 v. Foster, 229 F.3d

1196 n.1 (5th Cir. 2000) (while expressly not deciding the issue, Fifth Circuit

reads Neder to require a materiality instruction and states that "the

better practice would be to give the instruction in a § 28[7] false claim

offense"), cert. denied, 121 S.Ct. 1202 (2001). [FN5] But even assuming

that Neder supports the conclusion that materiality is an element of a

section 287 charge that the defendant made a fraudulent claim for refund (but

see Neder, 527 

U.S.

 at 27  n.7), the holding of Neder may be

avoided by simply charging that the defendant filed a false claim for a refund,

omitting any reference in the charge to "fraudulent."

      For further discussion of materiality, see Section 12.08,

supra.

22.03[3] Knowledge -- Intent -- Willfulness

      Section 287 requires the government to prove that a false claim against the

government was made, "knowing such claim to be false, fictitious or fraudulent

. . . "  A section 287 indictment should allege such knowledge, and the proof

that the defendant knew the return was false is part of the government's burden

of proof.   

United States

 v.  Holloway, 731 F.2d 378, 380-81 (6th Cir.

1984). [FN6]

      It is not necessary to allege willfulness in the indictment.  The term

"willfully" is not used in section 287 and is not "an essential element" of

section 287.  

United States

 v. Irwin, 654 F.2d 671, 682 (10th Cir. 1981). 

      The circuits vary, however, on the proof of intent necessary to convict for

a violation of section 287.  In  

United States

 v. Maher, 582 F.2d 842, 847

(4th Cir. 1978), the court approved a jury instruction stating that under section

287 criminal intent "could be proved by either a showing that the defendant was

aware he was doing something wrong or that he acted with a specific intent to

violate the law."  In 
United States
 v. 

Milton

, 602 F.2d 231, 234 (9th Cir.

1979), the court held that no instruction on "intent to defraud" is necessary

where a false claim is charged (because it is not an element of the offense), but

left open whether an "intent to deceive" is an element of a charge of submitting

"fraudulent" claims.  602 F.2d at 233 n. 7.  The Eighth Circuit, in Kercher

v. 

United States

, 409 F.2d 814, 817 (8th Cir. 1969), did not draw a

distinction between false and fraudulent claims, but held without elaboration

that section 287 requires proof of criminal intent.

---

                 22.04 18 U.S.C. § 286 -- ELEMENTS

      Section 23 of this Manual discusses the law of conspiracy in detail.  This

section addresses only those aspects of 18 U.S.C. § 286 that differ from the

general conspiracy to defraud statute, 18 U.S.C. § 371.  For a further

discussion of the differences between section 286 and section 371, see

United States

 v. Lanier, 920 F.2d 887, 891-95 (11th Cir. 1991).    

      In order to establish a violation of 18 U.S.C. § 286, the following

elements must be proved beyond a reasonable doubt: 

      1.    An agreement, combination, or conspiracy to defraud the United

            States;

      2.    by obtaining or aiding to obtain the payment of any false,

            fictitious or fraudulent claim.

      The crime proscribed by section 286 is the entering into an agreement to

defraud the government in the manner specified.  In order to convict, the

government must prove that the defendants agreed to engage in a scheme to defraud

the government [FN7] and knew that the objective of the scheme was illegal.  The

government need not charge or establish an overt act undertaken in furtherance

of the conspiracy in order to prove a violation of section 286 because, unlike

section 371, an overt act is not an element of a section 286 conspiracy. 

United States

 v. Lanier, 920 F.2d at 892.      The government must also

prove that the conspirators agreed to defraud the government by obtaining the

payment of false claims against the government.  There is no requirement that the

coconspirators actually obtained the payment or that the government prove that

any steps were taken to consummate the filing of a false claim, so long as the

existence of the agreement can be proved.  As a practical matter, the proof in

section 286 cases generally does not differ from proof in section 371 tax cases,

because in most false claims conspiracy cases the existence of the agreement will

be proved by acts that were undertaken in furthering the conspiracy or in

consummating the attempt to obtain payment of the claim. [FN8] 

---

                             22.05 VENUE  

      The general venue statute provides that prosecution can be brought in any

district where an offense was begun, continued, or completed. 18 U.S.C.

§ 3237(a).  Venue has been found proper where the claim was made or prepared

or in the district where the claim was presented to the government, United

States v. Leahy, 82 F.3d 624, 633 (5th Cir. 1996); 

United States

 v.

Massa
, 686 F.2d 526, 528 (7th Cir. 1982); 

United States

 v. Blecker,

657 F.2d 629, 632 (4th Cir. 1981);  and where the claim was acted upon, 

Fuller v. 

United States

, 110 F.2d 815 (9th Cir. 1940).  In ELF cases,

venue may be proper in the district in which the false return was submitted to

a preparer or electronic originator, in addition to the districts in which it was

prepared or filed with the Internal Revenue Service.

      Venue may be proved either by direct or circumstantial evidence.  It need

only be established by a preponderance of the evidence, not by proof beyond a

reasonable doubt. Proof of venue, although an essential element of the

government's proof, has been held to be more akin to jurisdiction than to a

substantive element of the crime.  Therefore, where venue is not disputed, it may

be ruled on by the court as a matter of law and need not be submitted to the jury

with an instruction.  
United States
 v. 

Massa

, 686 F.2d at 530-531. 

See Section 6.00, supra, for a general discussion of venue, and

Section 23.11, infra, for a discussion of venue for conspiracy charges.

---

                     22.06 STATUTE OF LIMITATIONS 

      18 U.S.C. § 3282 provides a five-year statute of limitations for

crimes for which a period of limitations is not otherwise specified.  Section

6531(1) of the Internal Revenue Code, however, provides a six-year statute of

limitations "for offenses involving the defrauding or attempting to defraud the

United States or any agency thereof, whether by conspiracy or not, and in any

manner."  That section provides the statute of limitations for conspiracies to

defraud the 

United States

 brought under 18 U.S.C. § 371.  See Section

23.12, infra.  That six-year limitations period may well apply to section

286 and 287 cases, but there is no case law on that point.  The safer course is

to bring false claims cases within five years of the commission of the offense. 

The plain language of the statute, however, provides an argument for a six-year

limitations period in cases which have not been or cannot be indicted within the

five-year period.

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                 22.07 THE MECHANICS OF A FALSE RETURN

      In general, most false return schemes are based on Forms W-2 which are

false or fictitious.  The paper refund fraud schemes generally involve one

individual filing multiple false returns on which refunds are claimed to be due. 

Typically, a fictitious Form W-2 showing income tax withheld in excess of the

computed tax liability is used to generate the false refund claim.  In some

instances, the Form W-2 may show a real employer and the proper employer

identification number (EIN), while in other schemes both the employer and the

identification number are fictitious.  Although less common, some false returns

are based on a fictitious Schedule C (reporting the income of a self-employed

individual) or a false corporate income tax return (Form 1120) and fictitious

estimated quarterly tax payments.

      In some schemes, the individual or individuals involved may obtain a list

of names and social security numbers (SSN) of persons who probably will not file

income tax returns, and use those names and SSNs on the fictitious returns.  In

other instances, the name and SSN of the "taxpayer" are fictitious.  The

fictitious refunds generally are all directed to a common address or a mail drop. 

Such schemes are relatively simple and do not present unusual problems in

developing sufficient facts to prosecute those responsible.  Once the targets

have been identified and linked to the false returns, prosecution is usually

straightforward.  

      ELF schemes are typically larger, more organized, and involve more

participants (usually 3 to 7) than a false paper return scheme.  Recruiters, or

"runners," recruit individuals to act as "taxpayers."  One or more of the 

participants prepare false W-2s (and, in some cases, the false return as well)

for each "taxpayer," using the "taxpayer's" real name and SSN.  The false W-2

forms generally show an amount of income that would entitle the "taxpayer" to

claim the Earned Income Credit as part of the refund.  (The Earned Income Credit

is a refundable credit for low-income taxpayers.  It offsets tax liability and

the portion of it that exceeds the tax due is payable directly to the taxpayer.) 

      If only W-2 forms were prepared, a recruiter, or runner, escorts each

"taxpayer" to a tax return preparer's office, where the "taxpayer" requests a

return to be prepared from the phony W-2s and other information supplied by the

runners.  If the participants in the scheme prepared a complete return, the

runner escorts the "taxpayer" to an ERO where the return is filed using the

"taxpayer's" name and social security number.  In either case, the "taxpayer"

applies for a refund anticipation loan.  When the proceeds of the loan are

available (usually within one or two days), the runner and the "taxpayer" pick

up the check and cash it at a check cashing service.  The "taxpayer"  receives

a portion of the loan amount (usually $400 to $500) and the participants split

the remainder of the funds.  Many false claims for refund are just under the

maximum refund anticipation loan limit (generally under $5,000).  ELF schemes may

involve as few as one or two returns, or as many as hundreds of returns and over

$1,000,000 in false claims.  One scheme involved 23 individuals and false claims

exceeding $2 million in a matter of months.  Several other schemes have exceeded

$1 million in false claims. [FN9]

---

        22.08  AUTHORIZATION OF INVESTIGATIONS AND PROSECUTIONS

22.08[1] Authorization of Grand Jury Investigations -- 

         Tax Division Directive No. 96

      On March 18, 1991, the Assistant Attorney General issued a temporary order

that delegated to the United States Attorneys the authority to initiate grand

jury investigations in 18 U.S.C. §§ 286 and 287 false and fictitious

return cases referred to them by the IRS.  With minor changes, that temporary

delegation of authority was made permanent by Tax Division Directive No. 96,

dated December 31, 1991.  A copy of Directive No. 96 and the affected sections

of the USAM are included in Sections 2.00 and 3.00, supra.  

      Tax Division Directive No. 96 confers upon all United States Attorneys the

authority to authorize grand jury investigations of false and fictitious claims

for tax refunds, in violation of 18 U.S.C. § 286 and 18 U.S.C. § 287. 

That authority is limited to cases involving one or more individuals who have,

for a single tax year, "filed or conspired to file multiple tax returns on behalf

of himself/herself, or has filed or conspired to file multiple tax returns in the

names of nonexistent taxpayers or in the names of real taxpayers who do not

intend the returns to be their own, with the intent of obtaining tax refunds to

which he/she is not entitled." [FN10]

      Due to the sensitive nature of criminal investigations of professional tax

return preparers, cases potentially targeting return preparers were excluded from

the delegation of authority.  (A "return preparer" is "any person who prepares

for compensation, or who employs one or more persons to prepare for compensation,

any return of tax imposed by subtitle A or any claim for refund of tax imposed

by subtitle A."  Section 7701(a)(36)(A) of the Internal Revenue Code.)  Further,

multi-year cases and cases involving Title 18 charges other than 286 and 287

and/or any Title 26 charges are outside the scope of the delegation of authority,

and must be referred by the IRS to the Tax Division for authorization of a grand

jury investigation.

      The Directive also requires that in all direct referral cases a copy of the

letter requesting a grand jury investigation be sent to the Tax Division by

overnight courier or express mail.  In cases involving arrests or other exigent

circumstances, the request for grand jury investigation letter must also be sent

to the appropriate Criminal Enforcement Section of the Tax Division by telefax. 

Any case directly referred by the IRS to a United States Attorney's office for

grand jury investigation which does not meet the terms of the Directive is

considered an improper referral and outside the scope of the delegation of

authority.  In no such case may the United States Attorney's office authorize a

grand jury investigation.  Instead, the case should be forwarded to the Tax

Division for authorization.

22.08[2] Authorization of Prosecution in False Claims Cases

      In section 6-4.243(B) of the United States Attorneys' Manual, the Tax

Division delegated to the United States Attorneys the authority to authorize

prosecution for violations of section 286 and 287 where the case involved an

individual or individuals (other than income tax preparers) who had filed

multiple false or fictitious paper income tax returns claiming refunds of taxes

for a single tax year.  The authority to authorize prosecution in all other paper

return cases and in all ELF false claims cases has been retained by the Tax

Division, and was not delegated to the United States Attorneys.  Charges in

multi-year paper return cases must be authorized by the Tax Division.  The Tax

Division has determined that the unique problems posed by electronically filed

false and fictitious claims for refunds make it desirable to retain the authority

to authorize prosecution of all ELF cases where prosecution is deemed appropriate

at the conclusion of a grand jury investigation.  Tax Division authorization is

required prior to indictment in any ELF case.[FN11]

---

               22.09 SENTENCING GUIDELINES CONSIDERATIONS

      The Sentencing Guidelines generally require that a criminal sentence be

based on the total harm caused by the defendant's conduct.  USSG,

§1B1.3(a)(2) provides that the enhancement for monetary loss from theft or

a scheme to defraud includes the aggregate of losses intended or caused by "all

such acts and omissions that were part of the same course of conduct or common

scheme or plan as the offense of conviction."  USSG §1B1.3(a)(2).  In false

claims cases, the defendant should be held accountable for the total amount of

false or fictitious refunds claimed by the defendant and/or co-conspirators that

can be determined prior to sentencing.  

      Determining the total harm to the government may not be an easy task in

some cases.  The total number of false paper returns may not be determinable by

the Internal Revenue Service in any given scheme.  Therefore, additional

investigation may be necessary to determine the scope of the scheme and the

amount of the government's losses.  Many ELF cases are referred for grand jury

investigation before the full extent of a scheme is known.  Even though there may

be sufficient evidence to indict and convict one or more individuals at the time

of the referral, it is important, when possible, to develop the case as fully as

circumstances permit.  Preferably, an indictment should not be sought until the

scope of the scheme has been sufficiently developed so that at the time of

sentencing there will be enough information to demonstrate to the court the

severity of the defendant's conduct.  In certain circumstances, however, an

arrest or indictment may be necessary before the case can be fully developed. 

In those cases, the prosecutor and agents should continue to develop evidence

regarding any additional false returns and participants.

---

FN 1. For the felony offenses set forth in sections 286 and 287, the maximum

permissible fine is at least $250,000 for individuals and $500,000 for

corporations.  Alternatively, if the offense has resulted in pecuniary gain to

the defendant or pecuniary loss to another person, the defendant may be fined not

more than the greater of twice the gross gain or twice the gross loss.  18 U.S.C.

section 3571.

FN 2. On January 6, 1993, the Tax Division mailed to each United States Attorney

an information package on ELF returns, entitled Prosecuting Electronic Filing

Fraud, which explains the ELF program and ELF fraud in detail and contains

sample indictments and plea agreements.  Additional copies of that information

package may be obtained from the Tax Division.

FN 3. In Pruitt, the court defined "materiality" for purposes of section

287 as: "A statement is material if it has a tendency to induce the government

to act by placing the claimant in a position to receive government benefits."

702 F.2d at 155.

FN 4. In 
United States
 v. Wells, 519 

U.S.

 482 (1996), the Supreme Court

laid out the approach a court should follow in determining whether a statute

requires proof of a particular item as an element of the offense.

FN 5. In addressing "materiality" in the criminal tax context, the Supreme Court

in Neder stated that "a false statement is material if it has a 'natural

tendency to influence, or [is] capable of influencing, the decision of the

decisionmaking body to which it was addressed,'" and noted that several courts

had determined that "any failure to report income is material." Neder, 527

U.S.

 16.  The Court concluded that, under either formulation, no jury could

reasonably find that defendant's failure to report substantial amounts of income

on his tax returns was not a material matter.  

Id.

  Applying Neder

to a 287 filing false claim for tax refund prosecution involving so-called "black

tax returns," the Fifth Circuit concluded, similarly to Neder,  that

defendant's false statements (seeking a refund of "black taxes in the amount of

$43,209) were material to the tax refund claims. 

United States

 v. Foster,

229 F.3d 1196, 1197 (5th Cir. 2000), cert. denied, 121 S.Ct. 1202 (2001). 

The court  stated that: "[T]here is no doubt that the amounts claimed in the

"black tax returns" that [defendant] assisted with were as material as they were

unjustified.  The huge scope of IRS's processing and review activities makes it

inevitable that a sensible threshhold of materiality must be applied to

irregularities planted in tax returns. Were it not so, taxpayers would be

encouraged to take advantage of IRS's practical inability to review each return

individually.   

FN 6. Although the element of knowledge can sometimes be established through

proof of "willful blindness," extreme care should be exercised in seeking and

framing appropriate jury instructions.  See Section 8.06[4], supra.

FN 7. See discussion of United States v. Neder, 527 U.S. 1 (1999),

supra, p. 22-6.

FN 8. There is a sample section 286 indictment attached to the Electronic Filing

Fraud Package mentioned in note 1, supra, and also included in the forms

in this Manual.

FN 9. It appears that 18 U.S.C. § 287 cannot be used in ELF cases in which

the electronic return preparer, or ERO, has not transmitted the return to the

IRS
.  Section 287 punishes those false claims that an individual "makes or

presents" to the government, but does not punish attempts.  Where the preparer

or return originator has notified the 
IRS
 of a suspicious return and has not

transmitted that return, the individual(s) who attempted to file the return

should be charged with making a false statement in a matter within the

jurisdiction of the 
IRS
, in violation of 18 U.S.C. § 1001.  A false

statement punishable under section 1001 need not be submitted directly to the

government.  See, e.g., United States v. Suggs, 755 F.2d

1538, 1542 (11th Cir. 1985); 

United States

 v. Blecker, 657 F.2d 629, 634

(4th Cir. 1981). 

FN 10. Cases involving schemes that recruit real individuals to file returns in

their own names, under their correct social security numbers, do not fall within

the terms of the delegation of authority and must be referred to the Tax Division

for authorization of the grand jury investigation.

FN 11. Tax Division authorization is also required before charging false claims

for refunds as any other violation of Title 18 (such as the mail, wire or bank

fraud statutes or as a money laundering violation).  See Tax Division

Directive No. 99, Section 3.00, supra.