Policy Directives and Memoranda page1

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3.00 TAX DIVISION POLICY DIRECTIVES AND MEMORANDA

http://www.usdoj.gov/tax/readingroom/2001ctm/03ctax.htm

Updated May 2001

The Tax Division's policies and procedures are contained in a series of Tax Division Directives and Memoranda, which are set forth in the pages that follow for ease of reference.
TAX DIVISION DIRECTIVE NO. 52	THE AUTHORITY TO EXECUTE TITLE 26 OR TAX-RELATED TITLE 18 SEARCH WARRANTS
BRIEF MEMORANDUM OF LAW CONCERNING SEARCH WARRANTS
TAX DIVISION DIRECTIVE NO. 86-58	TAX DIVISION CONFERENCES
TAX DIVISION DIRECTIVE NO. 86-59	AUTHORITY TO APPROVE GRAND JURY EXPANSION REQUESTS TO INCLUDE FEDERAL CRIMINAL TAX VIOLATIONS
TAX DIVISION DIRECTIVE NO. 87-61	DELEGATION OF AUTHORITY FOR TAX PROSECUTIONS INVOLVING RETURNS UNDER 26 U.S.C. SECTION 6050I
TAX DIVISION DIRECTIVE NO. 75	MODIFICATION OF POLICY RE USE OF 26 UNITED STATES CODE SECTION 7207 IN FALSE RETURN FILING CIRCUMSTANCES
TAX DIVISION DIRECTIVE NO. 77	SECTION 7212(a) POLICY STATEMENT
TAX DIVISION DIRECTIVE NO. 96	DELEGATION OF AUTHORITY TO AUTHORIZE GRAND JURY INVESTIGATIONS OF FALSE AND FICTITIOUS CLAIMS FOR TAX REFUNDS
INTERPRETATION OF TAX DIVISION DIRECTIVE NO. 96
TAX DIVISION VOLUNTARY DISCLOSURE POLICY
LESSER INCLUDED OFFENSES IN TAX CASES
POLICY CHANGE IN TAX CASES INVOLVING LESSER INCLUDED OFFENSES
TAX DIVISION DIRECTIVE NO. 99	CLARIFICATION OF TAX DIVISION POLICY CONCERNING THE CHARGING OF TAX CRIMES AS MAIL FRAUD, WIRE FRAUD, OR BANK FRAUD, OR AS PREDICATES TO A RICO CHARGE OR AS THE SPECIFIED UNLAWFUL ACTIVITY ELEMENT OF A MONEY LAUNDERING OFFENSE
CIVIL SETTLEMENTS IN PLEA AGREEMENTS
PRESS RELEASES IN CASES INVOLVING THE IRS
INCLUSION OF STATE TAX LOSS IN TAX LOSS COMPUTATION FOR FEDERAL TAX OFFENSES UNDER THE SENTENCING GUIDELINES
TAX DIVISION DIRECTIVE NO. 111	EXPEDITED PLEA PROGRAM
TAX DIVISION DIRECTIVE NO. 115	DELEGATION OF AUTHORITY RELATING TO CRIMINAL TAX CASES

                             DEPARTMENT OF JUSTICE

                                 TAX DIVISION

                               DIRECTIVE NO. 52

                                
January 2, 1986

                     The Authority to Execute Title 26 or

                     Tax-related Title 18 Search Warrants

      Pursuant to the authority vested in me by Part 0, Sub-Part N of Title 28

of the Code of Federal Regulations, Section 0.70, delegation of authority with

respect to approving the execution of Title 26, U.S.C., or tax-related Title 18,

U.S.C., search warrants directed at offices, structures, premises, etc., owned,

controlled or under the dominion of the subject or target of a criminal

investigation, is hereby conferred upon:

            1.    Any United States Attorney appointed under Section 541 of

                  Title 28, U.S.C.,

            2.    Any United States Attorney appointed under Section 546 of

                  Title 28 U.S.C.,

            3.    Any permanently appointed representative within the United

                  States Attorney's office assigned as First Assistant United

                  States Attorney,

            4.    Or to any permanently appointed representative within the

                  United States Attorney's office assigned as chief of criminal

                  functions.

      This delegation of authority is expressly restricted to these, and no

other, individuals.

      This delegation of authority does not affect the statutory authority and

procedural guidelines relating to the use of search warrants in criminal

investigations involving disinterested third parties as contained in 28 C.F.R.

Sec. 59.1, et seq.

   The Tax Division shall have exclusive authority to seek and execute a search

warrant that is directed at the offices, structures or premises owned,

controlled, or under the dominion of a subject or target of an investigation who

is:

      1.    An accountant;

      2.    A lawyer;

      3.    A physician;

      4.    A local, state, federal, or foreign public official or political

            candidate;

      5.    A member of the clergy;

      6.    A representative of the electronic or printed news media;

      7.    An official of a labor union;

      8.    An official of an organization deemed to be exempt under Section

            501(c)(3) of the Internal Revenue Code.

      Any application for a warrant to search for evidence of a criminal tax

offense not specifically delegated herein must be specifically approved in

advance by the Tax Division pursuant to Section 6-2.330 of the 

United States

Attorneys' Manual. 

      Notwithstanding this delegation, the United States Attorney or his delegate

has the discretion to seek Tax Division approval of any search warrant or to

request the advice of the Tax Division regarding any search warrant.

      The United States Attorney shall notify the Tax Division within ten working

days, in writing, of the results of each executed search warrant and shall

transmit to the Tax Division copies of the search warrant (and attachments and

exhibits), inventory, and any other relevant papers.

      The United States Attorneys' Manual is hereby modified effective January

2, 1986. 

                                                ROGER M. OLSEN

                                            Acting Assistant Attorney General

                                                 Tax Division

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                               ATTACHMENT

Subject:    Authority to Execute Title 26                Date: 
AUG. 7, 1984

            Tax-Related Title 18 Search Warrants

To:   All United States Attorneys   

From: Glenn L. Archer, Jr.

      Asst. Attorney General

      Tax Division

      By Tax Division Directive No. 49 (copy attached), I have authorized

delegation to United States Attorney's offices the authority to approve the

execution of certain limited Title 26 or tax-related Title 18 search warrants. 

At the request of the Internal Revenue Service, the effective date of this

delegation is 
October 1, 1984
.  In recent years, the case law concerning search

and seizure has developed to the point where it is clear that, upon a showing of

probable cause, the Government may conduct reasonable searches for the purpose

of obtaining documentary evidence establishing the commission of a crime.  The

developing case law has led, in part, to the decision to delegate the authority

to approve requests for search warrants in tax cases on a limited basis.

      The procedure will now permit a direct request from District Counsel's

office to you.  The delegation order permits consultation or referral of the

matter to the Tax Division, as you choose.  The delegation extends to the United

States Attorney and the Chief of your Criminal Division.  It cannot be delegated

to anyone else in your office.  There is a ten-day notification requirement which

will permit the Tax Division to collect the relevant data necessary to evaluate

the use of search warrants by the Internal Revenue Service and Department of

Justice nationally.

      If you have any questions whatsoever, please contact Roger M. Olsen, Deputy

Assistant Attorney General, Tax Division, telephone: 
633-2915
, or 

Stanley

 F.

Krysa, Chief, Criminal Section, Tax Division, telephone:  
633-2973
.

      I would appreciate having the name and telephone number of the Assistant

United States Attorney in each office who, in addition to the 

United States

Attorney, is authorized to approve these warrants.  A list of those names will

be forwarded to the 
IRS
 and, of course, retained for the Tax Division's files.

      Also attached is a brief, technical memorandum on the law of search

warrants for documentary evidence. 

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                          BRIEF MEMORANDUM OF LAW

                        CONCERNING SEARCH WARRANTS

      Ever since Warden v. Hayden, 378 U.S. 294 (1967), established

that the Government could seize ''mere evidence'' pursuant to a search warrant,

the use of search warrants for items, such as personal papers and business

records, became a viable legal possibility.  In Warden v. Hayden,

although the items of clothing seized were evidentiary, their seizure did not

violate the Fifth Amendment privilege, since the items were not "'testimonial'

or 'communicative' in nature, and their introduction therefore did not compel

respondent to become a witness against himself ..." supra, 302-303.  Rule

41(b) of the Federal Rules of Criminal Procedure echoes this holding and provides

that: "A warrant may be issued ... to search for and seize any ... property that

constitutes evidence of the commission of a criminal offense ...".

      In 1976, the possibility that a search and seizure of business records

might violate the Fifth Amendment privilege against self-incrimination was

foreclosed in Andresen v. Maryland, 427 U.S. 463 (1976).  The

Supreme Court upheld the search of the defendant's law office and of the office

of the real estate firm which he also controlled, although incriminating business

records were found at both locations.  The Court based its opinion on the finding

that the individual against whom the search was directed was not required to aid

in the discovery, production, or authentication of incriminating evidence; thus,

the seizure of the business records was not a violation of the Fifth Amendment. 

Cf. United States v. Doe, 52 U.S.L.W. 4296 (Feb. 28, 1984).

      The Supreme Court's approval of a law office search in

Andresen lends some support to similar searches in the future. 

However, the issue of attorney/client privilege or work-product doctrine was not

specifically addressed in Andresen and is, therefore, still a matter of

controversy and sensitivity.  In addition, the search's legality may depend on

whether the status in the investigation of the individual whose property is

searched is that of a disinterested third party or whether he is believed to have

engaged in criminal conduct. See Zurcher v. Stanford Daily,

436 U.S. 547 (1978); United States v. Bithoney, 631 F. 2d l (lst

Cir. 1980), cert. denied, 449 U.S. 1083 (1981).

      Because the questions of privilege and status in the investigation remain

sensitive legal issues, the Tax Division has decided to delegate the authority

to approve search warrants in tax cases only in those limited instances where the

search warrant is directed at offices, structures, or premises owned, controlled,

or under the dominion of the subject or target of a criminal investigation.  The

subject, or target, moreover, must not fall into the exempted categories listed

in the delegation order, which categories we deem to be of such a sensitive

nature, from the perspective of tax law enforcement, that prior approval of the

Tax Division is still required before a search warrant is obtained. 

      Aside from questions of strict legality, search warrants in tax

investigations involve potential problems and issues intrinsic to tax cases.  The

concept of seizing personal or business books and records as the evidence or

instrumentality of a crime is not as direct or simple a problem as is the seizure

of a contraband.  These documents usually contain much personal and confidential

information and these very same documents, which, by their own nature, are not

unusual, illegal or dangerous, will be the evidence of or the instrumentality of

the crime to be charged.  In addition to the controversial nature of such a

seizure of documents, the requirement that the items to be seized must be named

with specificity is more difficult to meet.  In tax cases, the warrant must be

specific, not only regarding the items to be seized and the place searched, but

a specific time frame must also be stated.

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                           DEPARTMENT OF JUSTICE

                            TAX DIVISION DIRECTIVE

                                NO. 86 - 58

                                 
May 14, 1986

      Introduction.  While it is the function of the Tax Division

to carefully review the facts, circumstances, and law of each criminal tax case

as expeditiously as possible, the taxpayer should be given a reasonable

opportunity to present his/her case at a conference before the Tax Division. 

Where the rules governing conferences are so rigid and inflexible that such an

opportunity is effectively denied a taxpayer, the interests of justice are not

served.  The following guidelines will assist the Tax Division attorneys in

reviewing such cases.

            (1)  Vicarious Admissions.  Effective immediately, the

vicarious admissions rule for statements by lawyers attending conferences before

the Criminal Section shall no longer be used by the Tax Division, except where

the lawyer authenticates a written instrument, i.e., document, memorandum,

record, etc.

            (2)  Administrative Investigations.  Effective July 1,

1986, plea negotiations may be entertained at the conference in non-grand jury

matters, consistent with the policies of the appropriate United States Attorney's

office.  Written plea agreements should be prepared and entered into by the

United States Attorney's office unless there is a written understanding between

the Tax Division and the United States Attorney's office to the contrary.  Where

the prospective defendant indicates a willingness to enter into a plea of guilty

to the major counts(s) and to satisfy the United States Attorney's office policy,

the matter should be referred to the United States Attorney's office for plea

disposition.

            (3)  Number of Conferences.  There is no fixed number

of conferences which may be granted in any one particular case.  Ordinarily, one

conference is sufficient.  However, in some cases it may be that more than one

conference is appropriate.  The test is not in the number of conferences, for

there is no right to a conference, but whether, under the facts and circumstances

of the case, sufficient progress is or will be made in either the development of

material facts or the clarification of the applicable law, without causing

prejudice to the United States.  Tax Division attorneys should be mindful that

justice delayed is justice denied and, therefore, sound, professional judgment

should be used at all times in such matters.

            (4)  Witness at Conferences.  On occasion, the taxpayer

or a witness may attend the conference.  In rare situations, the taxpayer or a

witness may attempt to make oral reprensentations or statements at the

conference.  There are no restrictions on the use of such statements by the

Government.  However, such attempts should be discouraged, since the Tax Division

is conducting a review of an investigation and is not conducting either a hearing

or an investigation.  Under no circumstances may evidence be presented at the

conference based upon any understanding that it is in lieu of any person

testifying before a grand jury.

            (5)  Grand Jury Investigations and Coordination with United

States Attorney's Office.  Effective immediatley, in every grand jury

investigation where a conference is requested, the Tax Division trial attorney

shall initially contact the United States Attorney's office and discuss the case

with the appropriate Assistant United States Attorney, and ascertain whether

disclosure of any facts of the case is likely to expose any person, including

witnesses, to the risk of intimidation or danger.  If there is such a risk, the

trial attorney shall then advise the appropriate assistant chief of the Criminal

Section, who shall decide the appropriate course of action.  The Tax Division

trial attorney shall advise the Assistant United States Attorney that he/she may

attend the conference if they so desire.

                                                ROGER M. OLSEN

                                             Assistant Attorney General

                                                 Tax Division

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                            DEPARTMENT OF JUSTICE

                                 TAX DIVISION

                            DIRECTIVE NO. 86-59

                 AUTHORITY TO APPROVE GRAND JURY EXPANSION

                   REQUESTS TO INCLUDE FEDERAL CRIMINAL

                            TAX VIOLATIONS

AGENCY:     Department of Justice

ACTION:     Notice

SUMMARY:  This Directive delegates the authority to approve requests seeking to

expand nontax grand jury investigations to include inquiry into possible federal

criminal tax violations from the Assistant Attorney General, Tax Division, to any

United States Attorney, Attorney-In-Charge of a Criminal Division Organization

Strike Force or Independent Counsel.  The Directive also sets forth the scope of

the delegated authority and the procedures to be followed by designated field

personnel in implementing the delegated authority.

EFFECTIVE DATE:   
October 1, 1986

FOR FURTHER INFORMATION CONTACT:  Edward M. Vellines, Senior Assistant Chief,

Office of Policy & Tax Enforcement Analysis, Tax Division, Criminal Section (202-

633-3011
).  This is not a toll number. [FN1]

     FN1. This information in the Directive is out of date.  Questions 

     concerning this directive should now be addressed to the Criminal 

     Appeals and Tax Enforcement Policy Section at 
202-514-3011
.

SUPPLEMENTARY INFORMATION:  This order concerns internal Department management

and is being published for the information of the general public.

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                       TAX DIVISION DIRECTIVE NO. 86-59

      By virtue of the authority vested in me by Part O, Subpart N of Title 28

of the Code of Federal Regulations, particularly Section 0.70, delegation of

authority with respect to approving requests seeking to expand a nontax grand

jury investigation to include inquiry into possible federal criminal tax

violations is hereby conferred on the following individuals:

      1.    Any United States Attorney appointed under Section 541 or 546 of

            Title 28, United States Code.

      2.    Any Attorney-In-Charge of a Criminal Division Organization Strike

            Force established pursuant to Section 510 of Title 28, United States

            Code.

      3.    Any Independent Counsel appointed under Section 593 of 

            Title 28, United States Code.

      The authority hereby conferred allows the designated official to approve,

on behalf of the Assistant Attorney General, Tax Division, a request seeking to

expand a nontax grand jury investigation to include inquiries into potential

federal criminal tax violations in a proceeding which is being conducted within

the sole jurisdiction of the designated official's office.  (Section

301.6103
(h)(2)-1(a)(2)(ii) (26 C.F.R.)).  Provided, that the delegated

official determines that--

      1.    There is reason to believe, based upon information developed during

            the course of the nontax grand jury proceedings, that federal

            criminal tax violations may have been committed.

      2.    The attorney for the Government conducting the subject nontax grand

            jury inquiry has deemed it necessary in accordance with F.R.Cr.P.

            6(e)(A)(ii) to seek the assistance of Government personnel assigned

            to the Internal Revenue Service to assist said attorney in his/her

            duty to enforce federal criminal law.

      3.    The subject grand jury proceedings do not involve a

            multijurisdictional investigation, nor are the targets individuals

            considered to have national prominence--such as local, state,

            federal, or foreign public officials or political candidates;

            members of the judiciary; religious leaders; representatives of the

            electronic or printed news media; officials of a labor union; and

            major corporations and/or their officers when they are the targets

            (subjects) of such proceedings.

      4.    A written request seeking the assistance of Internal Revenue Service

            personnel and containing pertinent information relating to the

            alleged federal tax offenses has been forwarded by the designated

            official's office to the appropriate Internal Revenue Service

            official (e.g., Chief, Criminal Investigations).

      5.    The Tax Division of the Department of Justice has been furnished by

            certified mail a copy of the request seeking to expand the subject

            grand jury to include potential tax violations, and the Tax Division

            interposes no objection to the request.

      6.    The Internal Revenue Service has made a referral pursuant to the

            provisions of 26 U.S.C. Section 6103(h)(3) in writing stating that

            it: (1) has determined, based upon the information provided by the

            attorney for the Government and its examination of relevant tax

            records, that there is reason to believe that federal criminal tax

            violations have been committed; (2) agrees to furnish the personnel

            needed to assist the Government attorney in his/her duty to enforce

            federal criminal law; and (3) has forwarded to the Tax Division a

            copy of the referral.

      7.    The grand jury proceedings will be conducted by attorney(s) from the

            designated official's office in sufficient time to allow the results

            of the tax segment of the grand jury proceedings to be evaluated by

            the Internal Revenue Service and the Tax Division before undertaking

            to initiate criminal proceedings.

      The authority hereby delegated includes the authority to designate: the

targets (subjects) and the scope of such tax grand jury inquiry, including the

tax years considered to warrant investigation.  This delegation also includes the

authority to terminate such grand jury investigations, provided, that

prior written notification is given to both the Internal Revenue Service and the

Tax Division.  If the designated official terminates a tax grand jury

investigation or the targets (subjects) thereof, then the designated official

shall indicate in its correspondence that such notification terminates the

referral of the matter pursuant to 26 U.S.C. Section 7602(c).

      This delegation of authority does not include the authority to file an

information or return an indictment on tax matters.  No indictment is to be

returned or information filed without specific prior authorization of the Tax

Division.  Except in Organized Crime Drug Task Force Investigations, individual

cases for tax prosecution growing out of grand jury investigations shall be

forwarded to the Tax Division by the United States Attorney, Independent Counsel

or Attorney-in-Charge of a Strike Force with a special agent's report and

exhibits through Regional Counsel, (Internal Revenue Service) for evaluation

prior to transmittal to the Tax Division.  Cases for tax prosecutions growing out

of grand jury investigations conducted by an Organized Crime Drug Task Force

shall be forwarded directly to the Tax Division by the United States Attorney

with a special agent's report and exhibits.

      The authority hereby delegated is limited to matters which seek either to: 

(1) expand nontax grand jury proceedings to include inquiry into possible federal

criminal tax violations; (2) designate the targets (subjects) and the scope of

such inquiry; or (3) terminate such proceedings.  In all other instances,

authority to approve the initiation of grand jury proceedings which involve

inquiries into possible criminal tax violations, including requests generated by

the Internal Revenue Service, remains vested in the Assistant Attorney General

in charge of the Tax Division as provided in 28 C.F.R. 0.70.  In addition,

authority to alter any actions taken pursuant to the delegations contained herein

is retained by the Assistant Attorney General in charge of the Tax Division in

accordance with the authority contained in 28 C.F.R. 0.70.

                                Roger M. Olsen

                          Assistant Attorney General

                                 Tax Division

Approved to take effect on 
October 1, 1986

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                           DEPARTMENT OF JUSTICE

                                 TAX DIVISION

                           DIRECTIVE NO. 87 - 61

                 DELEGATION OF AUTHORITY FOR TAX PROSECUTIONS

                INVOLVING RETURNS UNDER 26 U.S.C. SECTION 6050I

      By virtue of the authority vested in me by Part 0, Subpart N of Title 28

of the Code of Federal Regulations (C.F.R.), particularly Section 0.70,

delegation of authority with respect to authorizing tax prosecutions, under Title

26, United States Code (U.S.C.), Sections 7203 and 7206 with respect to Returns

(
IRS
 Form 8300) Relating to Cash Received in a Trade or Business as prescribed

in 26 U.S.C.  Section 6050I, is hereby conferred on the following individuals:

      1.    The Assistant Attorney General, Deputy Assistant Attorneys General,

and Section Chiefs of the Criminal Division.

      2.    Any United States Attorney appointed under Section 541 or 546 of

Title 28, U.S.C.

      3.    Any permanently appointed representative within the United States

Attorney's Office assigned either as First Assistant United States Attorney or

Chief of criminal functions.

      4.    Any Attorney-In-Charge of a Criminal Division Organization Strike

Force established pursuant to Section 510 of Title 28, U.S.C.

      5.    Any Independent Counsel appointed under Section 593 of Title 28,

            U.S.C.

      This delegation of authority is expressly restricted to the aforementioned

individuals and may not be redelegated.

      The authority hereby conferred allows the designated official to authorize,

on behalf of the Assistant Attorney General, Tax Division, tax prosecutions under

26 U.S.C.  Sections 7203 and 7206 with respect to returns (
IRS
 Form 8300)

prescribed in 26 U.S.C. Section 6050I relating to cash received in a trade or

business; Provided, that:

      1.    The prosecution of such tax offenses (e.g. Sections 7203 and 7206)

involves solely cash received in a trade or business as required by 26 U.S.C.

Section 6050I.

      2.    The matter does not involve the prosecution of accountants,

physicians, or attorneys (acting in their professional representative capacity)

or their employees;  casinos or their employees; financial institutions or their

employees; local, state, federal or foreign public officials or political

candidates; members of the judiciary;  religious leaders; representatives of the

electronic or printed news media; officials of a labor union; and publicly-held

corporations and/or their officers.

      3.    The Tax Division of the Department of Justice will be furnished by

certified mail a copy of the referral from the Internal Revenue Service to the

designated field office personnel regarding the potential tax violations.

      Except as expressly set forth herein, this delegation of authority does not

include the authority to file an information or return an indictment on tax

matters.  The authority hereby delegated is limited solely to the authorization

of tax prosecutions involving the filing or non-filing of returns (
IRS
 Form 8300)

pursuant to 26 U.S.C.  Section 6050I.  The authority to alter any actions taken

pursuant to the delegation contained herein is retained by the Assistant Attorney

General, Tax Division, in accordance with the authority contained in 28 C.F.R.

0.70.

      Notwithstanding this delegation, the designated official has the discretion

to seek Tax Division authorization of any proposed tax prosecution within the

scope of this delegation or to request the advice of the Tax Division with

respect thereto.

                                Roger M. Olsen

                          Assistant Attorney General

                                 Tax Division

             Approved to take effect on 
February 27, 1987
.

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                            DEPARMENT OF JUSTICE

                         TAX DIVISION DIRECTIVE NO. 75

                              
March 21, 1989

            MODIFICATION OF POLICY RE USE OF 26 UNITED STATES

        CODE SECTION 7207 IN FALSE RETURN FILING CIRCUMSTANCES

INTRODUCTION

      The Tax Division recognizes that United States Attorneys frequently

investigate financial crimes through joint tax and nontax grand jury

investigations.  In such matters, it is appropriate that the culpable parties be

prosecuted for felony violations, that immunity be used sparingly, and that

cooperating participants in the corrupt activity be required to plead guilty to

the commission of some significant aspect of the original conduct.

      We also recognize there are instances when a minor target seeks to

cooperate, and his or her culpability is such that neither immunity nor a plea

to a felony is appropriate.  In short, the criminal conduct is more suited to a

misdemeanor charge, when there is an agreement to cooperate in the ongoing

investigation of the principal target(s). 

      In some situations, described above, the only misdemeanor charges that may

be available to the prosecution are tax misdemeanors, i.e., sections 7203 or 7207

of Title 26 U.S.C. Where a tax return has not been filed, a section 7203

violation (failure to file) may exist.  However, if a tax return has been filed

and the false aspect of that return is minor, e.g., the corrupt person may have

accepted bribes of relatively minor amounts that were not reported or the payor

may have falsely deducted the bribe payment as a business expense, then the

conduct would constitute the filing of a false return, punishable either as a

felony under 26 U.S.C. Section 7206(1) or a misdemeanor under 26 U.S.C. Section

7207.

      In the past, the Tax Division would not approve either a prosecution or

guilty plea pursuant to section 7207, when the false document was a tax return,

because it has been our long-standing policy that prosecution of materially false

returns should be for felony charges.  We believe that the use of section 7207

should generally be restricted to circumstances where taxpayers submitted false

or altered documents to the 
IRS
 in support of information submitted on a

tax return.

      We recognize that this policy has created problems because an individual,

who desires to cooperate, may be willing to plead to a misdemeanor but not to a

felony.  To address this problem, the Tax Division is modifying its policy to

provide United States Attorneys with a means of dealing with the limited

situation described above.

      Accordingly, the Tax Division will now entertain requests for the approval

of guilty pleas to a violation(s) of 26 U.S.C. section 7207 in appropriate

circumstances where the taxpayer is involved in the corrupt activity under

investigation and agrees to cooperate in the ongoing investigation against the

principal target(s). The guidelines for the limited use of 26 U.S.C. section

7207 are set forth below.

      The relaxation of the Tax Division policy relative to section 7207

prosecutions will be limited to the circumstances described in the guidelines. 

Defendants providing assistance to the Government should otherwise be rewarded

by receiving leniency in the imposition of sentence, as provided by the new

Sentencing Guidelines, rather than by being permitted to plead to reduced

charges.

     The procedures outlined will be utilized throughout the remainder of fiscal

years 1989 and 1990.  The Tax Division will assess the effect of this change on

the National Tax Compliance Program before making this policy change permanent. 

GUIDELINES

      The Department of Justice, Tax Division, agrees to consider approving plea

agreements with charges brought under 26 U.S.C. section 7207 for witnesses

cooperating in Title 18 and Title 26 grand jury investigations and in no other

circumstances under the following conditions.

      1.  Approval for section 7207 charges will not be given in any case in

which the Tax Division has previously authorized charges against the subject

under section 7206(1), section 7201, or a tax (Klein) conspiracy.

      2.  The Tax Division must be provided with a prosecution statement or

letter describing the outlines of the Title 26 and/or Title 18 investigation, the

involvement of the cooperating witness who will plead, and the anticipated

cooperation that the witness is expected to provide in the investigation.

      3.  The subject must have agreed to be a cooperating witness in a Title 18

or Title 26 investigation to which the witness' proposed income tax violation is

related.

      4.  In addition to his cooperation in the ongoing criminal investigation

and prosecution, the subject must agree to cooperate fully and truthfully with

the Internal Revenue Service in any civil audit or adjustment of the tax

liability arising out of the circumstances of the criminal case.

      5.  The subject must be informed that any plea agreement to tax

misdemeanors under 26 U.S.C. Section 7207 is subject to the approval of the Tax

Division, Department of Justice.  No such plea agreement is to be executed until

authorized by the Tax Division or, if executed, unless it contains a provision

that the plea agreement is subject to the approval of the Tax Division.

      6.  Approval for use of section 7207 will not be given, hence should not 

be requested, if the underpayment of taxes resulting from the false statements

in the return exceeds $2500 in any of the years.  In such cases the plea must be

to a tax felony charge. 

      7.  The 
IRS
 must make a referral pursuant to 26 U.S.C. Section

6103(h)(3)(A).  The United States Attorney must have obtained tax disclosure

confirming the filing of the return(s). The Tax Division should be provided with

an abbreviated SAR, a computation of the taxes due, the tax return(s) involved, 

and a copy of the plea agreement or a statement of its terms.  Section 7207

approval will not be given if the tax disclosure material suggests that a tax

misdemeanor would be an inappropriate disposition of the case.

      8.  The subject must sign a statement reflecting the amount of the

unreported income or fraudulent deductions and the circumstances involved in all

the years under investigation.

                               JAMES I. K. KNAPP

                       Acting Assistant Attorney General

                                 Tax Division

---

                           DEPARTMENT OF JUSTICE

                                 TAX DIVISION

                             DIRECTIVE NO. 77

                                 
July 7, 1989

               Section 7212(a) Policy Statement

      The Tax Division occasionally receives for review recommendations for

prosecution involving the "omnibus" clause of 26 U.S.C. Sec. 7212(a) which

prohibits corrupt endeavors to obstruct or impede the due administration of the

Internal Revenue Code.  To promote uniform enforcement of the internal revenue

laws, the Tax Division issues this internal directive setting forth criteria for

use of this clause.

      In general, the use of the "omnibus" provision of Section 7212(a) should

be reserved for conduct occurring after a tax return has been filed -- typically

conduct designed to impede or obstruct an audit or criminal tax investigation,

when 18 U.S.C. Section 371 charges are unavailable due to insufficient evidence

of a conspiracy.  However, this charge might also be appropriate when directed

at parties who engage in large-scale obstructive conduct involving actual or

potential tax returns of third parties.  Continually assisting taxpayers in the

filing of false returns or engaging in other conduct designed to make audits

difficult; and other numerous, large-scale violations of 26 U.S.C. Section

7206(2) or 18 U.S.C. Section 287 (as it pertains to refund claims for other or

fictitious taxpayers), are examples of situations when Section 7212(a) charges

might be appropriate.  Such an application of the "omnibus" clause is consistent

with what we believe to be the overall purpose of Section 7212(a), which is to

penalize conduct aimed directly at 
IRS
 personnel in the performance of their

duties, and at general 
IRS
 administration of the federal tax enforcement program,

but not to penalize tax evasion as such.

      The omnibus clause should not be utilized when other more specific charges

are available and adequately reflect the gravamen of the offense.  Section

7212(a) pleadings might be utilized to set forth allegations concerning attempted

conspiracies with undercover agents to impede or impair the functions of the 
IRS
,

but no Section 7212(a) count should be predicated on such conduct alone, as that

conduct by itself would rarely be sufficient to impede or impair the due

administration of the Internal Revenue Code.

      Use of the omnibus clause in an indictment must be approved by the 

Director[FN2] of the Criminal Enforcement Sections or higher.

      FN2. There no longer is a Director of the Criminal Enforcement Sections. 

      Use of the omnibus clause now requires approval of the Deputy Assistant

      Attorney General (Criminal).  See Tax Division Directive No. 115,

      infra.

                              SHIRLEY D. PETERSON

                          Assistant Attorney General

                                 Tax Division

---

                           DEPARTMENT OF JUSTICE

                                 TAX DIVISION

                             DIRECTIVE NO. 96

                    Re:  Delegation of Authority to Authorize 

                        Grand Jury Investigations of False 

                        and Fictitious Claims for Tax Refunds

      By virtue of the authority vested in me by Part O, Subpart N of Title 28

of the Code of Federal Regulations (C.F.R.), particularly Section 0.70, regarding

criminal proceedings arising under the internal revenue laws, 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, is hereby

conferred on all United States Attorneys.

      This delegation of authority is subject to the following limitations:

            1.    The case has been referred to the United States Attorney by

                  Regional Counsel/District Counsel, Internal Revenue Service,

                  and a copy of the request for grand jury investigation letter

                  has been forwarded to the Tax Division, Department of Justice;

                  and, 

            2.    Regional Counsel/District Counsel has determined, based upon

                  the available evidence, that the case involves a situation

                  where an individual (other than a return preparer as defined

                  in Section 7701(a)(36) of the Internal Revenue Code) for a

                  single tax year, has 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. 

      In all cases, the request for grand jury investigation letter, together

with the Form 9131 and a copy of all exhibits, must be sent to the Tax Division

by overnight courier at the same time the case is referred to the United States

Attorney.  In cases involving arrests or other exigent circumstances, the request

for grand jury investigation letter (together with the completed Form 9131) must

also be sent to the appropriate Criminal Enforcement Section of the Tax Division

by telefax.

      Any case directly referred to a United States Attorney's office for grand

jury investigation which does not fit the above fact pattern or in which a copy

of the referral letter has not been forwarded to the Tax Division, Department of

Justice (by overnight courier), by Regional Counsel/District Counsel will be

considered an improper referral and outside the scope of this 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.  

      This delegation of authority is intended to bring the authorization of

grand jury investigations of cases under 18 U.S.C. §286 and 18 U.S.C.

§287 in line with the delegation of authority to authorize prosecution of

such cases (see United States Attorneys' Manual, Title 6, 4.243).  Because the

authority to authorize prosecution in these cases was delegated prior to the time

the Internal Revenue Service initiated procedures for the electronic filing of

tax returns, false and fictitious claims for refunds which are submitted to the

Service through electronic filing are not within the original delegation of

authority to authorize prosecution.  Nevertheless, such cases, subject to the

limitations set out above, may be directly referred for grand jury investigation.

Due to the unique problems posed by electronically filed false and fictitious

claims for refunds, Tax Division authorization is required if prosecution is

deemed appropriate in an electronic filing case. 

                                          SHIRLEY D. PETERSON

                                          Assistant Attorney General 

                                                Tax Division

APPROVED TO TAKE EFFECT ON:  
December 31, 1991

---

                                          
January 15, 1993

Honorable Abraham N. M. Shashy, Jr.

Chief Counsel

Internal Revenue Service

Washington, D.C.  20224

Attention:  Barry J. Finkelstein

            Assistant Chief Counsel (Criminal Tax)

      Re:  Interpretation of Tax Division Directive No. 96

Dear Mr. Shashy:

      I appreciate the opportunity that I had to meet with Mr. Finkelstein and

the Deputy Regional Counsel for Criminal Tax on 
December 15, 1992
.  Face-to-face

discussions of issues that concern all of us are always helpful.  In our

discussions, we left one issue involving referral of electronic filing (ELF)

cases unresolved, and I am writing to express my views on that topic.

      Tax Division Directive No. 96 delegated to the United States Attorneys the

authority to authorize grand jury investigations of matters under the purview of

the Tax Division in certain, limited circumstances.  Counsel in the regions have

interpreted the scope of that delegation of authority differently in situations

involving schemes that recruit individuals to file fraudulent returns in their

own names, using their own social security numbers.  Tax Division Directive No.

96 provides that United States Attorneys may authorize grand jury investigations

in cases prosecutable under 18 U.S.C. 286, 287 where:

      1 * * * an individual (other than a return preparer as defined in Section

      7701(a)(36) of the Internal Revenue Code) for a single tax year, has 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 returns to

      which he/she is not entitled.  All other cases must be referred to the Tax

      Division for authorization of the grand jury investigation.

      Deputy Regional Counsel Shipley and Waller have interpreted the phrase "in

the names of real taxpayers who do not intend the returns to be their own" to

exclude situations in which the target has recruited real individuals to file

returns in their names.  They have reasoned that even though the information used

on the return is fictitious, the "taxpayers" have filed returns that affect those

taxpayers' accounts and that can be treated as their returns by the Service. 

They have concluded that such cases fall outside the terms of Directive No. 96

and must be referred to the Tax Division to authorize the grand jury

investigation.  Other regions have reasoned that the "taxpayers"  involved in

such situations do not intend the returns to be their real returns, and thus

referral directly to the United States Attorneys for grand jury investigation is

permitted under Directive No. 96.

      We agree with Messrs. Shipley and Waller that when real individuals file

returns using their own names and social security numbers the case falls outside

Tax Division Directive 96.  The "taxpayer" intends to file a tax return in his

or her own name, and the Service must treat that filing as a "return."  Thus,

such cases must be referred to the Tax Division and cannot be directly referred

to the United States Attorneys.  The purpose of Directive No. 96 was to extend

to the United States Attorneys the authority to institute grand jury

investigations in cases in which they already had authority to authorize

prosecutions (18 U.S.C. 286, 287 charges in false paper return cases) and in

other false claims cases falling into that same pattern.  The prior delegation

of authority did not extend to the United States Attorneys the authority to

authorize prosecution of an individual who filed a return in his or her own name,

using the correct social security number.  The facts that the taxpayers are not

targets of the investigation and that the real target may know that such returns

are fictitious does not bring the case within Directive 96, and such cases may

not be referred directly to the United States Attorneys.

      I would appreciate it if you would insure that my views on this subject are

communicated to the Deputy Regional Counsels for Criminal Tax.  If Mr.

Finkelstein or any of the Deputy Regional Counsel have further comments or

questions on this issue, they may contact me or our ELF coordinator, Tony

Whitledge.

                                          Sincerely,

                                       JAMES A. BRUTON

                                    Acting Assistant Attorney General

                                          Tax Division

---

                                          
February 17, 1993

MEMORANDUM

TO:         All Criminal Enforcement Attorneys

FROM:       James A. Bruton

            Acting Assistant Attorney General

            Tax Division

SUBJECT:    Tax Division Voluntary Disclosure Policy

      Recent new releases by the 
IRS
 and stories in the press have raised

questions within the Division concerning the proper handling of cases in which

a prospective criminal tax defendant claims to have made a voluntary disclosure. 

Notwithstanding the news stories and rumors to the contrary, the Division has not

changed its policy concerning voluntary disclosure, and cases should be evaluated

as they have in the past under the provisions of Section 4.01 of the Criminal Tax

Manual.

      The Service, takes the view that, notwithstanding reports to the contrary,

it has not changed its voluntary disclosure practice.  It claims that its press

releases have been issued to inform the public of the manner it has historically

applied the existing practice in referring nonfiler cases to the Department of

Justice.  The goal has been to demonstrate to the public that the practice has

been applied liberally in the past and that a nonfiler interested in reentering

the tax system should not be intimidated by a theoretical threat of criminal

prosecution.

      The Service's carefully worded press releases and public statements have

been construed by some member of the press and the defense bar as an "amnesty". 

This is troublesome, because some inaccurate information has been and is being

disseminated to the public by the press and members of the bar that is likely to

cause confusion and could interfere with the prosecution of some criminal tax

cases.  At bottom, the Service's voluntary disclosure policy remains, as it has

since 1952, an exercise of prosecutorial discretion that does not, and legally

could not, confer any legal rights on taxpayers.

      We in the Tax Division should have few occasions to consider whether the

Service is properly adhering to its voluntary disclosure policy.  If the Service

has referred a case to the Division, it is reasonable and appropriate to assume

that the Service has considered any voluntary disclosure claims made by the

taxpayer and has referred the case to the Division in a manner consistent with

its public statements and internal policies.  As a result, our review is normally

confined to the merits of the case and the application of the Department's

voluntary disclosure policy set forth in Section 4.01 of the Criminal Tax Manual.

      Cases may, however, arise in which there is some confusion over whether a

local District Counsel's office has referred a nonfiler case that seems arguably

to fall within one of the Service's press releases on voluntary disclosure or

otherwise appears to have been referred to the Department in a manner

inconsistent with our understanding of the Service's voluntary disclosure

practice.  If that occurs, Tax Division reviewing attorneys should not attempt

to construe the Service's voluntary disclosure practice on their own but should

bring all such questions to the immediate attention of their Section Chiefs.  If

it is determined that but for questions concerning the applicability of the

Service's policy, prosecution of the case would be authorized (i.e., the case

meets Tax Division prosecution criteria and does not violate the Division's

voluntary disclosure policy set forth in Criminal Tax Manual §4.01), the

Section Chief should forward the case (where applicable, consistent with

limitations imposed upon the disclosure of grand jury information) to the

Assistant Chief Counsel Criminal Tax (CC:CT) for that office's determination

whether the Service's referral was consistent with its internal voluntary

disclosure practice and whether the Service actually intends that the case be

prosecuted.  If the Office of Assistant Chief Counsel Criminal Tax determines

that the referral was appropriate, the case should be processed by the Division

in the normal manner.

      Finally, Tax Division reviewing attorneys should exercise considerable care

in drafting letters declining cases to ensure that they reflect Tax Division

policy regarding voluntary disclosures.  Assistant United States Attorneys and

IRS
 field and National Office personnel rely on our correspondence as a

reflection of Tax Division policy, and it is, therefore, crucial that our letters

and memoranda addressed to other offices within the government accurately state

our policies.

---

                                          
February 12, 1993

MEMORANDUM      

TO:         All United States Attorneys

FROM:       James A. Bruton

            Acting Assistant Attorney General

            Tax Division

RE:         Lesser Included Offenses in Tax Cases

      The purpose of this memorandum is to provide guidance concerning the

government's handling of lesser included offense issues in certain kinds of tax

cases.  Two petitions for writs of certiorari involving the issue of lesser

included offenses in tax cases have recently been filed in the Supreme Court. 

In Becker v. United States, No. 92-410, the defendant was convicted

of attempting to evade taxes and of failure to file tax returns for the same

years.  The trial court sentenced the defendant to three years' imprisonment on

the evasion counts and to a consecutive period of 36 months' imprisonment on the

failure to file counts.  The court of appeals affirmed.  In his petition for a

writ of certiorari, the defendant argued that the misdemeanor of failure to file

a tax return is a lesser included offense of the felony of tax evasion and that

the Constitution prohibits cumulative punishment in the same proceeding for a

greater and lesser included offense.

      In opposing certiorari on this question, the government argued that whether

cumulative punishments could be imposed for a course of conduct that violated

both 26 U.S.C. 7201 and 26 U.S.C. 7203 was solely a question of congressional

intent.  The government pointed to the statutory language of Sections 7201 and

7203 as clear evidence of Congress' intent to permit cumulative punishment where

a defendant was convicted in a single proceeding of violating both Section 7201

and Section 7203.  As further support for its position, the government argued

that Sections 7201 and 7203 involve separate crimes under Blockburger v.

United States, 284 U.S. 299 (1932) (and, thus, that a violation of

Section 7203 is not a lesser included offense of a violation of Section 7201). 

The Becker petition is currently pending before the Supreme Court.

      In McGill v. United States, No. 92-5842, the government

argued, relying on Sansone v. United States, 380 U.S. 343 (1965),

that willful failure to pay taxes (26 U.S.C. 7203) is a lesser included offense

of attempted evasion of payment of taxes (26 U.S.C. 7201).  The Supreme Court

denied certiorari in McGill on 
December 7, 1992
.

      The government's position in Becker reflects an adoption of

the strict "elements" test (see Schmuck v. United States,

489 U.S. 705 (1989)) and, consequently, a change in Tax Division policy. 

Accordingly, all attorneys handling tax cases should be notified of the following

ramifications of this change in policy.

      1.    In cases charged as Spies-evasion (i.e., failure

to file, failure to pay, and an affirmative act of evasion) under Section 7201,

it is now the government's position that neither party is entitled

to an instruction that willful failure to file (Section 7203) is a lesser

included offense of which the defendant may be convicted.  Thus, if there is

reason for concern that the jury may not return a guilty verdict on the Section

7201 charges (for example, where the evidence of a tax deficiency is weak),

consideration should be given to including counts charging violations of both

Section 7201 and Section 7203 in the indictment.

      The issue whether cumulative punishment is appropriate where a defendant

has been convicted of violating both Section 7201 and Section 7203 generally will

arise only in pre-guidelines cases.  Under the Sentencing Guidelines, related tax

counts are grouped, and the sentence is based on the total tax loss, not on the

number of statutory violations.  Thus, only in those cases involving an

extraordinary tax loss will the sentencing court be required to consider an

imprisonment term longer than five years.  In those cases in which cumulative

punishments are possible and the defendant has been convicted of violating both

Sections 7201 and 7203, the prosecutor may, at his or her discretion, seek

cumulative punishment.  However, where the sole reason for including both charges

in the same indictment was a fear that there might be a failure of proof on the

tax deficiency element, cumulative punishments should not be sought.

      2.    Similarly, in evasion cases where the filing of a false return

(Section 7206) is charged as one of the affirmative acts of evasion (or the only

affirmative act), it is now the Tax Division's policy that a lesser included

offense instruction is not permissible, since evasion may be established without

proof of the filing of a false return.  see Schmuck v. United

States, 489 U.S. 705 (1989) (one offense is necessarily included in

another only where the statutory elements of the lesser offense are a subset of

the elements of the charged greater offense).  Therefore, as with

Spies-evasion cases, prosecutors should consider charging both

offenses if there is any chance that the tax deficiency element may not be proved

but it still would be possible for the jury to find that the defendant had

violated Section 7206(1).  But where a failure of proof on the tax deficiency

element would also constitute a failure of proof on the false return charge,

nothing generally would be gained by charging violations of both Section 7201 and

7206.

      Where the imposition of cumulative sentences is possible, the prosecutor

has the discretion to seek cumulative punishments.  But where the facts

supporting the statutory violations are duplicative (e.g., where the only

affirmative act of evasion is the filing of the false return), separate

punishments for both offenses should not be requested.

      3.    Although the elements of Section 7207 do not readily appear to be a

subset of the elements of Section 7201, the Supreme Court has held that a

violation of Section 7207 is a lesser included offense of a violation of Section

7201.  See Sansone v. United States, 380 U.S. at 352; Schmuck

v. United States, 489 U.S. at 720, n.11.  Accordingly, in an appropriate

case, either party may request the giving of a lesser included offense

instruction based on Section 7207 where the defendant has been charged with

attempted income tax evasion by the filing of a false tax return or other

document.

      4.    Adhering to a strict "elements" test, the elements of Section 7207

are not a subset of the elements of Section 7206(1).  Consequently, it is now the

government's position that in a case in which the defendant is charged with

violating Section 7206(1) by making and subscribing a false tax return or other

document, neither party is entitled to an instruction that willfully

delivering or disclosing a false return or other document to the Secretary of the

Treasury (Section 7207) is a lesser included offense of which the defendant may

be convicted.  Here, again, if there is a fear that there may be a failure of

proof as to one of the elements unique to Section 7206(1), the prosecutor may

wish to consider including charges under both Section 7206(1) and Section 7207

in the same indictment, where such charges are consistent with Department of

Justice policy regarding the charging of violations of 26 U.S.C. 7207.  Where

this is done and the jury convicts on both charges, however, cumulative

punishments should not be sought.  In all other situations, the decision to seek

cumulative punishments is committed to the sound discretion of the prosecutor.

      5.    Prosecutors should be aware that the law in their circuit may be

inconsistent with the policy stated in this memorandum.  See e.g.,

United States

 v. Doyle, 956 F.2d 73, 74-75 (5th Cir. 1992);

United States

 v. Boone, 951 F.2d 1526, 1541 (9th Cir. 1991);

United States

 v. Kaiser, 893 F.2d 1300, 1306 (11th Cir. 1990);

United States

 v. Lodwick, 410 F.2d 1202, 1206 (8th Cir.), cert.

denied, 396 U.S. 841 (1969).  Nevertheless, since the government has now

embraced the strict "elements" test and taken a position on this issue in the

Supreme Court, it is imperative that the policy set out in this memorandum be

followed.

      6.    In tax cases, questions concerning whether one offense is a lesser

included offense of another may not be limited to Title 26 violations, but may

also include violations under Title 18 (i.e., assertions that a Title 26 charge

is a lesser included violation of a Title 18 charge or vice-versa).  The policy

set out in this memorandum will also govern any such situations -- that is, the

strict elements test of Schmuck v. United States, 489 

U.S.

 705,

should be applied.

      These guidelines will remain in effect unless or until the Supreme Court

grants certiorari in Becker and rules inconsistently with the newly

adopted policy.  Prosecutors are encouraged to consult with the Tax Division

whenever they are faced with a case raising questions addressed in this

memorandum by calling the Criminal Appeals and Tax Enforcement Policy Section at

(202) 
514-3011

.

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March 12, 1993