7 August 2001
Source: http://www.irs.ustreas.gov/prod/bus_info/tax_pro/irm-part/part09/36211a.html

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

## Handbook 9.4 Investigative Techniques Chapter 8 Undercover Operations
### Contents [9.4] 8.1 OVERVIEW [9.4] 8.2 General Information [9.4] 8.3 CLASSIFICATION OF UNDERCOVER OPERATIONS [9.4] 8.3.1 Group I Undercover Operations [9.4] 8.3.1.1 Group II Undercover Operations [9.4] 8.4 REQUESTS FOR UNDERCOVER OPERATIONS [9.4] 8.4.1 Undercover Committee [9.4] 8.4.2 Approval of the Undercover Request [9.4] 8.5 UNDERCOVER ACTIVITY IN MULTI-AGENCY INVESTIGATIONS [9.4] 8.6 UNDERCOVER AGENTS [9.4] 8.6.1 Recruiting Potential Undercover Agents [9.4] 8.6.2 Selecting Undercover Agents [9.4] 8.6.2.1 Schedule A Appointments [9.4] 8.6.3 Training for Undercover Agents [9.4] 8.6.4 Undercover Agent Classifications [9.4] 8.6.5 Undercover Agents Cadre [9.4] 8.6.6 Supervision and Evaluation of Undercover Agents [9.4] 8.7 CONSTITUTIONAL ADVICE BY UNDERCOVER AGENTS [9.4] 8.8 REPORTING BY UNDERCOVER AGENTS VIOLATIONS OF THE LAW [9.4] 8.9 DEVELOPING INFORMATION BEING GATHERED BY UNDERCOVER AGENTS [9.4] 8.10 CONTACT AGENT [9.4] 8.11 REVIEW OF UNDERCOVER OPERATION [9.4] 8.12 CLOSING THE UNDERCOVER OPERATION [9.4] 8.13 OBTAINING, USING, AND MAINTAINING COVER DOCUMENTS [9.4] 8.13.1 Pseudonyms [9.4] 8.13.2 Obtaining Undercover EINs and SSNs [9.4] 8.13.3 Accounting for Cover Bank Accounts [9.4] 8.13.4 Credit Cards [9.4] 8.14 PREOPERATIONAL MEETING [9.4] 8.15 INVESTIGATIVE TECHNIQUES [9.4] 8.16 CONFIDENTIAL FUNDS USED IN UNDERCOVER OPERATIONS [9.4] 8.16.1 Definitions and Example [9.4] 8.16.2 Investigative Advances Which are Expected to be Recovered (Recoverable Funds) [9.4] 8.16.3 Income Earned from Undercover Operation [9.4] 8.16.4 Request for Confidential Funds [9.4] 8.16.5 Establishment of Authorizations For Approved Undercover Operations [9.4] 8.16.6 Requests for Advances of Funds [9.4] 8.16.6.1 Accounting for Advances [9.4] 8.17 BUSINESS INCOME AND EXPENSES [9.4] 8.17.1 State and Local Consideration [9.4] 8.17.2 Petty Cash Account [9.4] 8.17.3 Audit of the Business Account [9.4] 8.17.4 Review of Financial Records Exhibit [9.4] 8-1 Ledger of Recoverable Funds Transfers Exhibit [9.4] 8-2 Form 8563, Monthly Balance Sheet for the Month Ending Exhibit [9.4] 8-3 Undercover Operations Reports Exhibit [9.4] 8-4 Form 8562, Request/Receipt For Advance Form Investigative Imprest Fund/Or Non-Recoverable Fund Exhibit [9.4] 8-5 Monthly Summary of Expenses Exhibit [9.4] 8-6 Form 1164, Claim For Reimbursement Exhibit [9.4] 8-7 Financial Review Exhibit [9.4] 8-8 Narrative Attachment to Form 8354 Exhibit [9.4] 8-9 Undercover Meetings at Pre-Established Locations Checklist Exhibit [9.4] 8-10 Undercover Meetings at Unknown Locations Checklist
### [9.4] 8.1 (06-30-1998) OVERVIEW
An undercover operation is an investigative technique in which an operative of the Service, either an undercover agent or a confidential informant, assumes a covert identity or purpose and takes action to gain evidence or information which would not be available but for the target's reliance on the operative's covert role. The undercover technique may be used in relation to criminal violations enforceable under the investigative jurisdiction of the Service. The use of undercover operations is an essential technique in the detection and investigation of criminal activity involving tax and money laundering offenses. Undercover does not include the temporary assumption of a pretext identity for the purpose of protecting the integrity of a surveillance. Generally only authorized Service employees in the GS-1811 series may participate in undercover activity.
### [9.4] 8.2 (06-30-1998) General Information
The use of undercover operations is a lawful technique in the detection and investigation of tax fraud, political corruption, organized crime, money laundering, narcotics trafficking, questionable return preparers, and other priority areas related to tax crimes. However, undercover operations can be controversial and potentially dangerous undertakings requiring significant financial and personnel resources. Therefore, judicious decision-making must be practiced with regard to the use of undercover techniques. The successful use of undercover techniques rests on the prudent and judicious application of the technique. The long-term success of this technique is a direct function of the ability, training, and support of our undercover operatives. To ensure that our operations are supported, management must demonstrate unwavering concern for the welfare of our undercover agents. When not functioning as undercover agents, special agents with undercover training, assigned to district offices, are expected to work a complete range of assignments. Because planned or ongoing undercover operations may require the services of a particular undercover agent on short notice, district management officials must ensure that undercover agents are available when needed. District management officials, especially those with several trained undercover agents, may be required to shift or defer completion of assignments so that the undercover needs of another district are met. This spirit of cooperation is essential for the continued success of the undercover program. Each Director of Investigations will designate a Regional Undercover Program Manager (RUPM) who will: Have administrative control of undercover agents assigned to the region. Monitor and provide support and assistance to all undercover operations in their assigned regions. Participate in a preoperational meeting prior to the initiation of undercover activity. Be responsible for conducting reviews of undercover activities.
### [9.4] 8.3 (06-30-1998) CLASSIFICATION OF UNDERCOVER OPERATIONS
Undercover activities are classified as either Group I or Group II. The Directors of Investigations or their designee will forward requests for proposed operations that they determine to be Group I to the Assistant Commissioner, Criminal Investigation (CI). The Assistant Commissioner, CI, must approve all Group I operations.
### [9.4] 8.3.1 (06-30-1998) Group I Undercover Operations
Group I operations exceed 6 months in duration, and/or exceed the Director of Investigations' level of approval for confidential expenditures. For tracking purposes, the approval period will be measured in months rather than days. Therefore, an operation beginning on January 1 for 3 months will terminate on March 31 and an operation beginning on September 25 will terminate on December 24, etc. Group I approval is required for any operation which involves a reasonable expectation of one or more of the following factors: The undercover operation will result in significant civil claims against the United States either arising in tort, contract, or claims for just compensation for the "taking" of property. The undercover operation will require indemnification agreements for losses incurred in aid of the operation. The undercover operation will have a significant impact on investigations in more than one region. The undercover operation will involve an investigation of possible corrupt action by a public official, a political candidate, the activities of a foreign government, the activities of a religious or political organization, or the activities of the news media. The undercover operation will involve damaging untrue representations by an undercover employee or cooperating private individual concerning the activities or involvement of an innocent person. An undercover employee or cooperating private individual will engage in any activity that is proscribed by federal, state, or local law as a felony or that is otherwise a serious crime, except for the making of false representations to third parties in concealment of personal identity or property or involvement in illegal gambling activities necessary for the maintenance of the operation. An undercover employee or cooperating private individual will seek to supply an item or service that would be reasonably unavailable to criminal actors but for the participation of the government. An undercover employee or cooperating private individual will run a significant risk of being arrested by seeking to continue in an undercover capacity. An undercover employee or cooperating private individual will be required to give sworn testimony in any proceeding using a false identity. An undercover employee or cooperating private individual will attend a meeting between a subject of the investigation and his or her lawyer which is covered by the attorney-client privilege. An undercover employee or cooperating private individual may pose as an attorney, physician, clergyman, or member of the news media. For example, an agent may pose as an attorney in a setting where he or she purports to represent some other identified party, such as another agent or cooperating private individual, or when the impersonation will clearly not involve a setting conducive to the initiation of an attorney-client relationship with any third party. Further, when assuming such roles, agents will not perform professional services associated with these cover occupations or assume such a cover occupation for developing a privileged relationship. A request for information will be made by an undercover employee or cooperating individual to an attorney, physician, clergyman, or other person who is under the obligation of a legal privilege of confidentiality, and the particular information would ordinarily be privileged. A request for information will be made by an undercover employee or cooperating private individual to a member of the news media concerning any individual with whom the newsperson is known to have a professional or confidential relationship. There is a significant risk of violence or physical injury to individuals or a significant risk of financial loss to an innocent individual. The operation will earn income which will be used to offset expenses of the operation, referred to as churning. (See 9.4.8.16.3.) An undercover meeting will occur in a foreign country. The Assistant Commissioner, CI, must approve all Group I operations.
### [9.4] 8.3.1.1 (06-30-1998) Group II Undercover Operations
Group II Operations include all other undercover activity not meeting the requirements for Group I. Group II operations require the approval of the Director of Investigations. The authority to authorize confidential expenditures to fund undercover operations may not be delegated below the level of the Director of Investigations. The Director of Investigations or his designee may approve an extension of a Group II operation for a cumulative duration of 6 months for the original Group II operation and the extensions. A Group II operation will automatically be elevated to Group I when it meets any one of the criteria for a Group I operation. Once it meets this criteria, Assistant Commissioner, CI, approval is required. A copy of an approved or disapproved Group II undercover request will be transmitted to the Assistant Commissioner, CI, Attn: Office of Special Investigative Techniques, within 10 workdays of approval or disapproval.
### [9.4] 8.4 (06-30-1998) REQUESTS FOR UNDERCOVER OPERATIONS
Requests for undercover operations, including required funding, will be submitted using Form 8354, Request for Undercover Operation. Targets for undercover operations must be generated from either a numbered general, primary, or subject investigation. Separate funding should be approved for each specific operation. An initial undercover request must include sufficient information to evaluate the particular request. In addition to the information required to be provided on Form 8354, each request must include a narrative set forth in the following order (see Exhibit 8-6): Information obtained to date which would lead a reasonable person to believe the target is in violation of the law. A statement will be made in the narrative section of the request that " alternative investigative actions have been considered and the utilization of the undercover investigative technique has been determined to be the best investigative approach at this point in time." This section should also be used to identify other targets of the operation. This does not preclude others, not known at the inception of the operation, from becoming targets as long as a target approval process is established. Objectives of the operation will normally be directed to address a particular compliance problem and state what the district expects to accomplish through the operation. State the plan of action to reach these objectives. State the specialized need for a certain type of undercover agent or cover. Only trained undercover agents should be used in undercover operations. However, when circumstances preclude using a trained undercover agent, the facts outlining the need for granting a deviation should be included here. Provide an itemization of all estimated non-recoverable funds such as all undercover agent travel and subsistence regarding the operation, informant payments, surveillance expenditures, etc. (See text 9.4.8.16.4) If recoverable funds are necessary, the request for the funds will be incorporated in the undercover request in accordance with text 9.4.8.16.2. Group II requests requiring recoverable funds will be acted upon based on the copy of the approved undercover request forwarded to the Assistant Commissioner, CI. Explain whether there is a reasonable expectation that one or more of the items stated in text 9.4.8.3.1 will occur and if so why. If one or more of the items is specified in text 9.4.8.3.1 (j), (k), (l), or (m), enumerate in the request what steps or techniques will be employed to avoid the receipt (by an undercover employee or cooperating private individual) of information which would ordinarily be privileged. Provide other pertinent information or specialized needs for the operation. Counsel should be given the opportunity to provide legal advice to undercover operations at all levels, without regard to whether Counsel review will be required for the prosecution recommendation. To this extent, it is encouraged that Counsel be given the opportunity to: provide legal advice in preparing recommendations for undercover operations; attend pre-operational meetings; and provide legal advice during the course of the operation. When it is determined that an operation should be elevated from Group II to Group I, a Form 8354 will be forwarded to the Assistant Commissioner, CI, for approval. The narrative will include the following: Synopsis of the results of the operation to date. Accounting of expenditures to date. The factor(s) that elevated the operation from Group II to Group I (if costs or time, or both, raised the operation to Group I, indicate the new projections). Any significant change in the objectives or plan of action or identification of additional targets. All other requests relating to undercover operations (i.e., additional funding, extension of time, significant deviations) will be made on Form 8354. The narrative will be attached and contain sufficient details to justify the request. The narrative for significant deviations should stand alone and not refer to sections approved in previous requests or sections pertaining to other approved operations.
### [9.4] 8.4.1 (06-30-1998) Undercover Committee
All requests for Group I operations will be reviewed by the Undercover Committee. Members of the committee should include the following, or their designees: Director, National Operations Division; Assistant Chief Counsel (Criminal Tax); Chief, Office of Special Investigative Techniques; and Deputy Assistant Attorney General, Department of Justice. Other individuals may be invited as necessary. The committee is advisory in nature and will recommend approval or disapproval to the Assistant Commissioner, CI. The committee will also review any significant deviations in ongoing Group I operations and review all requests for recoverable funds which exceed an aggregate of $50,000 in Group II operations. All requests for Group II undercover operations where there is a request for recoverable funds aggregating $50,000 or less will be reviewed by a Director of Investigations' Undercover Review Committee to be established for each region. Members of the Regional Undercover Review Committee should include the following or their designees: representative of the Office of Regional Counsel Criminal Tax; the RUPM; and one other analyst from the Director of Investigations' staff. The Regional Undercover Review Committee is advisory in nature and will recommend approval or disapproval to the Director of Investigations. The committee will also review any significant deviations in ongoing Group II operations which had been previously reviewed by them.
### [9.4] 8.4.2 (06-30-1998) Approval of the Undercover Request
Once the undercover plan for the operation has been approved by the Director of Investigations or Assistant Commissioner, CI, no significant deviation may be made with regard to the stated objectives or the proposed plan of action without the approving official's consent. Emergency approvals regarding both Group I and Group II operations may be granted telephonically by the Director of Investigations or Assistant Commissioner, CI. A Form 8354 must be submitted within 5 working days of telephonic approval. Emergency Extensions of Time to enable a district to perfect a deviation, extension and/or elevation request may be granted. These emergency extensions allow the district to continue the operation under the existing authorization. Unless specifically granted, an emergency extension does not authorize a deviation from the original approval nor does it provide for an operation to be elevated from a Group II to a Group I level. Approved extensions will be in monthly increments. The time authorized in the emergency authorization will be included as part of the time requested in the extension request. For example, in a 3-month old Group I operation involving a requested 3-month extension, and a 10-day emergency extension (to perfect the extension request), the total time upon approval will be 6 months. However, if the extension is not approved, the total time will be adjusted to show 4 months, since the operation has extended beyond the 3rd month and into a part of a 4th month. The undercover operation will be considered initiated on the date approved, unless another date is specified in the request. Upon receipt and classification (e.g., Group I or II) of an undercover request, a 7-digit number will be assigned by the Director of Investigations. A separate number will be assigned to each operation (not subjects targeted). All numbered investigations related to the undercover operation, or derived from the undercover operation, will reflect the 7-digit number and approval date as provided for in text 9.9 of the Criminal Investigation Management Information System Handbook (CIMIS). A copy of all Group II approvals, and disapproved requests, should be sent to the Assistant Commissioner, CI Attn.: Chief, Office of Special Investigative Techniques, within 10 days after the action is taken. (See text 9.4.8.3.1.1(5).)
### [9.4] 8.5 (06-30-1998) UNDERCOVER ACTIVITY IN MULTI-AGENCY INVESTIGATIONS
In multi-federal agency investigations (e.g., a joint grand jury investigation with another agency), Service approval for participation in an undercover operation is not required if each of the following conditions are met: The undercover operative is not a Service employee or confidential informant; IRS is not assuming a prominent role in managing or directing the activities of the undercover operation; The controlling federal agency has obtained authorization for an undercover operation within their established guidelines. When an undercover agent from another agency performs undercover activities solely to benefit the Service and is not connected to an investigation with his or her own agency, Service approval must be obtained before the undercover agent begins the undercover operation. A Service undercover special agent who performs undercover activities on behalf of another agency and is not connected to a Service-related investigation must be detailed to that agency.
### [9.4] 8.6 (06-30-1998) UNDERCOVER AGENTS
The recruitment, selection, and training of special agents to become undercover agents is critical to the success of the undercover program.
### [9.4] 8.6.1 (06-30-1998) Recruiting Potential Undercover Agents
To ensure that the needs of the undercover program are met, all CI Group Managers must identify those special agents with the interest and the unique talents to effectively function in an undercover role. All management officials, especially the RUPMs and Headquarters officials involved in the undercover program, will attempt to identify potential undercover agents during the special agents' on-the-job training and probationary period. RUPMs will also be responsible for ensuring that the Service's undercover program is regularly promoted to all special agents.
### [9.4] 8.6.2 (06-30-1998) Selecting Undercover Agents
Based on available undercover agent training slots, each RUPM will notify the districts to seek applicants. Undercover agent applicants must have at least 2-years of experience as a special agent. Under no circumstances will special agents be required to participate in the program. Interested special agents will submit a memorandum to their Group Manager, not to exceed two pages, detailing their qualifications to become an undercover agent. This memorandum should include previous appropriate experience (personal or job related), personal attributes, and any special skills (i.e. languages, licenses, etc.) that indicate potential to perform undercover duties. All applicant memoranda and the agent's most recent evaluation will be forwarded to the Chief for his or her approval and transmitted to the Director of Investigations. The Chief should seek input from the Group Manager and may conduct interviews prior to submitting a recommendation to the Director of Investigations. The Director of Investigations will select applicants to be interviewed by the Undercover Panel. The panel will be selected by the Director of Investigations and should include at least three individuals with experience in undercover assignments or supervising undercover activities. The Director of Investigations will use all available information, including recommendations by the Undercover Panel, to determine which applicants will be nominated to Headquarters for final selection to attend undercover training school. Only after satisfactory completion of formal training will a special agent be considered an undercover agent.
### [9.4] 8.6.2.1 (06-30-1998) Schedule A Appointments
Schedule A employees may be utilized in undercover operations. Their use must be approved by the Assistant Commissioner, CI, (see text 9.11.4.)
### [9.4] 8.6.3 (06-30-1998) Training for Undercover Agents
Headquarters will provide uniform training for all undercover agents. District Counsel attorneys will be offered the opportunity to attend all Headquarters and regional training for undercover and contact agents. This will provide counsel attorneys exposure to problems and issues regarding undercover operations.
### [9.4] 8.6.4 (06-30-1998) Undercover Agent Classifications
Throughout the screening and selection process for potential undercover agents, management officials will discuss the necessity of making a commitment to short-term or long-term undercover assignments. "Short-term" assignments may last from several days to several weeks in the target area. They may also involve being assigned to "cameo" or supporting roles in more complex undercover operations. "Cameo" assignments offer an excellent opportunity for trained but inexperienced undercover agents to gain experience and confidence. "Long-term" assignments may last from several months to several years in the target area (with periodic visits home). Undercover agents may be allowed to continue to accept undercover assignments based on a yearly review. The review will consider: The undercover agent's desire to continue in the program. The undercover agent's receipt of satisfactory evaluations relating to his or her undercover assignments. The undercover agent's ability to satisfactorily cope with the emotional, psychological, and physiological stresses associated with undercover. The District Director of the home district of the undercover agent and the Director of Investigations will be the responsible review officials.
### [9.4] 8.6.5 (06-30-1998) Undercover Agents Cadre
Cadre agents will be administratively assigned to the office of the Director of Investigations, need not be physically relocated, and may be assigned to a post of duty in a district office. Continuation in the cadre will be subject to periodic review. Undercover agents must be trained and successfully complete one or more undercover assignments before selection into the cadre. The Directors of Investigations select the cadre. Cadre undercover agents should develop multiple cover identities so that they can work multiple operations simultaneously. Cadre undercover agents have as their primary responsibilities performing and supporting undercover operations. While on an undercover assignment, the agent works under the direction and supervision of the district to which he or she is assigned. When not functioning as an undercover agent, cadre agents will be assigned to support undercover and other activities as needed. If not needed in this capacity, cadre agents will be assigned to the district in which their home post of duty is located and be given such duties and responsibilities that will permit their immediate availability for an undercover assignment. The assignment of cadre agents to undercover operations will be coordinated with Headquarters prior to their assignment. If cadre agents are not assigned to a Group I or Group II undercover assignment during a 2-year period or more, they will no longer be considered cadre undercover agents. They will have to be retrained before resuming undercover assignments.
### [9.4] 8.6.6 (06-30-1998) Supervision and Evaluation of Undercover Agents
The Chief in the district in which the undercover agent is working is responsible for the supervision of the undercover special agent. Within 30 days of the close of each undercover operation, or within 30 days of the completion of an undercover agent's assignment, outside his or her home district, the manager of the group in which the operation took place will evaluate the undercover agent's performance, with input from the Chief. Undercover agent evaluations should be in a format paralleling the seven special agent job elements as listed on Form 5014, Evaluation of Special Agent Performance. The evaluation of performance must be prepared as a separate document and forwarded through the RUPM where the operation took place to the RUPM of the agent's home office. Evaluations of undercover agents assigned to district offices should be forwarded to that district. The undercover agent's Group Manager should discuss the evaluation with the undercover agent and perform any necessary counseling at that time. The agent's Group Manager will consider evaluations of an agent's undercover performance in the agent's annual appraisal of critical elements. During long-term undercover assignments, the Chief, where the undercover assignment takes place, may temporarily promote the undercover agent after a period of 90 consecutive days. This temporary promotion may not exceed the GS-13 level and will be based on the complexity of the assignment and performance of the undercover agent.
### [9.4] 8.7 (06-30-1998) CONSTITUTIONAL ADVICE BY UNDERCOVER AGENTS
Undercover agents will avoid acts of entrapment and must observe the Constitutional rights of persons they come in contact with during assignments. However, while acting in an undercover capacity, agents are not required to advise a subject of his or her Constitutional rights as contained in text 9.4.8.11.
### [9.4] 8.8 (06-30-1998) REPORTING BY UNDERCOVER AGENTS VIOLATIONS OF THE LAW
The undercover agent will report to the contact agent any illegal activities that come to his or her attention and will also specify any self involvement.
### [9.4] 8.9 (06-30-1998) DEVELOPING INFORMATION BEING GATHERED BY UNDERCOVER AGENTS
Information and evidence will be reported in the undercover agent's daily memorandum unless it is contained in consensually monitored conversations. The contact agent will prepare and forward information and evidence developed by the undercover agent which will not compromise the integrity of the undercover operation. During meetings with the undercover agent, the merit of releasing information prior to completion of the operation should be discussed. All information not disseminated during the undercover operation should be disseminated upon completion. Information obtained as a result of an undercover operation which pertains to violations of laws administered by other law enforcement agencies will be transmitted to the appropriate agencies through channels, provided the dissemination of the information does not jeopardize the undercover operation or agent. In order to withhold information concerning other violations, the Chief will submit a recommendation, along with justification, to the District Director for his or her approval in accordance with the provisions of Delegation Order No. 156 (as revised). If during the undercover operation significant violations of laws enforced by other federal law enforcement agencies are uncovered, the Chief should consider alerting those agencies for joint participation in the operation. In all instances the disclosure guidelines will be followed.
### [9.4] 8.10 (06-30-1998) CONTACT AGENT
The Chief will assign a trained and/or experienced contact agent at the district location of the undercover operation to perform on-site liaison with the undercover agent and to be primarily responsible for the security of the undercover agent. The principal duties of the contact special agent are to: Attend to the security and safety of the undercover agent. Transmit necessary instructions and information to the undercover agent. Ensure that district objectives are being carried out by the undercover agent. Receive and review daily activity and financial reports of the undercover agent. Prepare reimbursement claims and financial earnings statements. Provide assistance in all administrative matters including leave, compensation, firearms, etc. Develop and disseminate all information being gathered. Provide immediate assistance in any emergency. Maintain detailed accounting records of all recoverable and confidential funds. The complete Contact Agent Guidelines are included in text 6.1.1 of the LEM IX. The contact agent will arrange for meetings to be held between the undercover agent, contact agent, and investigating agent and the supervisory manager. In addition to administrative matters, the short and long-term goals and objectives of the operation will be reviewed. The contact agent is responsible for reviewing the Undercover Checklist (Exhibit 8-9 or 8-10) when planning undercover meetings at pre-established and unknown locations. When it is not appropriate to assign a full-time contact agent, the Chief will designate an individual to be responsible for the administrative matters of the undercover agent and operation. If a trained contact agent is not available, a trained undercover agent should be considered to perform these duties. The duties of the contact agent should not be assigned to the investigating agent.
### [9.4] 8.11 (06-30-1998) REVIEW OF UNDERCOVER OPERATION
The RUPM will be responsible for conducting a review of all ongoing undercover operations at a minimum interval of 3 months. The review should take place with the Group Manager and contact agent and should include, if possible, the undercover agent and a summary discussion with the Chief and District Director. Counsel should be given the opportunity to provide advice on legal issues. The review should provide support and/or assistance and keep management aware of all undercover activities. The RUPM should notify the Assistant Commissioner, CI, Attn: Office of Special Investigative Techniques, 10 workdays in advance of reviews of Group I operations for possible participation in the review. Attendance, however, is optional and discretionary. A summary of the review of both Group I and II operations, prepared by the RUPM should cover the following areas: Identification of investigative assignment and assigned operation number. Operation progress. Significant deviations needed or made. Highlight significant events. Whether the duration of the assignment is sufficient to accomplish the objectives. Information or evidence obtained which has an impact beyond the district and coordination steps taken. Resolution of administrative and operations problems. Expenditures made during the operation to date, including comments regarding a review of the operation's accounting records and the agent's daily reports. The RUPM will also comment on the reasonableness of the expenses incurred in the undercover operation. A review of Form 4930 (Criminal Investigation Division General/Primary/Subject Investigative Report) should be performed to insure that the undercover operation number is entered properly. A copy of the review summary will be forwarded to the District Director, Director of Investigations, and the Assistant Commissioner, CI, Attn: Office of Special Investigative Techniques. If a review is not conducted, a brief memorandum stating why it was not conducted will be substituted for the review summary. The review summary should be received in Headquarters no later than 30 days after the review. A Year End Account Report will be prepared by October 31 for each undercover operation that had approved churing authority during the previous fiscal year only. Each Director of Investigations will prepare and forward to the Assistant Commissioner, CI, Attn: Office of Special Investigative Techniques, a summary of confidential funds approved and expended and churned income earned and expended. This summary should reflect the following:
District FY
Operation Number | Approval Date | Expiration Date
Approved Confidential Funds
Approved Prior Period Not Spent | Approved This Reporting Period | Spent This Reporting Period Sub-Object Class Code | Approved Funds Not Spent At End of Reporting Period
Churned Income
Earned This Reporting Period | Expended This Reporting Period | Returned to the General Fund
### [9.4] 8.12 (06-30-1998) CLOSING THE UNDERCOVER OPERATION
When the Chief determines that the objectives of the undercover operation have been accomplished, or cannot be accomplished, or cannot be accomplished without expending an unreasonable amount of staff time, he or she should recommend terminating the operation. Before closing an operation, the Chief, through regular channels, will consult with the officials responsible for approving the operation. After operational aspects are closed down, the district may continue to make expenditures from the approved imprest fund authorization necessary to terminate the operation. These additional expenditures will be reported via a memorandum from the Chief, through the Director of Investigations, to the Assistant Commissioner, CI, Attn: Office of Special Investigative Techniques. This report is to be received by Office of Special Investigative Techniques no later than 30 days after the final expenditure. The issuance of the operational closing report should not be delayed by expenditures still being made to terminate the operation. Within 30 days after each operation, the Chief will prepare a closing report which includes the following: Identification of investigative assignment (taxpayer/project name), operation number, and date the undercover activity terminated. Describe results of the operation and whether objectives were accomplished. Amounts of civil assessments including jeopardies, terminations, and/or seizures of assets. Cost of the operation. Inventory of all capital and other reusable items acquired during the operation and available for future use (storage location of all items should be noted). Significant or unusual events or problems which occurred during the operations. Suggestions which would help improve future operations. Any other pertinent information relating to the operation. The evaluation of the undercover agent's performance should accompany this report as a separate attachment. (See text 9.4.8.6.6(2).) If a tax return was prepared on behalf of the undercover agent's cover identity, please provide the name(s), address(es), Social Security Number(s), the year(s) filed, amount of the refund claimed, and the disposition of the refund check for each return. The report will be prepared with a signature block for the Director of Investigations to concur with the opinion of the Chief. A copy of the closing report will be forwarded through normal channels to the Assistant Commissioner, CI, Attn: Office of Special Investigative Techniques. This report is to be received by Office of Special Investigative Techniques not later than 60 days after the close of the operation. Cost of the operation include: Total disbursed from the imprest fund. Gross receipts. Total expenses paid from receipts generated. Net income earned excluding interest income. Interest income earned. Net income earned sent to the general fund. Interest income sent to the general fund. A description and itemization of other monies sent to the general fund. Costs of capital acquisitions. Estimated cost to terminate the operation. An itemized comparison of proposed operational costs to actual operational costs by expense category as set forth in the following example:
Expense Category | Proposed Expenses | Actual Expenses
Rent | $XX | $XX
Travel | $XX | $XX
A statement as to whether the operational expenses were deemed reasonable and necessary by the Chief. If recoverable funds were authorized, state the amount and date the recoverable funds were returned to Office of Special Investigative Techniques.
### [9.4] 8.13 (06-30-1998) OBTAINING, USING, AND MAINTAINING COVER DOCUMENTS
A general investigation may be established at the District, Regional, or Headquarters level to develop and maintain cover documents for undercover and contact agents. These general investigations must be approved by either the Director of Investigations or the Assistant Commissioner, CI. The general investigations may be approved for the duration an undercover agent or contact agent is available to work. The approval level is dependent upon the amount of funding requested. The Director of Investigations is responsible for approving and controlling cover documents for use by cadre undercover agents. The District Director or his or her designee will approve the use of undercover documents and the Chief, CI, Division will control cover documents for non-cadre undercover special agents and any other agent requiring cover documents. Examples of documents that may be obtained locally include operator's permits, automobile registrations, and credit cards. Trained undercover and contact agents should be provided sufficient time and funds to acquire cover documentation in anticipation of specific assignments. The Office of Special Investigative Techniques will assist in obtaining any documents not available at the district or regional level. In addition, Headquarters, Office of Special Investigative Techniques, will be responsible for securing documentation contained in 6.1.1 of LEM IX. The Chief should forward a memorandum outlining the nature and circumstances for requesting documents from Headquarters. This request should go through the Director of Investigations to the Assistant Commissioner, CI, Attn: Office of Special Investigative Techniques. Preliminary informal discussions with the Office of Special Investigative Techniques should take place whenever prior experiences determine that required documents are unavailable or difficult to obtain. Documentation needed in connection with a specific operation should be incorporated into the undercover request. All documentation obtained for substantiation of a temporary identity will be used only for official business purposes and in connection with an approved activity. Undercover agents and trained contact agents will retain their cover documents in order to perfect their cover. Cover premises, bank accounts, and companies may be maintained provided there is foreseeable reason, based on past activity, for such maintenance. This will become an integral part of the cadre agent cover. When special agents with cover documents no longer need the cover (due to retirement, transfer to another agency, reassignment, etc.), the Chief will discuss with the RUPM the feasibility of transferring the cover documents to another special agent. If the district or region wishes to maintain the cover documents, approval should be obtained from the Assistant Commissioner, CI. If the RUPM determines that the transfer of cover documentation is not appropriate, documents obtained from Headquarters should be returned. Other documents should, at the Chief's or Director of Investigations' option, be destroyed or returned to the issuing source as determined by agreements to obtain the documents. The approving official or his or her designee will conduct a yearly inventory of all cover documents, under his or her control. On an annual basis, agents will provide their Chief with a complete inventory of all cover documents. Agents will certify to the accuracy and completeness of this inventory.
### [9.4] 8.13.1 (06-30-1998) Pseudonyms
Special agents, nor any other CI employee, will use a fictitious identity or pseudonyms except when conducting surveillance or an authorized undercover activity, unless he or she receives specific written authority to do so from the Assistant Commissioner, CI. However, CI vehicles may be registered in fictitious names to shield them from being identified as law enforcement vehicles by the public in general. Assumed identities will not be used on taxpayer correspondence or notices except as authorized above.
### [9.4] 8.13.2 (06-30-1998) Obtaining Undercover EINs and SSNs
Undercover Employer Identification Numbers (EINs) and Social Security Numbers (SSNs) are used by: Internal Revenue Service (IRS) Federal Bureau of Investigation (FBI) Customs Drug Enforcement Administration (DEA) Department of the Interior (Fish & Wildlife) U. S. Postal Inspectors Other federal, state and local law enforcement agencies Undercover SSNs are controlled by CI in the regions. All EIN requests from the districts and other law enforcement agencies for undercover storefronts and covert companies will be directed to Headquarters, Office of Special Investigative Techniques. Headquarters will obtain all pertinent information and coordinate with the appropriate Chief, Criminal Investigation Branch (CIB) at the service center. The Chief, CIB, will ensure confidential and expeditious handling of all undercover requests by designating a CIB contact person who will: Coordinate all Headquarters requests for undercover EINs. Obtain undercover EINs from the Entity Section at the service center. Refer all district office CI requests for undercover EINs to Headquarters. Maintain a record of all EIN requests.
### [9.4] 8.13.3 (06-30-1998) Accounting for Cover Bank Accounts
Undercover agents and contact agents should not deposit personal funds in cover bank accounts or write checks on cover bank accounts to pay personal expenses with the exception of paying personal charges made on the undercover credit cards. In addition, with the approval of the Chief, undercover agents assigned to long-term undercover operations may deposit per diem or subsistence reimbursement funds in the form of currency to a cover bank account and issue checks to pay related expenses. To assist the undercover and contact agent to establish a history of financial transactions, the Chief may authorize the transfer of recoverable funds to a cover bank account on a temporary basis. Transfers should be in various amounts on different dates from the operation. These transfers and use of the funds must be included and specifically detailed in the request for the recoverable funds. The RUPM will receive (i.e.: fax, mail, or express mail) a monthly verification of the recoverable funds and forward the verification report, through channels to Headquarters, Office of Special Investigative Techniques, no later than 5 workdays after the first of each month. This procedure will be followed each month for as long as the funds are outstanding. Sufficient records will be maintained on undercover bank accounts. They will include: A check register detailing all deposits and withdrawals. Explanation of all charges to the account. All interest earned on the account. An explanation of all personal funds deposited. On a monthly basis, the agent maintaining undercover accounts not used in connection with a specific operation will submit to his or her Group Manager, Monthly Balance Sheet (Exhibit 8-2) and all supporting documents relating to those undercover bank accounts. This includes bank statements, canceled checks, memos, etc. The Monthly Balance Sheet will be prepared in the same manner as for an ongoing undercover operation. The agent will account for all advances, security deposits outstanding, and interest income earned on accounts to date. On a quarterly basis, interest earned on undercover accounts, which are not being used in connection with a specific operation, will be remitted to the General Fund. On a quarterly basis, the Chief or his or her designee will conduct a joint review of the undercover account with the Group Manager. Situations may arise when a cadre undercover agent has more than one advance outstanding. In these situations, the RUPM will perform the functions as discussed in text 9.4.8.13.2 (1), (2), (3), and (4) above. The RUPM should also insure that he or she has documentation, statements, etc., regarding any advances that the undercover agent may have received, had control of, or was responsible for. The RUPM should also receive copies of Form 1012, Travel Voucher, and any other type of reimbursement request from all sources submitted by the cadre undercover agent. When an undercover agent is assigned from another region and funds are advanced to be cycled through a cover account located in the undercover agent's district or region, it will be necessary to forward to the undercover agent copies of all financial data monthly. These records should show all funds advanced to the undercover agent as well as their disposition and status.
### [9.4] 8.13.4 (06-30-1998) Credit Cards
Interest or finance charges may be paid for balances on undercover credit cards in order to establish and maintain credit histories for undercover agents. Interest or finance charges may not be incurred for more than 2 consecutive months. The account must be paid in full every 3 months. For the months when the interest or finance charges are incurred, there must be a timely payment on the account for at least the minimum payment due. Finance charges will be paid from imprest funds and reported as an expenditure on the Form 1164, Claim for Reimbursement for Expenditures on Official Business. Changes for late payments are not authorized. The agent with prior written approval of the Chief, may charge personal items not to exceed $500 in any one month to establish a credit history. All debits and credits on the monthly statements should be annotated with a "P" (personal) or a "B" (business). Cash advances may not be drawn against undercover credit cards. In extraordinary situations, the Chief, may approve monthly personal charges in excess of $500 but caution must be exercised. Cadre agents assigned to the Director of Investigations' staff must obtain approval from the Director of Investigations. The Group Manager or RUPM should review activity at the end of each month. Personal charges on a credit card may be paid from an undercover bank account after the appropriate amount has been deposited or with cashier's checks or money orders purchased with personal currency. On a monthly basis, the undercover and contact agent should present statements for undercover credit cards for review to his or her Group Manager or RUPM. Agents will also list credit cards which did not issue a monthly statement. On an annual basis, the Chief will require special agents having covert identities, which include credit instruments, to submit multi-credit bureau histories of each of those identities. A device such as TRW Credentials Service, Equifax, and Trans Union are recommended. In no instance are the credit inquiries to be made in a manner which will identify the requester as being in the Service. The Chief will review the credit histories and reconcile them to the agent's cover document inventory. A copy of the report will be maintained in the individual's cover document file and a copy will be sent to the RUPM. When an agent is assigned to the area cadre, the agent will furnish the credit history to the Director of Investigations.
### [9.4] 8.14 (06-30-1998) PREOPERATIONAL MEETING
See 6.2.1 of the LEM IX.
### [9.4] 8.15 (06-30-1998) INVESTIGATIVE TECHNIQUES
Violations of criminal statutes by Service personnel are prohibited. However, under certain circumstances, investigative techniques used by special agents in the performance of their official duties which would appear to violate a state or local statute or the Code of Conduct, do not actually constitute a violation. For example, in a wagering investigation such techniques as a special agent placing a wager, participating as a customer, using a temporary identity, consuming alcoholic beverages during duty hours while on a surveillance or when making an undercover contact to obtain evidence may be justified and, therefore, would not actually, constitute a violation. As set forth in the rules of conduct, special agents are prohibited from consuming alcoholic beverages and from being intoxicated while on duty. One possible exception to an agent being allowed to consume alcoholic beverages while on duty is when the agent is working in an undercover capacity. Undercover agents are discouraged from consuming alcoholic beverages while on official duty. They are expressly prohibited from consuming alcoholic beverages to an excess. In the event that an undercover agent must consume alcoholic beverages to protect his or her cover and the integrity of the operation, he or she will use the utmost discretion and may do so in moderation. This is an issue which will be discussed during the pre-operational meeting (see text 6.2.1 of LEM IX). The use of alcohol by an undercover agent is at the discretion of the Chief of the district where the agent is working in an undercover capacity. In those circumstances where an undercover agent must consume alcoholic beverages, the agent should not operate a motor vehicle.
### [9.4] 8.16 (06-30-1998) CONFIDENTIAL FUNDS USED IN UNDERCOVER OPERATIONS
Accounting for confidential expenditures in undercover operations is the same as for other approved authorizations with the following significant exceptions: The contact agent is allowed to receive advances from the cashier of an investigative imprest fund and make advances to other special agents or submit claims for reimbursement of expenses on their behalf (subcashiering). The contact agent serves as the bookkeeper and cashier for an undercover operation. The contact agent is the only employee who transacts business with the imprest fund cashier in relation to an undercover operation. The contact agent will record and control the expenditures. If the Imprest Fund Cashier is a CI employee, the original accounting records, invoices, bills, bank records, and other supporting documentation will be maintained by the Imprest Fund Cashier. If not a CI employee, these documents will be kept by the Chief or his or her designee. The Form 1164, accompanied by the Monthly Summary of Expenses (Exhibit 8-5) to substantiate expenses, should be submitted to the Imprest Fund Cashier for reimbursement. The contact agent, Group Manager, and investigating agent(s), are responsible for the proper use, security, and accounting of recoverable funds. These funds should be kept separate from imprest funds, e.g., separate safe or different checking account. Requests for advances and reimbursement of expenditures incurred during undercover operations will be submitted by the contact agent through channels to the imprest fund cashier as prescribed in text 9.11.1. With the Chief's approval, the contact agent will retain the documentation until the undercover operation is completed and an audit is performed. The documentation will then be forwarded to the Chief for association with the imprest fund records or for storage. Since each undercover operation has a certain degree of uniqueness, it is impossible to prepare a "laundry list" of allowable expenditures. During the preoperational meeting there should be an understanding among the undercover agent, contact agent, and district management as to what is properly chargeable, and spending limits placed on the undercover agent. This must be obtained before approval for a particular expenditure. This will prevent misunderstandings between the undercover agent and district management. Misunderstandings could result from the undercover agent applying an approved method of operation from a prior undercover project which may not be acceptable for the current one.
### [9.4] 8.16.1 (06-30-1998) Definitions and Example
Sub-Object Class (SOC) 9102 Confidential Expenditures for Undercover Operations (see text 9.11.2): Advances for these expenditures are to be obtained from, and reimbursed through, imprest funds for Investigative Purposes. SOC 9102 expenditures are separate from recoverable investigative advances which may be obtained only from Headquarters. Recoverable Investigative Advances: Advances issued to employees for use in an investigation which are to be returned when the investigation is completed. These advances are not expected to be expended. They are to be obtained only from Headquarters, as explained in text below. Example: The difference between recoverable funds and nonrecoverable expenditures may be illustrated by the following example: If $100,000 is to be "laundered" through a bank, the contact agent should request an advance of $100,000 in recoverable funds from Headquarters. The Headquarters, Financial Operations Branch, will show the $100,000 as an account receivable until it is returned. Assuming a $5,000 fee is paid to a corrupt banker for the banking activity, the contact agent would obtain $5,000 from the imprest fund (this would be an expenditure of the undercover operation) and add it to the remaining recoverable funds of $95,000 in order to return the original amount of $100,000 to Headquarters. When the cashier requests replenishment of the imprest fund through the Regional Controller's Office, the $5,000 will be obligated and charged to SOC 9102.
### [9.4] 8.16.2 (06-30-1998) Investigative Advances Which are Expected to be Recovered (Recoverable Funds)
The procedures in this section are applicable to advances which are expected to be returned in full, and pertain to both undercover and non-undercover operations. Requests for recoverable fund advances will be noted in the undercover request. Where the operation is classified as Group II, and the amount of recoverable funds requested totals $50,000 or less, the request must be approved by the District Director and the Director of Investigations. The Director of Investigations will forward the approved field request and committee notes to the Assistant Commissioner, (CI), for authorization of recoverable funds. When the request for recoverable funds relates to a Group I undercover request, it must also be approved by the Assistant Commissioner, (CI), before recoverable funds are authorized. For Group I and Group II investigations, the Assistant Commissioner, (CI), will retain the field request and forward a separate memorandum directly to the Office of Financial Operations with sufficient information to effect the advance. The Office of Special Investigative Techniques will monitor recoverable funds to ensure that they are returned when no longer needed. Requests should state the purpose, amount, and the approximate time the funds will be outstanding. There should also be a description of control and the security precautions to be taken. The request should provide Headquarters instructions about the payee of the check and mailing instructions. No checks will be issued in an undercover name. The Office of Special Investigative Techniques will mail the check for recoverable funds as directed by the Chief in the request. The Chief will issue instructions to the payee regarding planned disposition of the check. Recoverable fund advance checks should not be deposited in a manner which would compromise an undercover account or undercover agent. If the funds are to be wired to a bank account, the Office of Special Investigative Techniques should be requested to send confirmation of the wire transfer to the Chief. A confirmation of receipt of the funds must be secured from the bank and furnished to the Chief within 5 days of receipt of the funds. The contact agent (or other appropriate person) should ascertain that the bank designated as the recipient of the funds will accept a wire transfer and that the funds will be available by the bank within the necessary time frame. The request should contain the name of the bank, its nine-digit ABA number, account number, and to whose attention. Recoverable fund advances transmitted by wire should not be wired in a manner which would compromise an undercover account or undercover agent. Recoverable and confidential funds, generally, should not be commingled in one bank account. In certain undercover investigations, the logistics of the operation may deem it necessary to use one bank account for both recoverable and nonrecoverable funds. In these situations, the undercover agent should document, maintain, and ensure adequate accountability for the funds. The Chief may also authorize the deposit of recoverable funds from more than one operation into the same undercover bank account. In these situations, the undercover agent should document, maintain, and ensure adequate accountability for the funds. When time is of the essence or where it is deemed necessary for backstop/cover purposes, the Director, National Operations; Director of Investigations; or Chief, depending on where the recoverable funds are being held, may authorize the transfer of recoverable funds among approved undercover operations. This authorization must be in writing. In any situation where the agents plan to give or "flash" recoverable funds to a subject of an investigation (for money laundering or tax shelter investments, etc.), prior written approval of the Chief must be obtained. If the recoverable funds are to be withdrawn in the form of currency and given to the undercover agent, he or she should sign a receipt (Form 1165). Each time funds are exchanged, a receipt will be obtained. If substantial funds in the form of currency are involved, surveillance by armed agents should be considered until the funds are returned by the undercover agent. When agents are transporting large sums of currency, they should be armed. Large sums of currency should not be stored in Service space. Recoverable funds, when not being utilized in the operation, should be maintained in an interest-bearing bank account, whenever possible, requiring the signatures of two Service employees. If it is not practical for the advance to be placed in an interest earning account, approval of the Chief is necessary prior to the advance being placed into a non-interest earning account. Documentation of the approval should be placed in the investigative file for subsequent review. If operational needs require immediate liquidity, a safe deposit box may be utilized. If a safety deposit box is utilized, at least three Service employees should be shown on the signature card, and it must require two of the three signatures to enter the box. Utilizing three people will allow more flexibility in obtaining entry to the box. A bank with 24-hour access is desirable and increases flexibility while allowing for greater security. The payment for safe deposit boxes and other expenses related to the movement or storage of recoverable funds should be paid out of the imprest fund. The contact agent should maintain a detailed ledger (Exhibit 8-1) showing all activity with respect to the receipt and disbursement of recoverable funds. The Group Manager should review the ledger every month and compare it to receipts, bank statements, and/or deposit slips. On a monthly basis, the Group Manager and the contact agent will physically verify all recoverable funds which are outstanding in the form of currency and other negotiable instruments (cashier's checks, bearer bonds, etc.). Their review should include the verification of the recoverable funds ledger, the undercover agent's receipts for recoverable funds, deposit tickets, voucher copies of cashier's checks, bank wire transfer memos, etc. In addition, bank accounts which contain recoverable funds will be reviewed in order to account for all recoverable funds. After verifying the amount and location of the funds, the contact agent will complete the section relating to Recoverable Funds on the Monthly Balance Sheet (Exhibit 8-2). The Group Manager will verify the accounting and sign the Monthly Balance Sheet. The Group Manager will provide written verification to the Director of Investigations through channels within 5 workdays. The Director of Investigations will notify the Office of Special Investigative Techniques about the status of the advance within 5 workdays of having been notified. All funds received from or given to other government agencies should be documented and controlled under the above procedures. Each participating agency at the conclusion of a joint investigation should identify and circulate a summary of its project expenses and list any reimbursements received from the other agency. If another need for an investigative advance should arise while the original advance is still outstanding, a separate request should be initiated seeking approval to use the same recoverable funds. However, the original outstanding advance, even though unrelated, may be used. This is critically important when the need for the advance cannot be satisfied through normal or expedited transfer procedures. This is not a common practice and should only be used in emergency situations. The amount of funds needed should be justified and adequately documented. The Chief will require that a verification of recoverable funds is conducted as part of the undercover operation's quarterly financial review as provided in text 9.4.8.17.4(3). Any interest earned on recoverable funds will be forwarded through the Chief to the Regional Controller's Office for transmittal to the General Fund at the conclusion of the undercover operation. The transmittal memorandum accompanying the return of funds should only make reference to the undercover operation number. Identifying the operation by name could lead to an inadvertent disclosure of sensitive undercover operation information. Recoverable funds are to be returned within 10 calendar days of the close of the undercover operation or other expiration date if unrelated to a specific undercover operation. If the funds cannot be returned within this time frame, a request for an extension of time should be submitted through the original concurring and approving officials. When returning recoverable funds to Office of Special Investigative Techniques, the following procedures should be followed: Obtain a check payable to "IRS Accounting Section" . Mail the check through the Chief to the Assistant Commissioner (Office of Special Investigative Techniques), P.O. Box 6196 Benjamin Franklin Station, Washington, DC 20044. In the event of loss of all or part of the recoverable advance, the Assistant Commissioner, CI, will make a determination as to the liability of the special agent, Group Manager, or other involved employee. The Chief will notify the Director of Investigations at the earliest possible time of any recoverable advance which is in jeopardy or lost. The Director of Investigations will then make telephonic notification to Office of Special Investigative Techniques. The Chief will submit a report through channels about the loss, including recommendations about liability. Whenever operationally feasible, recoverable fund advances should be in interest earning accounts with multiple signatories. This could be critically important if the undercover agent were the sole signatory and due to injury, etc., withdrawal of the recoverable advance could not be effected. The Office of Special Investigative Techniques will prepare a reconciliation of outstanding recoverable funds on a minimum of a semi-annual basis with the Systems and Accounting Standards Division.
### [9.4] 8.16.3 (06-30-1998) Income Earned from Undercover Operation
Income earned during an undercover operation may be used to offset expenses of the operation. This is referred to as churning. Operations which seek to use churning must adhere to the following guidelines: All operations which seek to use churning will be Group I operations which require the approval of the Assistant Commissioner, CI. The request to use churning should detail the source of the income, how it is computed (flat rate, percentage, etc.), and in what form it will be received (currency, check, wire, etc.). Income earned may fully fund the operation but it is limited to the amount of confidential funds and expenses authorized for the operation. A deviation must be submitted for approval to incur and pay additional expenses. All rules which apply to the use of confidential funds also apply to the use of churned funds. Expenses from the operation will first be paid from the income earned in the operation. If or when the expenses of the operation exceed the balance of moneys earned, confidential funds will be used to support the operation. Treasury guidelines require that only approved accounting procedures be utilized to account for churning operations. Currently, Quicken and Quick Books commercially available computer programs will be required in all churning operations and may be purchased with the operation's authorized funding. Income earned by the operation will be maintained in a separate account by the contact agent. Reporting procedures for this account will be identical to an imprest fund account. Monthly reports, Form 1164, will account for imprest funds and for churned funds separately. The report will include income statements and balance sheets generated from the Quicken or Quick Books program for the churned funds activity. Each month a copy of the monthly Form 1164, without backup receipts, will be provided to the Office of Special Investigative Techniques. This information will be used to meet the law's requirement to report to Congress on our use of the churning provision. In cases where expenses must be incurred and paid prior to the generation of income, confidential funds (imprest funds) may be used. If income is later earned which would properly offset funds previously expended but not yet charged against the imprest fund, the earned funds may replace imprest funds. The procedures to be followed under these circumstances require that a Form 1164 be filed monthly for the Chief's approval of expenditures. Additionally, in order to maintain the imprest fund, a separate Form 1164 must be provided to the imprest fund cashier showing zero expenditure. Once sufficient income is generated, imprest funds may be replaced with earned funds. Earned income and churning will be subject to the same periodic audits as recoverable and confidential funds. At the end of the operation, the earned income and churning accounts will be audited as required by current undercover operations guidelines. Any income left over at the end of the operation will be forwarded to the General Fund. Interest income earned during the course of an undercover operation may not be used for churning. It must be forwarded to the General Fund at the conclusion of the operation. If the operation earns income and churning is not utilized, monthly statements of undercover earnings must be prepared. The earnings will also be reflected in the undercover agents income and expense report (Exhibit 8-3) and the cumulative amount will be reflected in the contact agent's monthly balance sheet (Exhibit 8-2). At the end of the operation all earned funds will be forwarded to the General Fund.
### [9.4] 8.16.4 (06-30-1998) Request for Confidential Funds
A request for confidential funds should be included in the undercover operation request and requires the approval of the Director of Investigations and if over $10,000, the approval of the Assistant Commissioner, CI. See text 9.4.8.4. Separate funding should be approved for each specific undercover operation requested in the name of a single assigned investigation. In projecting costs in the undercover request, the special agent should include per diem or actual subsistence expenses, travel for the undercover agent, payments to informants, and expenditures for operational support functions. All travel costs should be funded from the undercover operation. Requests for confidential expenditures for undercover operations should anticipate administrative expenditures which might be made by the contact agent and/or investigating agent(s) which directly support the operation and which are properly reimbursable through the imprest fund. The Chief may approve unanticipated expenditures not projected in the undercover request but the total expenditures may not exceed the authorization. Examples of confidential expenditures that can be incurred in undercover operations are summarized as follows: Surveillance Expenses: These include all expenses incurred by the contact agent and special agents in observing and identifying the targets, audio and video tapes, and the cost of surveillance facilities and activities. Transcription Costs: Some undercover operations may entail substantial amounts of electronic surveillance. Past experience has shown that it may take up to 8 hours to transcribe 1 hour of non-telephonic recording. District clerical support may not be able to adequately handle the volume of transcription, or circumstances may require immediate transcription of voluminous recordings. In these instances, the special agent should consider obtaining the service of a qualified transcription service to transcribe recorded conversations. Use of an outside service should be approved by the Chief. In grand jury investigations, the Assistant United States Attorney should approve using an outside transcription service. Beepers: The contact agent and the Group Manager, if appropriate, should obtain telephonic paging services. The undercover agent should commit to memory the telephone number for the paging service. The paging service will enable the undercover agent to contact the contact agent at any time from anywhere the service is available. Post Office Box: The contact agent should rent a post office box or mail drop to allow for direct mailing by the undercover agent through non-official channels. Per Diem vs. Actual Expenses: At the option of the Chief, the undercover agent or support team members may claim actual expenses for meals in lieu of flat rate per diem. Actual expenses for meals may be claimed in undercover operations with or without consideration of lodging costs as special lodging may be required as part of the undercover agent's undercover identity. If the undercover agent is claiming per diem, and he or she is provided a meal which is paid for from confidential funds, the undercover agent's daily per diem will be reduced as provided for in IRM 1763, Travel Handbook. Capital Items: Any expenditures for capital items or fixed assets, such as cash registers, computers, office furniture, personal furniture, etc., will be approved in advance by the Chief, controlled for inventory purposes by the contact agent, and accounted for in the closing report submitted at the end of the undercover operation. Form 1930, Custody Receipt Card, should be prepared at the time of the purchase and a copy forwarded to the RUPM. The original should be maintained by the contact agent during the term of the operation and should be used to account for the purchased item at the conclusion of the operation or when its use is no longer required. The district or region in which the operation occurred will provide for storage of items, and the RUPM will maintain an inventory of all capital items available and their location. To the extent possible, items to be used in future undercover operations should be obtained from the equipment on hand. Items of nominal value or use should be inventoried and turned over to the Chief, who may transmit them to the District Facilities Management Branch for appropriate disposition or maintain them in the district for future use. Items transferred to another CI office will be accounted for on Form 1931, Transfer-Receipt of Personal Property. A copy of this form will be sent to Office of Special Investigative Techniques by the losing office. The gaining office will provide the Office of Special Investigative Techniques a copy of Forms 1930 and 1931 upon receipt. Personal Items: In rare extraordinary circumstances, the undercover agent may be required to purchase personal items which are necessary to the successful completion of the operation. The Chief must approve all such requests in advance. Personal property is not to be appropriated to private use at the conclusion of the undercover operation. The contact agent systematically will prepare a schedule of personal items which were not consumed or disposed of and forward a comprehensive schedule of them to the Chief for control purposes. The undercover agent will indicate approval of the schedule by initialing it. Security Deposits: Advances from the imprest fund which are to be used as security deposits (apartment rental, telephone, utilities, etc.) will be shown as security deposits on the Monthly Balance Sheet (Exhibit 8-2). A security deposit may be treated as recoverable fund or nonrecoverable fund advance, dependent upon the certainty of recovery. If the security deposit is expended, e.g., use of the security deposit in lieu of paying the last month's rent for an undercover apartment, it should be claimed as an expenditure at that time. If the security deposit is returned to the undercover agent, it will be used to liquidate the imprest fund advance by returning the security deposit to the contact agent. Start-up Capital: Initial payments for rent, inventory, phones, and other expenses to commence a business type of activity in an undercover operation. Payments to or on Behalf of Confidential Informants. Travel costs, including those for informants and authorized trips home for undercover agents, if applicable.
### Internal Revenue Manual | ### Hndbk. 9.4 Chap. 8 Undercover Operations | ### (06-30-1998)

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