7 August 2001

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

## Handbook 9.5 The Investigative Process Chapter 8 Investigative Reports
### Contents [9.5] 8.1 Overview [9.5] 8.2 Purpose and Importance of Reports [9.5] 8.3 Planning and Writing Reports [9.5] 8.3.1 Fairness [9.5] 8.3.1.1 Accuracy [9.5] 8.3.1.2 Completeness [9.5] 8.3.1.3 Uniformity [9.5] 8.3.1.4 Conciseness [9.5] 8.3.1.5 Logical Presentation [9.5] 8.3.2 Planning the Report [9.5] 8.3.3 Reports on Related Investigations [9.5] 8.3.4 Format of Reports [9.5] 8.3.4.1 Subject [9.5] 8.3.4.2 Investigation Number and Designation [9.5] 8.3.4.3 Sample Subjects and Designations [9.5] 8.3.4.4 Approval Stamps [9.5] 8.3.4.5 Assembly of a Report [9.5] 8.3.4.6 Identification of Principals, Witnesses, Etc. [9.5] 8.3.5 Appendices and Exhibits [9.5] 8.3.6 Exhibits [9.5] 8.3.7 List of Witnesses [9.5] 8.3.8 Table of Contents [9.5] 8.4 Types of Final Reports [9.5] 8.4.1 Tax Fraud Investigations (Prosecution) [9.5] 8.4.2 Standard Outline for Final Reports Recommending Prosecution for Violation of Tax Laws [9.5] 8.4.2.1 Introduction Section [9.5] 8.4.2.2 History of Taxpayer Section [9.5] 8.4.2.3 Evidence of Income Section [9.5] 8.4.2.3.1 Theory of the Investigation [9.5] 8.4.2.3.2 Books and Records [9.5] 8.4.2.3.3 Preparation and Filing of Returns [9.5] 8.4.2.3.4 Reconciliation of the Books and Records to Tax Returns [9.5] 8.4.2.3.5 Explanation of Appendix Items [9.5] 8.4.2.3.6 Additional Deductions [9.5] 8.4.2.3.7 Corrected Taxable Income and Tax [9.5] 8.4.2.3.8 Tax Computations [9.5] 8.4.2.3.8.1 Self-employment Tax [9.5] 8.4.2.3.8.2 Computations in Failure-to-File and False Returns Investigations [9.5] 8.4.2.3.9 Gross Income [9.5] 8.4.2.4 Evidence of Intent Section [9.5] 8.4.2.5 Explanation and Defense of Taxpayer Section [9.5] 8.4.2.6 Evidence Relating to Sentencing Guidelines Section [9.5] 8.4.2.7 Conclusions and Recommendations Section [9.5] 8.4.2.8 Witness-Exhibit Files [9.5] 8.5 Notification Letter to Principal in Prosecution Investigations [9.5] 8.6 Sample Reports, Tax Fraud Investigations [9.5] 8.6.1 Specific Item Investigation [9.5] 8.6.1.1 Sample Appendices (Specific Item Investigation) [9.5] 8.6.2 Net Worth Investigation [9.5] 8.6.3 Bank Deposits Investigation [9.5] 8.7 Reports on Wagering Tax and Coin-Operated Gaming Device (COGD) and Seizure Investigations [9.5] 8.7.1 Reports in Wagering Investigations [9.5] 8.7.2 Seizure Report, Form 4008 [9.5] 8.7.2.1 Report of Investigation Relating to Petition for Remission or Mitigation of Forfeiture [9.5] 8.8 Miscellaneous Criminal Law Violations [9.5] 8.9 Reports on Discontinued Investigations [9.5] 8.9.1 Written Notification to Taxpayers When Criminal Investigation Discontinues an Investigation [9.5] 8.10 Supplemental Reports [9.5] 8.10.1 Exhibits Supplemental Reports [9.5] 8.11 Closing Investigations by Survey [9.5] 8.11.1 Application [9.5] 8.11.2 Closing Reports [9.5] 8.12 Collateral Reports [9.5] 8.12.1 Documents Submitted with Collateral Reports [9.5] 8.13 Grand Jury Investigation Reports [9.5] 8.14 Claim for Reward Reports Exhibit [9.5] 8-1 Sample Tabulations of Cooperating Officer's Findings Exhibit [9.5] 8-2 Specific Items Method Investigation Exhibit [9.5] 8-3 Sample Format--Net Worth Method Exhibit [9.5] 8-4 Sample Format--Bank Deposit Method Handbook Exhibit [9.5] 8-5 Report of Investigation Relating to Petition for Remission or Mitigation of Forfeiture Exhibit [9.5] 8-6 Sample Report of an Interference Investigation Exhibit [9.5] 8-7 Sample Report--Discontinued Investigation Exhibit [9.5] 8-8 Sample Report--Collateral Request Exhibit [9.5] 8-9 Sample Report--Collateral Reply Exhibit [9.5] 8-10 Tax Loss Table Exhibit [9.5] 8-11 Discontinued Investigation Letter
### [9.5] 8.1 (03-19-1999) Overview
This chapter relates to special agent investigative reports. This chapter will provide guidance necessary to write a clear and concise investigative report. The following will be discussed in this chapter: Purpose and Importance of Reports Planning and Writing Reports Types of Final Reports Notification Letter to Principal in Prosecution Investigations Sample Reports, Tax Fraud Investigations Reports on Wagering Tax and Coin-Operating Gaming Device and Seizure Investigations Miscellaneous Criminal Law Violations Reports on Discontinued Investigation Supplemental Reports Closing Investigations by Survey Collateral Reports Claim for Reward Report
### [9.5] 8.2 (03-19-1999) Purpose and Importance of Reports
The results of all completed investigations together with conclusions and recommendations are expressed in written reports. The purpose of a report is to present all pertinent facts relating to a matter in order to support appropriate action to be taken. To have value, a report must be written so that the reader comprehends the full significance of its contents, is convinced of its thoroughness, and is willing to take action based on the facts presented. It is an official document and may not be furnished to any person outside the Service without proper authorization. In a criminal investigation, a report ultimately serves as the basis for the preparation and presentation of the investigation for trial.
### [9.5] 8.3 (03-19-1999) Planning and Writing Reports
It is not an easy matter to write a report which will clearly convey the essential facts disclosed as the result of an investigation. Report writing is an art which requires study, practice, and persistent effort. Since there are no hard and fast rules uniformly applicable to reports, agents must use their experience and common sense to develop the facts necessary to support complete reports. The essentials of a good report are fairness, accuracy, completeness, uniformity, conciseness, and logical presentation.
### [9.5] 8.3.1 (03-19-1999) Fairness
Reporting the facts with fairness is as important as procuring them with impartiality. A special agent should always be an unbiased fact-finder and not a partisan to a particular cause or action. All material facts and evidence should speak for themselves and require little or no explanation of their significance. Any distortion of the significance of the evidence materially diminishes the value of the report. The subject's explanations should be presented fairly. When a special agent quotes, he or she should quote exactly. Hearsay and rumors, properly identified as such, may be included in the report, but only if relevant and material to the matter being discussed. Reports should reflect an impersonal attitude and should contain no offensive remarks regarding the subject.
### [9.5] 8.3.1.1 (03-19-1999) Accuracy
Reports are the basis for administrative and legal actions of the utmost importance, including the assessment of substantial amounts of tax and penalties and criminal action which may result in imprisonment. Accuracy is essential, therefore, facts must be reported with exactness. The writer should present facts in such a manner that he or she will not have to state opinions and conclusions except in the portion of the report provided for that purpose. The distinction between fact and opinion should be clearly shown when it is necessary to explain the theory of investigations based largely on circumstantial evidence. Avoid using statements such as: The taxpayer could give no plausible explanation. That is a conclusion, and others may find that the explanation is plausible. State what the taxpayer said and let the evidence show whether the statement is worthy of belief. Avoid the phrase conclusively proved. Do not allow conclusions to surpass the evidence. A conservative statement that is consistent with the facts is stronger than an exaggeration. Exaggerations tend to raise doubt against all the evidence presented in the report. Inaccuracies, carelessness in detail, errors in computation, and incorrect dates materially affect the value of a report. Discrimination in the choice of words, punctuation which clarifies the meaning, and a correct application of the rules of grammar are essential to accurate reports. Errors in these essentials have an unfavorable effect on the mind of the reader. Avoid using slang and technical terms, including those used in accounting. However, in some instances, slang terms may be necessary for clarity in reporting the results of investigations, particularly those involving taxpayers in illegal pursuits. In such instances, the meaning of the term should be explained when it is first used in the report. For example, it may be advantageous in a report concerning a numbers lottery to describe the nature of operation, including the slang terms used therein, before presenting evidence of the violation. If numerous slang or technical terms are necessary, it may be advisable to prepare a glossary.
### [9.5] 8.3.1.2 (03-19-1999) Completeness
A special agent should present the material in a report from the viewpoint of a reader having no knowledge of the investigation. The agent must exercise good judgment in selecting the facts that are material to the matter and take care that nothing essential to a complete understanding of the investigation will be omitted. All statements of material facts bearing on the proof of alleged violation should be supported by the evidence necessary to establish its truth and accuracy. The source of the evidence should also be reported. Likewise, explanations from the subject and important facts developed by the investigation that point to weaknesses in the investigation should not be omitted. Subsequent disclosure of facts indicating weaknesses that were known to the report writer reflects unfavorably on him or her. Moreover, any weaknesses in a investigation should be made known before action is taken relative to criminal prosecution or settlement of the civil liability in order to prevent surprise in the course of conferences or legal actions and to give reviewers an opportunity to suggest means of overcoming the weak points. However, speculation and conjecture of agents concerning possible defense theories have no place in a factual report. The reader is primarily interested in knowing what happened and how the events can be proved. The difficulties met by the special agent in securing the information, or in the ingenuity used in making the investigation, are of no interest. The writer should always remember that the report is about a violation or other obscured situation and not about the investigation. However, where certain pertinent evidence was not obtained, the special agent should state the avenues of inquiry pursued in attempting to procure the evidence in order that no doubts may arise in the reader's mind regarding whether the investigation was thorough. Important matters in exhibits generally should be narrated briefly in the report unless the exhibits are adequately described in an appendix and do not require any further explanation. The use of an appendix is discussed in text 8.3.5 of this chapter. Finally, in order to ensure completeness, the report should be read and revised as often as necessary before it is submitted for review. A special agent should strive to submit a report in final form for initial review. The agent should not rely upon reviewers to complete the report by resolving the difficulties encountered in the investigation.
### [9.5] 8.3.1.3 (03-19-1999) Uniformity
Reports should be as uniform as possible for each type of investigation investigated by Criminal Investigation (CI). A special agent in one district should report the results of an investigation in the same sequence as a special agent in another district who has conducted an investigation of the same type. In order to promote uniformity, text 8.4 of this chapter contains suggestions and sample reports for guides in report writing.
### [9.5] 8.3.1.4 (03-19-1999) Conciseness
Conciseness suggests the removal of all that is elaborate or not essential. If a report contains a mass of irrelevant data, the important matters will not be clear to the reader. When you have something to say, say it in as few words as you can. The rule of conciseness applies to individual sentence construction as well as to the whole report. Repetition and unnecessarily lengthy descriptions of documents should be avoided. It is not necessary to copy into the report entire statements, letters, and exhibits when concise reference to the principal points and brief explanation will suffice. Tabulations and schedules in the form of appendices to the report frequently may be used to reduce narrative and emphasize important facts relative to matters such as summaries of net worth or omitted sales and analyses of bank accounts. A special agent should not indulge in attempts to use wit or sarcasm; neither should he or she refer to himself or herself as the undersigned, the writer, or your agent. Do not hesitate to state the taxpayer informed me that, or the taxpayer gave me (documents or books), if that information is material. However, in view of the necessity for maintaining an impersonal attitude, the personal pronouns I and we should be used sparingly. Avoid superfluous statements such as: The following report is submitted, or as the result of investigation, I have to report as follows. The phrase, This investigation relates to an investigation of an alleged evasion of income tax by John Jones may be better stated as, This report relates to the alleged evasion of income tax by John Jones. The statement attached hereto as Exhibit 6 is a sworn affidavit of John Jones wherein he testified. . .contains unnecessary words. Merely say, John Jones stated that. . .(Exhibit 6, affidavit). Avoid trite and superlative phrases, and use the word very only on rare occasions. Use of the active voice promotes conciseness and accuracy in writing. It is also more forceful. For example, the statement, Information obtained from Mr. Witness disclosed that the proceeds of the sale were given by him to the taxpayer on May 14, 19 , may be reduced in length and made more forceful by revision to, Mr. Witness said that he gave the proceeds of the sale to the taxpayer on May 14, 19 . Use of the active voice also will eliminate the possibility that the report writer will omit stating who gave the proceeds to the taxpayer.
### [9.5] 8.3.1.5 (03-19-1999) Logical Presentation
A report otherwise well written may lose its effectiveness for want of logical arrangement. A mass of data thrown promiscuously into the report is an imposition on the reader and an adverse reflection upon the writer. Effective presentation is largely dependent upon adherence to the principles of style, namely unity, conference, and emphasis. The principal of unity requires adherence to the single main idea or proposition and exclusion of all matter that does not tend to prove that idea or proposition. Each sentence, paragraph, and division should help to establish the main point of the report. Coherence is defined as sticking together. This principle counsels logical sequence of thought. No one is likely to achieve coherence by chance or inspiration. It demands careful planning, critical review, and frequent revision by the report writer. Words, phrases, and clauses should be so placed in a sentence that their relationship is clear and the meaning of the sentence is obvious. Sentences should be so arranged so that the progress of thought is clear and continuous from beginning to end. Each paragraph must bear an unmistakable relation to the whole composition, especially to the paragraph immediately preceding it. The most common fault in the presentation of evidence is the failure to show precisely what part it plays in the whole argument. This failure is sometimes due to the fact that secondary matters are not properly subordinate to the principal facts. Much evidence has only a casual connection with the main proposition, but the connection must be made evident. If the bearing of the evidence is not felt at the point where it is presented, it usually is not felt at all. Each violation, event, or circumstance, and all facts in support thereof should be narrated in full before passing on to the next feature of the report. Phrases and sentences which merely introduce an exhibit may interrupt the reader's train of thought. In many instances, that difficulty may be avoided by parenthetical insertion of exhibit numbers during discussion of the contents of the exhibit. Insofar as possible, references to other sections of the report should be avoided because the arrangement of the report will show the relationship between the various facts and events. Emphasis requires careful placement of words, phrases, and sentences for he purpose of calling attention to the important facts. If the writer does not emphasize the more significant information, the reader will not retain the essential facts. Important words or phrases should be placed in important positions, usually at the beginning of a clause or sentence, or at the end. The same rule applies to the arrangement of sentences within a paragraph. A new topic or idea should be the subject of a new paragraph. A sentence or short passage requiring special emphasis may be paragraphed separately. Important matters can be emphasized by using concrete terms and terse sentences, by numbering and indenting a series of important and related facts, and by using schedules and tabulations. The last mentioned technique is particularly valuable in showing comparisons.
### [9.5] 8.3.2 (03-19-1999) Planning the Report
Before a special agent starts to write a report, he or she should have in mind a definite outline of the arrangement in which the facts and evidence may be presented in the most effective manner. The best arrangement rarely is the order in which the facts were developed during the investigation. A good general plan is to state the problem, present the results of the investigation, and set forth the conclusions and recommendations. Details under the various headings should be arranged in paragraphs, each confined to a particular topic. Special agents may use the method of assembling the facts and evidence into a coherent and logical presentation which he or she finds most effective. Keep in mind the witness who will produce, identify, and/or testify about each item of evidence. The use of either an outline or an arrangement based on appendices and exhibits is suggested to assists in assembling material for the report. In using the above method, prepare an outline of the topics or events considered essential to prove the violation, or, with respect to reports not relating to violations, to accomplish the purpose of the report. List under each topic the pertinent facts and evidence. New agents may find it helpful to list the evidence in detail. The amount of detail can be reduced with the acquisition of experience and facility in writing reports. When the outline is finished, study it and make any revisions necessary to ensure compliance with the principles of completeness, conciseness, unity, coherence, and emphasis. Since each topic ordinarily will be the subject of a paragraph, the special agent can direct his or her attention to the writing of each paragraph on the basis of the topical outline. In lieu of an outline, effective presentation can be accomplished by arranging appendices, exhibits, and work papers in logical order based on the above-mentioned principles of good writing and discussing each fact and event in that order. Consideration also should be given to the order desirable for presentation of the evidence in court. One of the first steps in getting ready to write a report regarding a fraud investigation is to prepare the summaries of income, tax, penalties, and adjustments. In investigations based on specific items, the criminal items should be segregated from the civil items. The civil items are technical adjustments based upon: Mere clerical errors. Mistaken ideas relative to some regulation or requirement of the Internal Revenue Service. Adverse decisions on controversial questions. Erroneous legal or accounting advice on which the taxpayer honestly relied. Items which the taxpayer is unable to substantiate. The civil items could also include unreported income and other adjustments which pertain to a year or years for which prosecution is not being recommended. When appropriate, technical adjustments should be grouped into summary topics. With respect to criminal investigations, the special agent should determine before beginning the report which criminal items are to be proposed for use in the criminal proceedings and whether there are any technical adjustments favoring the taxpayer that should be offset against additional income. During all stages of an investigation, from planning the investigation through conducting a final review of the report, the special agent should be familiar with the expectations of the Group Manager and other reviewers of the report. The special agent may refer to the Compliance and Customer Service Manager Handbook number 114.1, Chapter 6, Section 6. Awareness of these guidelines should assist the special agent in submitting a report that receives greater success in the review process.
### [9.5] 8.3.3 (03-19-1999) Reports on Related Investigations
As a general rule, a separate report shall be written for each investigation. However, if the facts and events concerning two or more related taxpayers or investigation classifications are the same or are intermingled, the results of the related investigations shall be set forth in the report regarding the principal violator or classification. For example, when an investigation discloses evidence of tax evasion by a corporation and its principal officers, the report on the president of the corporation may serve as the focal point for assembling and presenting the facts and evidence regarding all taxpayers involved, including thecorporation. Similarly, violations of the excise and occupational taxes on wagering, involving one taxpayer or several closely related taxpayers, should be discussed in one report. Regional guidelines will be followed in all investigations in which there is any uncertainty as to the need for separate reports. When consolidating two or more defendants in one report, consideration should be given to ensuring that a sound basis for a joint trial exists. The absence of evidence of a conspiracy to violate tax laws, lack of a common violation to be charged, problems of venue, or other factors may indicate that the defendants are entitled to separate trials. If so, separate reports should be written with duplication of exhibits where appropriate.
### [9.5] 8.3.4 (03-19-1999) Format of Reports
Reports shall be addressed as follows: District Director, Internal Revenue Service, Attention: Chief, CI, Name of District (city and state). The address of the originating office will be shown on the first page of each report. Grand jury reports should be addressed to the appropriate United States Attorney's office (see IRM Handbook 9.5 Chapter 2).
### [9.5] 8.3.4.1 (03-19-1999) Subject
The subject of the report consists of the name, the current address, and the taxpayer identification number of the principal person or legal entity in whose name the investigation concerned. The address will consist of the street address, city, and state where an individual resides or a corporation has its principal office. If the facts and evidence concerning related investigations are included in one report, the subjects of the related investigations, properly identified as such, shall be shown below the subject of the principal investigation. Related investigations not discussed in the report will be mentioned in the introduction but will not be included in the subject heading. Text 8.3.4.3 of this chapter and the sample reports contain suggested forms for presenting the subject of a report. The name and current address (including street address, city, state, and zip code) of the taxpayer's representative should be listed below the subject.
### [9.5] 8.3.4.2 (03-19-1999) Investigation Number and Designation
In order to provide uniformity, the investigation number should be typed a single space below the subject on the first page of all reports and intra-Service communications. The investigation number also should be typed in the upper left corner of each succeeding page of a report. When a report covers more than one person or classification, only the number relating to the principal violator will appear on the succeeding pages. A designation indicating the nature of the report should be placed on the initial page immediately under the investigation number. Reports should bear a designation of Final for those closing an investigation, and Supplemental for those submitted after the investigation is closed. The designations Parole, Jeopardy Assessment, Inadequate Records, Arrest, Claim for Reward, and Special Investigation should be used where appropriate. Correspondence relating to collateral inquiries should bear the designation Collateral Request or Collateral Reply below the investigation number.
### [9.5] 8.3.4.3 (03-19-1999) Sample Subjects and Designations
Assume that an investigation disclosed evidence of tax evasion by a corporation and two of its officers, and that the evidence is to be presented in the report relative to the president, who is the principal violator. The subject should be shown as follows: In re: I.M.BIG SSN: 000-00-0000 010 Blank Street Chicago, Illinois 60647 36730321B Final Related Investigations: JOHN R. MINUTE SSN: 000-00-0000 4321 South Quincy Street Chicago, Illinois 60635 36730296E BIG CORPORATION, INC. EIN: 00-0000000 4354 North State Street Chicago, Illinois 60632 36730325B Assume that an investigation disclosed evidence of tax evasion by three individuals who reside and conduct business as a partnership in Boston, Massachusetts, and that John Doe, the partner who is responsible for maintenance of the records, is the principal violator. The subject of the report should be shown as follows: In re: JOHN DOE SSN: 000-00-0000 4533 High Street Boston, Massachusetts 02135 04730322C Final Related Investigations: JAMES ROE SSN: 000-00-0000 8346 Main Street Boston, Massachusetts 02164 04730324D JOSEPH MOE SSN: 000-00-0000 2538 Elm Street Boston, Massachusetts 02134 04730326F The name and address of the taxpayer's representative should be shown as follows: Representative: C.W. LAW, Attorney 100 Ewe Street Chicago, Illinois 60651
### [9.5] 8.3.4.4 (03-19-1999) Approval Stamps
Approvals should be reflected as signature blocks on the last page of the report.
### [9.5] 8.3.4.5 (03-19-1999) Assembly of a Report
A report should be assembled in the following manner, although it is recognized that all reports will not include each of the listed parts: Table of Contents. Body of Report. List of Witnesses and Exhibits. Appendices. Exhibits. The page number shall be in the center at the bottom of each page.
### [9.5] 8.3.4.6 (03-19-1999) Identification of Principals, Witnesses, Etc.
The names of the targets of the investigation will be typed in capital letters when and wherever used in reports of investigations as well as in correspondence between CI offices relating to investigations.
### [9.5] 8.3.5 (03-19-1999) Appendices and Exhibits
In investigations involving a detailed computation of net worth, bank deposits, or expenditures, or numerous fraudulent items, clarity in reporting may best be accomplished by presenting the details in appendices and including in the body of the report only brief summaries thereof, together with a general discussion of the related evidence. Narrative in the report may be reduced by including on the appendix, in addition to the pertinent figures, a brief description of each item, a reference to exhibits containing the documents supporting each item, and the name of any witness who will produce documents and testify regarding each item. It is not necessary to discuss in the body of the report each item on the appendix. However, the report shall contain a description of the appendix; a brief summary or restatement of totals, if such is applicable; and an explanation of any significant particulars or details that are not made evident by inspection of the appendix. Since appendices are essential to a complete understanding of any investigation wherein they are used, they shall be typed or reproduced in sufficient quantities for inclusion with each copy of the report. With respect to investigations involving the tabulation of numerous items which can be assembled into groups, a clear and concise presentation may require placing on the basic appendix only the total amount for each group and tabulating the items comprising the group on supporting appendices or schedules. For example, in a net worth investigation embracing numerous bank accounts and holdings of stocks and real estate, the computation of net worth on the basic appendix should show the aggregate cost or other value of the bank accounts, the stocks, and the real estate, and the various items included in each total should be set forth on separate appendices or schedules. The appendices should be attached as part of the report and should be listed in the table of contents. Form 4526-B (6-position tab dividers) may be used to identify appendices. Samples of appendices are provided in Exhibits 9.5.8-2 through 9.5.8-4.
### [9.5] 8.3.6 (03-19-1999) Exhibits
Exhibits are an essential part of a report. They may consist of originals or copies of statements and documents, such as: Affidavits Transcripts of interviews Contemporaneous memorandums Canceled checks Invoices Bank records Books of account Transcripts or analyses of accounts and records and related workpapers It generally is not feasible to provide extra copies of exhibits consisting of checks, invoices, bank records, account books, long detailed transcripts, and similar documents. However, the copy of the report which is retained at the office having responsibility for the conduct of the investigation should include a copy of each exhibit if such is available. Original documents not easily retrievable, such as affidavits, memoranda of interview, and workpapers, should be maintained in the investigation agent's files with a copy of the report. Only copies of these documents should be forwarded for review to prevent the loss of these records in transit. The body of the report should contain reference to the exhibits and appendices, and the appendices should contain reference to exhibits which consist of supporting documents. Such reference may be to individual exhibits or groups of related exhibits. For example, the report may state; Appendix A is a summary of the unreported receipts from sales, and Exhibits 8 through 25 are copies of documents in support thereof, including canceled checks, invoices and affidavits. Important matters in exhibits generally should be explained in the report. However, in many instances, documents, such as invoices, checks, and bills of lading require only a brief description. If a document of that nature is adequately described on an appendix, no further explanation may be necessary. When mentioning or referring to a document that is submitted as an exhibit, including the written statement of a witness, insert the exhibit number in parentheses immediately following the reference. In most instances, it is unnecessary to state that the document is submitted as Exhibit 1. The page, paragraph and line numbers should be included when citing multi-page exhibits. An exhibit is underlined (the exhibit number only, not the description) the first time it is mentioned in the report so the reader will know when he or she sees an exhibit number whether it is being discussed for the first time or has previously been referred to. It is suggested in text 8.3.2 of this chapter that the special agent, before beginning a report, arrange the proposed appendices and exhibits in the order of planned presentation of facts and evidence, and that he or she prepare the report by discussing the appendices and exhibits in that order. In many instances, the agent will find it necessary to rearrange those documents for a more effective presentation. When the report is completed, the exhibits should be assembled in the order in which they are originally mentioned in the report, and they should be numbered for easy reference. If a number of documents, such as canceled checks, are included in one exhibit, give each document a sub-exhibit number. For example, if Exhibit 11 consists of 16 canceled checks, the checks should be numbered from 11-1 to 11-16, or the page should be numbered if multiple checks are exhibited on a page. Each exhibit should be properly authenticated. The exhibits may be assembled in binders, put in folders, or any other method which is practical so long as the exhibit is identified so it can be associated with the pertinent folder should it be removed. Index tabs may be used to facilitate reference. The report should include a list of exhibits containing the number and a description of each exhibit. The content and arrangement of a list of exhibits is illustrated in the sample report on a specific item investigation (Exhibit 9.5.8-2). It is suggested that a copy of the list of exhibits be mounted immediately under the cover sheet for the exhibit file itself. This will eliminate having to use the special agent's report as the index. Where the statement of a witness or subject is lengthy, it may be helpful to prepare a synopsis of the important answers and attach this as a cover sheet to the exhibit. The summary should be quite brief, desirably not more than one line for each point and should be referenced to the appropriate question or page and line numbers.
### [9.5] 8.3.7 (03-19-1999) List of Witnesses
The list of witnesses is an essential part of a report on a criminal investigation. It is especially important to the United States Attorney and to any agent who assists in the preparation of the investigation for trial, particularly in instances where the special agent who conducted the investigation and wrote the report is not available. The list of witnesses frequently is used by the United States Attorney as the basis for issuing subpoenas. The witnesses should be listed in the order in which they are mentioned in the report. The name, address, telephone number, and title or other identification of each witness should be set forth, together with a reference to any exhibit or appendix that is pertinent to his or her testimony and to the records and other evidence he or she may be expected to produce or identify. The use of such references will eliminate the need for a summary of each witness's probable testimony as part of the list of witnesses. In some instances it may be necessary to list one witness who will produce and identify certain records and another who will testify relative thereto. Listing the name of a person who can be expected to appear as a witness is preferable to showing only the name of a corporation, bank, or other organization, especially where an individual has custody of records or has an intimate knowledge of the records and transactions involved. The special agent may prepare the list of witnesses as the report is written. The use of appendices containing names of witnesses and the procedure of capitalizing names of witnesses, as explained in 8.3.4.6 of this chapter, will assist in the preparation of a complete list of witnesses. When the report has been written, the special agent should review the facts and evidence to determine whether a witness has been listed for each item of evidence.
### [9.5] 8.3.8 (03-19-1999) Table of Contents
A table of contents showing subject matter and page numbers should be submitted with any report exceeding ten pages. It should be designed to provide quick reference to important features of the investigation, and the amount of detail will be determined by the length of the report and the circumstances of the investigation. Any appendices to the report should be listed and described in the table of contents.
### [9.5] 8.4 (03-19-1999) Types of Final Reports
This text in this chapter relates to reports on investigations relating to fraud and miscellaneous criminal law violations. The following suggestions and samples are provided, not as inflexible rules which must be followed in all reports, but as guides to assist special agents in writing reports. Whenever a prosecution recommendation is contemplated, the special agent should discuss findings and proposed recommendations with the immediate supervisor prior to preparing the final report. The agent should obtain the supervisor's opinion as to the sufficiency of the investigation conducted. In writing the report, the special agent is responsible for using clear and correct language, for its mathematical accuracy, for proper descriptions of each exhibit and for presenting all material facts in an impartial manner. An experienced special agent is expected to attain report writing proficiency which will permit him or her to submit prosecution reports in final typed form to the supervisor for review and processing. In non-prosecution investigations, the special agent is expected to submit the report in final typed form.
### [9.5] 8.4.1 (03-19-1999) Tax Fraud Investigations (Prosecution)
The report is a witness-oriented report, for example: Witnesses are numbered chronologically as they are introduced W1, W2, W3, and so forth. Each exhibit pertaining to a given witness is likewise numbered chronologically. For example, the exhibits relating to witness number 3 would be designated as W3-1, W3-2, and W3-3. No disassembly or reassembly of witness-exhibits is required for pretrial or trial use. The pertinent facts and circumstances of the investigation should be thoroughly discussed in the narrative and fully documented with appropriate witness-exhibit references. The exhibit reference number should be underlined and explained the first time it is mentioned in the report in order to facilitate review and pre-trial use of the report. Subsequent references to the exhibit should not be underlined or explained. For example: The results of the civil examination (W4-2, Revenue Agent's Report) are as follows. . . . The civil adjustments (W4-2) are reconciled to the criminal adjustments in Appendix A. The report has a standard format, but additional sub-headings may be used to add clarity to the report and facilitate review. (See Exhibit 9.5.8-2). Additional sub-headings should be used liberally to highlight any significant issues. The report makes maximum use of appendices which may eliminate the need for a detailed explanation of each of the supporting exhibits and minor details of the investigation. When appendices are used, each should contain complete references to all relevant testimony and documentary evidence. The report contains details of the revenue agent's recommendations and a reconciliation of the civil and criminal adjustments. A copy of the Revenue Agent's Report should be included as an exhibit to the Special Agent's Report.
### [9.5] 8.4.2 (03-19-1999) Standard Outline for Final Reports Recommending Prosecution for Violation of Tax Laws
The following are headings for the major sections normally included in prosecution reports: Introduction. History of Taxpayer. Evidence of Income. Evidence of Intent. Explanation and Defense of Taxpayer. Evidence Relating to Sentencing Guidelines. Conclusions and Recommendations.
### [9.5] 8.4.2.1 (03-19-1999) Introduction Section
The Introduction section should contain the principal's social security number or employer's identification number. Both numbers should be added where applicable. In addition, this section should make maximum use of the following subheadings and brief statements of fact: Name and address of the Taxpayer Name and address of Representative Type of Report Type of Investigations and Prosecution Years Recommended Charges Investigating Agents Related Investigations Method of Proof Method of Violation Returns Filed and Statutes of Limitation Venue Source of Investigation Initial Contact with Taxpayer and Date of Referral Constitutional Advice Power of Attorney Revenue Agent's Recommendations Reconciliation of Civil and Criminal Adjustments Civil Actions The narrative relating to Returns Filed and Statutes of Limitation should include filing information (with pertinent exhibits) of periods subsequent to those for which prosecution was recommended. The narrative relating to Venue should include not only where venue may lie but also what evidence supports the conclusions. Evidence of venue should be fully documented as set forth in IRM Handbook 9.6 Chapter 4. The narrative relating to Initial Contact With Taxpayer and Date of Referral should state not only who contacted the principal but also, when, where, how, and why. If the investigation was referred to CI from either Examination, Collection, or the Service Center, the referral date should be included. If the investigation was not referred from within IRS, this section should be entitled Initial Contact with Taxpayer. The narrative relating to Constitutional Advice should state when, where, and by whom the advice was given; who was present; and statements made by the principal as to his or her understanding of his or her rights. (See text in IRM 9.4 Chapter 5.) The narrative relating to the revenue agent's recommendations should schedule the corrected taxable income and tax for use in civil proceedings. A copy of the Revenue Agent's Report should be included as a witness-exhibit reference. Samples of the scheduling of corrected taxable income and tax are set forth in Exhibits 9.5.8-1 and 9.5.8-2. If applicable, any differences between the criminal and civil adjustments should be reconciled and explained either in this section, an exhibit or an appendix. A suggested format for reconciling the return to the civil and criminal adjustments is set forth in Appendix A-2, Exhibit 9.5.8-2 Cont. (20). All significant civil actions instituted either by or against the taxpayer should be fully explained. This applies whether the actions are for prior years, prosecution years, subsequent years, or relative to a different type of tax.
### [9.5] 8.4.2.2 (03-19-1999) History of Taxpayer Section
In the History of the Taxpayer section, the special agent should present information relative to any of the following matters that are pertinent to the investigation, with particular emphasis on the criminal period. This section should make maximum use of the following subheadings, and any others deemed appropriate, and brief statements of fact should be made as opposed to extensive narratives: Full Name Aliases, Business Names Date and Place of Birth Physical and Mental Health Marital Status and Spouse's Name Dependents Place of Residence During Years Involved Education Military Service Reputation in the Community Criminal Actions (a copy of the criminal record should be submitted as an exhibit with the report) Business Address During Years Involved Business History Knowledge of Tax Matters Sources of Income Other Pertinent Data
### [9.5] 8.4.2.3 (03-19-1999) Evidence of Income Section
Subheadings normally included in the Evidence of Income Section include all or some of the following. Others can be added as needed. Theory of the Investigation Books and Records Preparation and filing of returns Reconciliation of books and records to tax returns; reported income and reported expenses Explanations of appendix items Evidence for use in criminal proceedings Additional deductions Corrected taxable income and tax
### [9.5] 8.4.2.3.1 (03-19-1999) Theory of the Investigation
The Theory of the Investigation section is designed primarily to present an overview or brief synopsis of the investigation, e.g., what the taxpayer did, and how we are going to prove it. This section should avoid conclusions and adhere to a capsule presentation of the facts and evidence developed during the investigation. Cites are normally not included in this section, but the synopsis must be based upon facts proven elsewhere in the report. It should be stated in this section whether the principal is a cash or accrual-basis taxpayer and the basis used to determine the unreported income for use in criminal proceedings. This section should also set forth the method(s) of proof used. If an indirect method of proving income is used, an explanation should be given as to why this method was selected.
### [9.5] 8.4.2.3.2 (03-19-1999) Books and Records
The Books and Records section should contain a brief description of the principal's records as opposed to a mere listing of the records. This section is not intended to be an exhaustive analysis of the recordkeeping system but should relate enough information to familiarize the reader with the records and how they are used to record the principal's income and expenses. The recordkeeping responsibilities and detailed office procedures should be explained under the Explanation of Appendix Items section. The Books and Records section should include information as to when, how, and from whom the records were obtained and their disposition, that is, whether or not the records were copied, compared, certified, and returned to the principal.
### [9.5] 8.4.2.3.3 (03-19-1999) Preparation and Filing of Returns
The Preparation and Filing of Returns section should contain all details surrounding the preparation and filing of the principal's returns. Particular emphasis should be placed upon who was responsible for each facet of the preparation, signing, and filing of the return. Introduce the statement of the person who prepared the alleged fraudulent returns. Whenever possible, submit as an exhibit a copy of that person's affidavit or a transcript of his or her testimony under oath. The information which should be obtained from this witness is set forth in Exhibit 9.4.5-1 in Handbook 9.4, Chapter 5. Include any pertinent statements by the taxpayer.
### [9.5] 8.4.2.3.4 (03-19-1999) Reconciliation of the Books and Records to Tax Returns
The Reconciliation of the Books and Records to Tax Returns section should summarize the major income and expense categories as well as deductions and show the agreement with amounts reported on the tax return. If applicable, those items which are not in agreement should be explained. This section should make reference to either the summary schedule exhibit or appendix which shows the detailed reconciliation. If a reconciliation is not possible or necessary, a statement to that effect should be included in this section.
### [9.5] 8.4.2.3.5 (03-19-1999) Explanation of Appendix Items
The Explanation of Appendix Items section is one of the more significant sections of the report. The evidence in support of the violation should be set forth in full detail in this section. Although extensive narration of each appendix item and exhibit is not necessary with a well planned appendix, sufficient detail must be presented to fully explain the facts and circumstances of the investigation. Subheadings may be used liberally to clarify this section. The first part of this section should set out a schedule of the specific categories and items of unreported income or a summary of the net worth, bank deposit, or expenditure schedules, whichever is applicable. This section should explain each appendix: What it is. How the data on the appendix is derived. What analyses were made. What evidence is used. What the appendix shows. Only those individual appendix items which are not self-explanatory need be explained. If appendices are not used in presenting the investigations, the heading Explanation of Appendix Items may be replaced with the heading Evidence for Use in Criminal Proceedings.
### [9.5] 8.4.2.3.6 (03-19-1999) Additional Deductions
The Additional Deductions section should summarize and explain any additional deductions or adjustments determined during the investigation. This heading should be deleted if there are no additional deductions or adjustments.
### [9.5] 8.4.2.3.7 (03-19-1999) Corrected Taxable Income and Tax
The final subsection under the Evidence of Income Section often is Corrected Taxable Income and Tax. This section sets forth the computation of corrected taxable income and tax for use in criminal proceedings. If the investigation is presented by an indirect method of proof, this section need only show the corrected tax computation if taxable income is shown on the appendices.
### [9.5] 8.4.2.3.8 (03-19-1999) Tax Computations
Special agents should follow the instructions in text 8.4.2.3.8.1 and 8.4.2.3.8.2 of this chapter when computing self-employment tax and computations in failure-to-file and false returns investigations.
### [9.5] 8.4.2.3.8.1 (03-19-1999) Self-employment Tax
Where original fraudulent returns reflect figures for self-employment tax, it is the policy of the Office of Chief Counsel to include the corrected self-employment tax figures in the criminal computations. In multiple year investigations where one or more, but not all, of the fraudulent returns reflect self-employment tax computations, corrected self-employment tax figures should be computed for all years unless the evidence otherwise indicates that self-employment tax is not applicable to a particular year or years. Where none of the fraudulent returns reflect a self-employment tax figure, or where no returns were filed, the criminal computations will include a calculation of self-employment tax only when prior year returns reflect self-employment tax figures or other evidence exists to establish beyond a reasonable doubt that the taxpayer was self-employed during the subject years.
### [9.5] 8.4.2.3.8.2 (03-19-1999) Computations in Failure-to-File and False Returns Investigations
In prosecutions under I.R.C. 7203 and 7206(1), while computations showing taxable income and tax are not elements of the crime and may not be required at trial, the computation of harm to the revenue greatly impacts upon the element of willfulness and, as such, the Tax Division, Department of Justice, has requested that tax computations be supplied in all such investigations. In referring such investigations, there should be proof that the Government has been adversely affected by the taxpayer's actions and should show additional taxable income and tax due as one method of accomplishing this. If it can be shown, however, that it would be impossible or impracticable to make a tax computation, and, if without such computation the facts are flagrant, tending to support a reasonable inference of substantial harm to the Government, i.e., revenue, computations of additional tax may be omitted after a full explanation. In any event, a schedule of unreported gross income (I.R.C. 7203) or reported and corrected false return items (I.R.C. 7206(1), must be included in the special agent's report. In prosecutions under I.R.C. 7203, the spouse's gross income is always excluded from gross income, except in community property states. Alternative computations should be prepared for each spouse if both spouses are referred. The alternative computations should reflect the tax due, computed using both the married filing joint and the married filing separate tax rates. The recommended spouse will be allowed an exemption for the nonrecommended spouse providing that the nonrecommended spouse's income would not have independently triggered the filing requirements. The tax rates for a married person filing separately will be used whenever it is apparent from the evidence that the nonrecommended spouse independently either filed or should have filed. An information computation should also be supplied wherein joint rates are allowed since the taxpayers have the option of electing joint rates until commencement of the trial.
### [9.5] 8.4.2.3.9 (03-19-1999) Gross Income
Gross income figures are used by the U.S. Attorneys in complaints, informations and indictments filed against taxpayers in willful failure to file income tax investigations. Therefore, if the special agent's report involves the alleged willful failure to file income tax return(s), the gross income (adjusted gross income or adjusted taxable income in net worth method of proof) in each prosecution year should be shown. In those investigations where gross income must be proven, gross income means all income from whatever source derived, including (but not limited to) the following items: Compensation for services, including fees, commissions, fringe benefits and similar items. Gross income derived from business (use gross profit). Gains derived from dealings in property. Interest. Rents (use gross rents). Royalties. Dividends. Alimony and separate maintenance payments. Annuities. Income from life insurance and endowment contracts. Pensions. Income from discharge or indebtedness. Distributive share of partnership gross income, (separately calculate the distributive share of partnership business profit and distributive share of partnership gross rents, etc). Income with respect to a decedent. Income from an interest in an estate or trust.
### [9.5] 8.4.2.4 (03-19-1999) Evidence of Intent Section
This important section of the report should contain brief, concise statements of the evidence of intent presented in the preceding sections of the report, together with a discussion of any additional evidence of intent. Generally, if an item is presented in the Evidence of Intent section, it should be fully developed in prior sections of the report.
### [9.5] 8.4.2.5 (03-19-1999) Explanation and Defense of Taxpayer Section
This section of the report will contain an outline or succinct summary of the evidence of intent presented in preceding sections of the report, together with a discussion of any additional evidence of intent. In this part of the report, the special agent shall set forth explanations of the taxpayer, facts regarding his or her attitude toward the investigation, facts indicating his or her defense, and rebuttal evidence. If any of those matters have been discussed in detail in a previous part of the report, this section should contain only a brief summary of, or reference to, the preceding discussion. Admissions of the taxpayer relative to the receipt of income or to intent in the matter should be presented with the other facts concerning those topics, even though such admissions were made in connection with his or her explanation. The taxpayer's explanation and facts developed during the investigation may indicate a probable defense. Since this section of the report shall include only facts and evidence, any conclusions regarding the taxpayer's explanation and defense will be reserved for the section provided for that purpose. The special agent should not engage in speculation or conjecture about possible defenses in the report. If a District Criminal Investigation Conference (See text in IRM Handbook 9.5 Chapter 121) was held at the completion of the investigation to discuss with the taxpayer the criminal features of the investigation, set forth the results thereof and submit as an exhibit a transcript or memorandum of the proceedings. Admissions made by the taxpayer during the conference should be included with the evidence of the receipt of income or the facts relating to intent, as appropriate. In that event, it may be advisable to introduce the exhibits pertaining to the conference at the point where that occurrence is first mentioned. Introduce any available evidence to controvert the probable defenses, including a discussion of the efforts made to verify the assertions of the taxpayer. Present the facts relating to the extent the taxpayer and his or her representatives were cooperative or uncooperative during theinvestigation.
### [9.5] 8.4.2.6 (03-19-1999) Evidence Relating to Sentencing Guidelines Section
This section of the report contains evidence which may help determine the taxpayer's eventual sentence and should include the following introductory language: The evidence in this section is presented as the basis for the special agent's determination of the proposed offense level for sentencing purposes. The offense level calculation based on this evidence is not intended as a final computation and should not be interpreted as such. The offense level is based on evidence known at this time and is subject to change should additional evidence be discovered, circumstances vary, or the evidence be interpreted differently. At the discretion of the Chief, Criminal Investigation Division, this section may be omitted from the Special Agent's Report (SAR). However, if this section is omitted from the SAR, the evidence relating to sentencing and the sentencing computation shall be set forth in the transmittal memorandum which accompanies the SAR. The United States Sentencing Commission's Guidelines Manual (USSC-GM) must be consulted in writing this section. Appropriate sections of the USSC-GM should be referenced to the sections of the Special Agents Report (SAR) (see exhibits 9.5.8-2, 8-3, and 9.5.8-4). In using the USSC-GM, the total section relating to an offense level or adjustments must be read. The Commentary associated with each section is extremely important and provides guidance and instructions for the interpretation of the guidelines. In presenting the evidence that supports the base level offense, specific offense characteristics, or any of the adjustments to the offense level, all of the taxpayer's relevant conduct must be considered. This means that all acts and omissions that were part of the same course of conduct or common scheme or plan as the offense of conviction are relevant to determining the taxpayers sentence. The government needs only a preponderance of the evidence to sustain the relevant conduct. Examples of this principle are described in the notes below. NOTE: The taxpayer is indicted on three counts of tax evasion and is convicted on one count. In addition to the three years that the taxpayer was indicted, the Examination Division conducted audits of two more years and understatements caused by fraud were determined and presented in a Revenue Agent's Report (RAR). For sentencing purposes, the tax loss is computed using all of the years for which a preponderance of the evidence shows that the understatements or tax due is attributed to fraud. In this example, the total tax loss computation would include the three years that CI worked and the two years Examination worked. NOTE: During the course of an Examination Division audit which eventually leads to a referral to CI and the taxpayers ultimate conviction, the taxpayer lies to the revenue agent in an attempt to keep the government from uncovering the tax fraud. This conduct could be considered relevant in the application of the obstruction adjustment. The offense level associated with a statute is comprised of a base offense level and adjustments attributed to specific offense characteristics. The base offense level and specific offense characteristics should be dealt with individually for each statute for which prosecution was recommended. Both the base level and specific offense characteristics relating to a statute can be located in Chapter Two of the USSC-GM by consulting Appendix A Statutory Index of the USSC-GM. The Base Offense Level section of the report should show how the base offense level was computed. All methods by which the base offense level could be computed should be shown. Exhibit 8-10 is the Tax Loss Table to be used when determining the base offense level. If some of the information needed for the computation is not available (i.e., interest due on criminal deficiency at date of indictment), compute only the methods where the information is available. The Specific Offense Characteristics section of the report should contain the evidence which supports why a specific offense characteristic adjustment should be made to the Base Offense Level. If more than one specific offense characteristic is applicable, each should be dealt with separately and the evidence in support of each shown. Since the determination of whether a special offense characteristic should apply is sometimes very subjective, all evidence that could reasonably be expected to support the application of a special offense characteristic should be included. Adjustments The Victim-Related Adjustments section of the report should contain the evidence which supports any of the victim-related adjustments. It should be noted that the government itself cannot be a victim for purposes of this section. (USSC-GM, Chapter 3 Part A) The Role in the Offense section of the report should contain the evidence which shows whether the taxpayer had an aggravating role in the offense, a mitigating role in the offense, or abused a position of trust or used a special skill in the commission of the offense. (USSC-GM, Chapter 3 Part B) The Obstruction section of the report should contain the evidence which supports whether the taxpayer willfully obstructed or impeded the investigation. Here again, this determination can be very subjective and all the evidence that can reasonably be expected to determine the application of this adjustment should be included. This issue must be reconsidered after a trial if the taxpayer is convicted to determine if the taxpayer obstructed or impeded the prosecution. (USSC-GM, Chapter 3 Part C) Acceptance of Responsibility: If the defendant has clearly demonstrated a recognition and affirmative acceptance of personal responsibility for the offenses for which prosecution has been recommended, the evidence indicating such should be contained in this section. Conversely, if the taxpayer has demonstrated that he or she is not accepting responsibility for his or her actions, the evidence in support of this position should be shown. (USSC-GM, Chapter 3 Part E)
### [9.5] 8.4.2.7 (03-19-1999) Conclusions and Recommendations Section
In this section the special agent should identify the features of the investigation on which the recommendation for criminal prosecution is based and shall present an appraisal of the related facts and circumstances of the investigation. The special agent shall comment on the flagrancy of the violation and any evidence of a hostile attitude on the part of the taxpayer. The special agent shall make specific recommendations concerning the institution of criminal proceedings, including the particular penal sections of law and tax period involved in each recommendation. Special recommendations should be made relative to the assertion of any appropriate civil sanctions within the jurisdiction of the CI, including the particular sections of law and the tax period involved in the recommendation.
### [9.5] 8.4.2.8 (03-19-1999) Witness-Exhibit Files
A separate witness file should be established for each witness developed during the investigation. The witness file should include the applicable testimony. Documents relating to each witness file can then be reviewed for relevancy and each item therein arranged in a logical sequence. In assembling the witness files, each witness file and each evidentiary item contained in each witness file will be numbered. The documents in the files should be secured within each file and all files then attached together in a manageable package with fasteners or by other methods.
### [9.5] 8.5 (03-19-1999) Notification Letter to Principal in Prosecution Investigations
When the special agent has made a determination, concurred in by the Chief, CI, and the District Director, that the facts in the investigation warrant a prosecution recommendation against the taxpayer, a letter shall ordinarily be sent (via certified mail, return receipt requested) to the principal notifying him or her that prosecution is being recommended and that the investigation is being referred to District Counsel (include office address and telephone number.) A similar letter will also be prepared in those situations described in text in IRM Handbook 9.5 Chapter 12 after the district Criminal Investigation conference is held and the Chief, CI, makes a determination to forward the investigation to District Counsel. (See 26 CFR 601.107(c).) A copy of the letter shall be mailed to the principal's enrolled representative (agent or attorney) if a power of attorney or tax information authorization has been filed in the investigation. The above procedures do not apply to Grand Jury investigations.
### [9.5] 8.6 (03-19-1999) Sample Reports, Tax Fraud Investigations
The sample reports illustrate the format of reports and methods of presenting and arranging facts, evidence, and conclusions. Although in practice the organization of material in each report will depend upon the particular facts and circumstances of the investigation, the samples can be used as guidelines for effective presentation. The sample reports concern hypothetical situations and are not designed to provide either qualitative or quantitative standards for evaluating the sufficiency of evidence. Since lists of exhibits and witnesses usually are similar in format, samples thereof are included with only the first sample report. Likewise, samples of only one appendix are provided in investigations involving two or more appendices that would be similar in content and arrangement. To illustrate a technique that may be used to facilitate reference to the probable testimony of witnesses and to assist in the preparation of the list of witnesses, the surname of the taxpayer and of each prospective witness is typed in capital letters in the sections of the sample reports relating to evidence, explanation of the taxpayer, and intent. Likewise, pertinent business names appear in capital letters. One sample report also follows the practice of underscoring exhibits when initially introduced.
### [9.5] 8.6.1 (03-19-1999) Specific Item Investigation
Exhibit 9.5.8-2 is a sample report on a specific item investigation in which prosecution is recommended. The body of the report contains a summary of the total unreported receipts from each customer with references to several appendices, each showing a tabulation of the unreported payments from one customer, descriptions of the supporting evidence, references to pertinent exhibits, and the name of the witness who will produce the documents and testify relative thereto. A sample of one such appendix is provided. In the body of the report, discussion of items appearing on the appendices is confined to evidence that is not adequately described on an appendix and matters that require elaboration. The sample report contains a summary showing the disposition of proceeds from unreported sales, followed by a discussion of the exhibits relative thereto. Such detailed discussion of the exhibits relating to the disposition of funds is not necessary in all investigations. For example, in instances where such exhibits are adequately described by their title, further discussion may be unnecessary.
### [9.5] 8.6.1.1 (03-19-1999) Sample Appendices (Specific Item Investigation)
Exhibit 9.5.8-2 contains sample appendices showing methods of presenting the evidence of unreported sales in a prosecution investigation based on specific items. Appendix A provides a concise summary of the facts and evidence relating to the receipt of income which, if used as a basis for preparation of the narrative report, will assist the special agent in making a concise and coherent presentation. If the evidence is adequately described on the appendix, it is unnecessary to repeat that information in the body of the report. However, if the brief description in the appendix does not clearly explain the facts and evidence, the matter should be discussed in the body of the report. A copy of each appendix will be submitted with each copy of the report. The information to be included on an appendix and the arrangement thereof will vary according to the facts of the particular investigation. In many investigations, it is not necessary or desirable to include information relating to the reported income, and in instances where few columns are required, it may feasible to combine the schedules regarding the receipt of income and the disposition of funds.
### [9.5] 8.6.2 (03-19-1999) Net Worth Investigation
Exhibit 9.5.8-3 is a sample report on a net worth investigation involving a recommendation of prosecution with respect to three of the five years included in the investigation. It is assumed in the sample that the investigation resulted from the receipt of an informant's communication and that the investigation disclosed fraudulent returns filed for the years involved. The body of the report contains a summary of the computation of net worth and expenditures and the details are set forth on appendices. The summary which appears in the body of the report should contain a tabulation of the major classifications of assets and liabilities that show changes sufficient to have a material effect on income. The remaining amounts should be grouped under the classifications of other assets or other liabilities. In the summary of the income computation in Exhibit 9.5.8-3, the corrected net income is determined by adding nondeductible expenditures to the increases in net worth. A separate item should be inserted in the summary whenever it is necessary to make adjustments for nontaxable income or unallowable deductions, such as gifts, the nontaxable portion of capital gains, or disallowed losses. Because of the number of columns involved, the detailed computations of net worth are presented on two separate appendices: one (Appendix A) relating to the period from the starting point to the first year included in the criminal investigation, and the other (Appendix B) concerning the years involved in the recommendation for prosecution. Appendix B contains references to pertinent exhibits for each item. Appendix A contains similar information for each item not continued on Appendix B, but in instances where an item appears on both appendices, the former shows, in lieu of a description of the evidence, a reference to the number of the item on Appendix B. In instances where one document constitutes evidence relative to a number of net worth items, repetition may be avoided by placing a notation, see Note 1 in the column headed Description of Evidence and describing the document in a footnote. If any classification of assets or liabilities is comprised of numerous items, the basic appendix usually should show only the total amount for the particular classification with reference to a subsidiary appendix containing the detailed tabulation of such items. For example, in an investigation involving numerous bank accounts, the basic appendix will show the aggregate amount on deposit in all the accounts at the end of each period, and the balances in the individual accounts will be tabulated on supporting appendices.
### [9.5] 8.6.3 (03-19-1999) Bank Deposits Investigation
Exhibit 9.5.8-4 is a sample report on a bank deposit investigation, in which it is assumed that the taxpayer operated a retail drug store and that the bulk of receipts from sales are in the form of cash. It also is assumed that business expenses were paid by checks and that the canceled checks were available during the investigation. The computation of income on the basis of bank deposits and cash expenditures is presented on Appendix A, with a brief summary thereof in the body of the report. In order to simplify the basic computation of income, only the total amounts of payments in cash, non-income items and deposits, purchases, and operating expenses are shown on that appendix and the detailed information concerning those items is set forth on subsidiary appendices. In more complicated investigations, it might be advisable to use separate appendices or schedules for the particulars of other items. It is assumed in the report that the evidence concerning deposits of customers' checks will be shown on Appendix A-1. Since the format of that appendix is adequately described in the body of the report, a sample is not provided. Although the sample report may be used as a guideline in preparing reports on bank deposit investigations, the form and content of the report and appendices will vary according to the facts and circumstances of the investigation.
### [9.5] 8.7 (03-19-1999) Reports on Wagering Tax and Coin-Operated Gaming Device (COGD) and Seizure Investigations
In preparing reports on wagering tax and coin-operated gaming device investigations, the special agent should follow the outline for reports on tax fraud investigations shown in 8.4.1 of this chapter, with the elimination of any section that is not necessary to a complete presentation of the facts. The flagrancy of the violation, the importance of the violator, and whether the investigation was adopted from local police authorities or developed through independent investigation by Criminal Investigation should be covered in the report. An optional short form report has been developed for use in wagering tax and coin-operated gaming device investigations. To the extent possible the short form report should be utilized in these investigations.
### Internal Revenue Manual | ### Hndbk. 9.5 Chap. 8 Investigative Reports | ### (03-19-1999)

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