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Appendix A: Abusive Schemes “Tipping Point” Study

August 1, 2003

MEMORANDUM FOR NINA E. OLSON

NATIONAL TAXPAYER ADVOCATE

FROM: Mark J. Gillen

Director, Office of Program Evaluation and Risk Analysis

SUBJECT: Summary of OPERA’s Analysis of IRS’ Posture for

Identifying and Mitigating Abusive Tax Avoidance

Transactions and Schemes – Phase I

The attached briefing documents represent the Office of Program Evaluation and

Risk Analysis’ observations from our review of the Service’s efforts for identifying

and mitigating abusive tax avoidance transactions and schemes.

Our objective was to determine what approaches, processes, and procedures the

Service has developed and/or implemented that would enable (1) early

identification of abusive tax avoidance schemes and (2) mitigation of the impact

of these schemes before they proliferate.

The attachments summarize the information compiled from reviewing the four

operating divisions and other functions with responsibilities and activities relating

to abusive tax avoidance transactions and schemes. This includes the offices

and programs specifically developed to combat abusive schemes or scams.

OPERA did not, however, validate any of the approaches, processes, and/or

procedures noted by the divisions or functions.

Attachment A lists those individuals and organizations that we interviewed during

our review. The additional attachments (Attachments B through G) provide a

snapshot of the strategic initiatives and internal structures to detect and mitigate

abusive schemes and scams as well as those schemes and scams already

identified by the Service.

If you have any questions or need additional information, please contact me at

(202) 927-5647, or have someone from your staff contact Timothy Morrison,

Senior Manager at (202) 927-5641.

Attachments

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OPERA Study of IRS’ Posture for Identifying and Mitigating

Abusive Tax Avoidance Transactions & Schemes

Phase I Observations and Proposed Plans for Phase II

Briefing for the National Taxpayer Advocate

August 1, 2003

Since our initial briefing with you on May 21, 2003, and the briefing we gave to

the Abusive Tax Evasion, Avoidance Schemes & Devices (ATEASD) Executive

Steering Committee (ESC) on June 26, 2003, we have updated our compilation

(updates are highlighted with gray shading) of the Service’s efforts to identify and

mitigate abusive tax avoidance transactions and schemes. In addition, we have

annotated and updated this briefing (highlighted with gray shading) document

that we originally gave to the ATEASD ESC and incorporated our modified

proposed plans for the second phase of this project.

Background

• With the apparent increased appetite for tax avoidance schemes, like

abusive tax shelters, and scams, such as slavery reparations, the National

Taxpayer Advocate’s Office requested analytical assistance from OPERA

to identify what IRS is doing to detect emerging schemes or scams and to

minimize the implications of those detected.

• NTA and OPERA have collaborated on a compilation of IRS detection and

mitigation initiatives to identify the Service’s current posture, capability,

and direction relative to abusive schemes and scams.

• The collaboration started with those known to have explicit responsibilities

for abusive taxpayer activities, like: OPERA’s recent review of the

communications/outreach activities related to slavery reparations; those in

Criminal Investigation involved with fraud detection; those in Research

who have studied IRS’ previous Tax Protestor Program; and those in

LMSB who have pursued abusive tax shelters.

• Between those contacted with known related responsibilities, Intranet

research, and OPERA’s work with the CFO’s Office reviewing the FY2005

strategic planning submissions; we have learned that there are numerous

units involved in the detection and mitigation of abusive schemes and

scams and that their activities are being increasingly coordinated as well

as made known to the public.

• We also learned about the ATEASD and other coordinating bodies that

have been established to further and leverage the efforts of the many

throughout the Service involved with the detection and mitigation of

abusive shelters, schemes, and scams. We have received meaningful

insights about these individual and collective efforts from the ATEASD

membership and extensions of it in the respective organizations.

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Study Objectives

• Identify what approaches, processes, and procedures the Service has

developed and/or implemented that would:

o Enable early identification of abusive tax avoidance schemes, and

o Enable the Service to mitigate the impact of these schemes before

they proliferate.

Methodology & Scope

• Conducted interviews with officials from various operating divisions and

operating units who are known to play an active role in identifying,

assessing and/or mitigating abusive tax avoidance transactions and

schemes.

• Researched IRS Intranet and reviewed various documents related to

abusive tax schemes and scams.

• Contacted others whose related activities were brought to our attention in

the interviews or research to identify their role and relationship to IRS’

abusive scheme and scam detection and mitigation efforts.

Information Compiled

• Based on those interviewed, we learned that numerous IRS units have

identified abusive taxpayer behaviors as serious concerns and have

strategic initiatives and internal structures to detect and mitigate abusive

schemes and scams. (Attachments A, B, C-I, and C-II, CIII respectively).

• We have also compiled information about the schemes and scams

identified along with the unit identification and mitigation efforts, as well as

illustrations of the unit structures and related activities. (Attachments D-I,

D-II, E & F, respectively)

• IRS has also initiated efforts to coordinate and leverage these unit

activities, including: establishing the ATEASD ESC and other coordinating

bodies; and warning the public about the “Dirty Dozen” for 2003 of

common scams, as well as others that have since been identified,

including the advance child tax credit scam recently brought to the public’s

attention. (Attachment G)

Observations

• IRS has extensive efforts underway to combat abusive taxpayer

behavior. While the abusive tax shelter area is further along with regard

to its coordinated detection and mitigation capabilities, the comparable

efforts relating to abusive schemes and scams are being aggressively

developed in literally every major unit, through their strategic plan

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initiatives along with other activities, and coordinated through bodies like

the ATEASD.

• While we noted that W&I is the only major unit without a strategic

initiative related to abusive taxpayer behavior—beyond an OP to

support the efforts of the other units--a structure or official responsible for

schemes or scams, or full ATEASD membership; it has comparable

strategic efforts to learn about its segment’s “taxpayer of the future”, W-4

initiative, EITC program activities, as well as the inclusion of individual

taxpayers in the detection capabilities managed by CI and SBSE.

• The compilation of the collective efforts across the Service to identify and

mitigate abusive shelters, schemes, and scams shows a considerable

commitment to combat these behaviors. Most noteworthy may be the

range of the mitigation strategies, which employ the full arsenal of

tools available to the tax administrator from public information and

alerts, new disclosure requirements for promoters and participants, other

outreach and communication to affected areas, examination and

investigation, and litigation. We were struck by the range of treatments

applied to combating the abusive behaviors detected as well as the

response from taxpayers to each of the techniques employed. This range

illustrates and epitomizes the value of a combination of service and

enforcement in IRS efforts to attain voluntary compliance.

• IRS units have identified numerous abusive taxpayer behaviors through a

wide variety of shelters, schemes, and scams; and have recently formed

bodies to coordinate its collective efforts to combat the proliferation

of these behaviors. While the Service’s efforts to detect and combat

abusive taxpayer behaviors are expansive, the generation and

proliferation of these activities by promoters, scam artists, and others is

imposing—especially through mass mediums like the Internet.

• The coordinating bodies are at a relatively formidable stage, with their

natural evolution to proceed from coordinating our activities relative

to the known abusive behaviors to learn from our experience to

attempt the earliest possible identification of abusive behaviors to

preclude their proliferation.

• Among the many challenges facing those combating abusive behaviors is

clustering or categorizing the shelters, schemes, or scams identified

in meaningful ways, especially since their identification emanates from a

variety of sources and are initially assessed within the various unit

structures.

• The other natural evolution of this extensive body of work is to analyze

and assess our individual and collective capability, based on what has

been identified and mitigated, to determine how to get into a more

proactive posture through early detection, proliferation assessment,

and tailored mitigation strategies. This capability would build upon the

work that has been done and evolved to where we are today. It would

build upon this work to achieve earlier identification and even predictive

analytical capabilities. This would allow us to better target and leverage

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our finite resources to preclude proliferation that casts us into a reactive

mode and at a distinct disadvantage to minimize the compliance

implications.

Where Do We Go From Here?

• Possibly, draw upon those who collaborated with us to compile this

portrayal to learn more about the various means for clustering or

categorizing the identified abusive taxpayer behaviors.

Note: While we are continuing to coordinate with SB/SE/SPDER on the

knowledge management initiative, we do not know the extent to which

these efforts will align.

• During our June 26, 2003, presentation of our preliminary results of the

first phase of the project to the Abusive Tax Evasion, Avoidance Schemes

and Devices (ATEASD) Executive Steering Committee (ESC), ESC

officials suggested that OPERA consider using schemes like the Misuse of

the Disabled Access Credit and Home-Based Business, which have a

broad base and have widely proliferated. Since the ATEASD meeting, we

have talked with those in SB/SE involved with these schemes and others.

We will be meeting as early as next week with the ATEASD Co-Chairs to

discuss our interests and plans for the schemes we ultimately select.

• We plan to look at the schemes selected for the following reasons:

(1) To gain an appreciation for them from initial identification by the

IRS, what parts of the Service were involved, what they did, when

they did it, and to what effect. By doing this, we would gain an

understanding of the IRS’ coordination and mitigation efforts by

seeing how the processes and structures described in our Phase I

compilation were applied, which would include the Service’s

outreach, communication, and compliance activities.

(2) This would also involve determining how the scheme(s)

proliferated; that is, the type of promoter, the method(s) employed

by the promoter to disseminate the scheme, the characteristics of

the scheme, and the characteristics of those who participated in the

scheme.

(3) Then we will try to determine if any key traits can be identified, both

of the scheme and those participating in it, that would assist the

IRS in more quickly identifying and mitigating similar schemes in

the future. This will include identifying whether other analytical

tools could be employed to enhance the IRS’ early detection

capabilities and mitigation strategies for future schemes by trying to

apply such tools, through a proof-of-concept, to the data already

captured through the project or otherwise readily available.

Attachment A

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Interviews Conducted

Large and Mid-Size Business (LMSB)

LMSB Office of Tax Shelter & Analysis (OTSA) Manager

Director Office of Pre-Filing & Technical Services (PTFS) & Co-Chair Abusive Tax

Evasion, Avoidance Schemes and Devices (ATEASD)

Small Business/Self Employed (SB/SE)

Director SB/SE Reporting Enforcement

Program Manager Abusive Tax Schemes

SBSE Laguna Nigel Lead Development Center

Deputy Director SBSE Compliance Policy &Co- Chair ATEASD

Territory Manager (TEC) Houston, TX

Issue Specialist, Compliance Policy, Reporting Enforcement Abusive Tax Promotions

Director Centralized Workload Section & Delivery

Program Analyst- SBSE Reporting Compliance, Ogden Frivolous

Criminal Investigation (CI)

CI Financial Crimes

CI Refund Crimes

CI Philadelphia Lead Development Center

Tax Exempt and Government Entities (TE/GE)

Group Manager EO & EO Abusive Scheme Coordinator

Senior Technical Advisor to TEGE Commissioner

Tax Law Specialist, EP

Tax Law Specialist EO

Wage & Investment (W&I)

Chief Strategy & Selection, Reporting Compliance

NHQ Communications & Liaison (C&L)

National Director Office of Communications

Media Relations Branch Chief

Appeals

Office of Appeals, Director Technical Services

Office of Appeals, Technical Services, Tax Policy/Procedures

Chief Counsel

Special Counsel of the Chief Counsel

Senior Counsel to the Chief Counsel

Attachment B

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Abusive Tax Schemes Strategic Initiatives

As result of OPERA’s analysis of the FY05 Strategic Assessment submissions,

we learned that TEGE, LMSB and SBSE identified abusive tax schemes as one

of their key initiatives. The table below shows the specific TIP for each Operating

Division (OD) that addresses the abusive tax scheme issue.

Operating

Division

TIP # Initiatives to address Abusive Tax Schemes

TEGE TIP #3 Abusive tax schemes involving various types of tax-

exempt and government entities are beginning to

surface and appear to be growing.

LMSB TIP #5 Combat abusive tax avoidance transactions (ATAT)

by encouraging voluntary disclosure and

registration, providing early analysis and published

guidance, initiating alternative resolution methods

and maintaining a strong enforcement regime that

includes promoter audits, summonses and targeted

litigation.

SBSE TIP #1 Compliance of SB/SE taxpayers continues to

decline and tax avoidance continues to rise.

W&I No TIP but did have

an operating priority

that commits to

support the other

OD’s efforts to

combat abusive

taxpayer behavior.

Although W&I did not include a TIP specific to

abusive taxpayer behavior in its strategic

assessment, it does have some related strategic

efforts underway, such as its “Taxpayer of the

Future” analysis, W-4 initiative, EITC program

activities as well as the inclusion of individual

taxpayers in the detection capabilities managed by

CI and SB/SE.

Operating Priority- Select W&I Compliance work to support high-priority Service

commitments, such as high-income taxpayers, NRP priorities, abusive schemes, and offshore

credit card abuses, associated with TIP #3– Improving W&I Enforcement Programs May Reduce

the Risks of Non-Compliance in W&I’s FY05 Strategic Assessment.

Attachment C-I

Internal Structures Established by Units to Identify and Combat Abusive Schemes and Shelters

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Operating

Division

Organization/

Group

Description

LMSB Office of Tax

Shelter &

Analysis

(OTSA)

In February 2000, the Service announced the creation of the Office of Tax Shelter Analysis (OTSA) as part of the Pre-Filing

and Technical Guidance (PFTG) function in the LMSB division. It is the focal point for IRS tax shelter activities and is

responsible for implementing the Service’s tax shelter initiatives. It also serves as a receptacle for information that comes to

the attention of the Service relating to potentially improper tax shelter activity by corporate and non-corporate taxpayers.

At the same time the IRS created OTSA, it also announced three separate groups of temporary and proposed regulations as

part of a coordinated effort to combat shelters. The three regulations were:

6011, Disclosure Rules: Requires taxpayers to disclose on their returns certain transactions that have characteristics

common to tax shelters.

6111, Registration Rules: Tax shelter organizers are required to register confidential corporate tax shelters with the IRS.

6112, Investor Lists: Requires the seller or organizer of a potentially abusive tax avoidance transaction to maintain a list

identifying each investor who was sold an interest in a transaction.

OTSA is responsible for reviewing disclosure statements and maintains a disclosure database as a resource to help agents in

the field and provide management reports. OTSA also reviews registrations filed with the Service and maintains a

registration database to facilitate the compliance process. In addition, OTSA processes investor lists obtained and

disseminates information to the field for compliance action. Working closely with the Office of Chief Counsel and

Treasury’s Office of Tax Policy, OTSA evaluates the tax treatment of new and emerging forms of tax structured transactions

to identify improper transactions, while at the same time protecting legitimate business transactions.

To facilitate the receipt of information, OTSA also maintains a Tax Shelter Hotline service with a toll free number to be used

by persons wishing to submit information to the Service relating to particular tax shelter transactions.

Tax Shelter

Committee

On September 6, 2001, LMSB established a Tax Shelter Committee to provide leadership and executive oversight in

implementing its tax shelter program. The committee is comprised of the Commissioner and Deputy Commissioner of

LMSB, the Director of Pre-Filing and Technical Guidance, LMSB Division Counsel, the five Industry Directors, the

Director, International, and the Directors of Field Specialists and Research & Program Planning. Representatives from Chief

Counsel, Appeals and Treasury may also be invited on an ad hoc basis, depending on the subject matter discussed.

Attachment C-I

Internal Structures Established by Units to Identify and Combat Abusive Schemes and Shelters

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Operating

Division

Organization/

Group

Description

IRC Section

6700

Committee

On December 10, 2001 LMSB established an IRC 6700 Committee to serve as a Subcommittee of the Tax Shelter

Committee. The purpose of the Committee is to ensure consistency and uniformity in the identification of promoters

selected for examination. It is authorized to approve all LMSB tax shelter promoter activities, including promoter contacts,

examinations and penalties.

Generally, examiners may not contact a promoter with respect to any tax shelter promotion unless approval is first obtained

from the 6700 Committee. Examiners may, however, conduct an income tax examination of the promoter or investor without

seeking approval of the Committee.

Membership of the committee includes: Director, Financial Services Industry (Committee Chairperson), Senior Industry

Advisor, Financial Services Industry, Director, Field Operations, Financial Services Industry, LMSB Area One Counsel,

LMSB Senior Legal Counsel- Corporate Tax Shelters, and Manager, OTSA. A representative from Criminal Investigation is

consulted as appropriate.

SB/SE SB/SE Lead

Development

Center-Laguna

Niguel

The LDC was established in April 2002 to provide a centralized, expedited process for identifying and approving promoter

investigations. The center receives and develops leads on abusive tax schemes and promoters from external and internal

sources, and researches abusive tax promotions for purposes of detection and case building. The center also systematically

conducts Internet research to identify leads and detect sites, promoters, and promotional materials that market Abusive Tax

Schemes over the Web. Effective April 1, 2002, Delegation Order SB/SE 4.60 provided the authority to the LDC Program

Manager to approve SB/SE promoter investigations under IRC Sections 6700, 6701 and 7408. The office was moved to

Laguna Niguel, CA in August 2002.

Attachment C-I

Internal Structures Established by Units to Identify and Combat Abusive Schemes and Shelters

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Operating

Division

Organization/

Group

Description

Compliance

Policy

Reporting

Enforcement,

Abusive Tax

Avoidance

Transactions

(ATAT)

Program

Reporting Enforcement’s ATAT Program develops and implements Division-wide policies and strategies to combat Abusive

Schemes and Shelters. The ATAT Program consists of two HQ Program Managers (one covering Domestic Schemes and

Shelters and the other covering Offshore Transactions), supported by two Field Executive Champions. The two ATAT

Program Managers provide program coordination and ensure ATAT processes and policies are consistent across the

Division. The specific programs within this section are:

Abusive Tax Schemes,

Abusive Trusts,

Offshore (non-credit card), and

Complex Tax Shelters

Reporting Enforcement recently redesigned its ATAT Program infrastructure to include 7 additional Policy Technical

Advisors, 2 Senior Program Analysts, and a new GS-15 Project Manager to support the ATAT Promoter Strategy and Issue

Management. Case Building and Classification efforts have been restructured. Both are now centralized in two Campuses

with classification now being conducted by Subject Matter Experts and Technical Advisors.

Issue

Management

Teams

Issue Management Teams (IMTs) have been established to develop strategic approaches to working and resolving ATAT

issues/promotions. Designed as high-powered, small teams that are integrated with Counsel, other Operating Divisions

(ODs), TEC, SB/SE Executives, Compliance Policy, SB/SE Territory Managers, and Group Managers, the IMTs play a key

role in identifying emerging issues, developing and implementing alternative resolution strategies, coordinating with

Counsel and other ODs, developing guidance, monitoring field participant/promoter inventories, and coordinating with

campus activities. The hiring of 6 field GS-14 Technical Advisor-Case Coordinators to support the IMTs has been

authorized.

SB/SE

Executive

Steering

Committee

This Executive Steering Committee is a cross-functional group composed of the Director, Reporting Enforcement and other

Compliance Policy, TEC, and Compliance Field Executives, including the Director, Compliance Area 11 (Denver), and the

Director, Compliance Area 13 (Oakland). The Committee provides coordinated executive oversight of SB/SE’s ATAT

Strategy and Issue Management Teams utilizing data contained in Integrated Process Reports, Risk Assessment Matrix, and

research conducted by Policy Technical Advisors. Committee responsibilities include working with the Issue Management

Teams in developing a strategic approach to working ATAT issues/promotions and emerging issues, developing and

implementing alternative resolution strategies, inventory monitoring and brokering, and providing coordinated guidance to

the field.

Attachment C-I

Internal Structures Established by Units to Identify and Combat Abusive Schemes and Shelters

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Operating

Division

Organization/

Group

Description

SBSE Ogden

Frivolous

Return Program

Servicewide consolidation of the receipt and processing of all frivolous documents at the Ogden Compliance Center (OCC)

began August 14, 2000. The remaining nine service centers will refer frivolous documents to OCC. The IRS, through

administration of IRC Section 6702, will address noncompliance based on unfounded legal or constitutional arguments.

The Frivolous Return Program (FRP) was consolidated at the OCC on January 1, 2002. All receipts of frivolous filings with

the exception of open controlled cases and Congressional cases should be routed to OCC per IRM instructions. The FRP

identifies those individuals filing frivolous returns, documents, and/or correspondence and attempts to educate them as to

their obligations to file and pay taxes. A frivolous return or response is defined as noncompliance with filing and/or paying

tax based on unfounded legal or constitutional arguments per IRM Section 4.19.16.3. This program targets individual

behaviors by responding to specific actions. This includes working frivolous filings by identifying them in initial

submission processing to conducting audits and assessing tax and penalties and on to identifying promoters of the schemes

and referring the promoters through Area Counsel to the Department of Justice for civil prosecutions.

The FRP resides under SB/SE Compliance/Compliance Policy/Campus and Filing Compliance/ Service Center Compliance

that is the policy area that structures the FRP. The FRP is a national program with a coordinator in every campus and the

group that processes the work located at the Ogden Compliance Services. Service Center Compliance sets policy for other

organizations on frivolous anti-tax schemes. The FRP also has an internal database and an employee process to discover

new schemes as well as a couple of systemic extracts to identify existing frivolous filings. In addition, the FRP has a RIS to

identify new types of frivolous filings and a request for an outside contractor to data mine new filings.

All 10 campuses have been trained in how to identify frivolous returns during pipeline processing. They have streamlined

the civil injunctions process and preparer penalties assessed at the campus rather than the field; created an IDRS extract to

identify specific filings that meet pre-determined criteria; and created SERP Alerts to prevent processing of amended returns

meeting FRP return criteria.

Attachment C-I

Internal Structures Established by Units to Identify and Combat Abusive Schemes and Shelters

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Operating

Division

Organization/

Group

Description

Offshore Credit

Card Project

(OCCP)

Oversight

Board

This Oversight Board is chaired by the Deputy Director, Compliance Policy (SB/SE), and includes members from SB/SE

Compliance Policy, SB/SE Counsel, LMSB, CI, Appeals, and the Department of Justice. The Board has been established to

ensure effective communication and coordination with all Operating Divisions. The Board initially focused on the offshore

credit card project. It was later expanded to address issues from OTSA and the International Office within LMSB.

Discussions include addressing promoters outside of the country. There is a seven country-meeting schedule to discuss

issues. The DOJ is interested in tracking whatever inventory exists on abusive schemes.

The OCCP is an initiative aimed at bringing back into compliance with U.S. tax laws participants who used “offshore”

payment cards or other offshore financial arrangement to mask or shelter their income. Judicial summonses have been

issued to credit card companies and merchants. Data obtained is being analyzed to identify U.S. persons from the offshore

card transactions. The OCCP is lead by a Reporting Enforcement Project Manager.

Ongoing efforts include building a pipeline to deliver cases to the field, development of a Collection Strategy, the Offshore

Voluntary Compliance Initiative (OVCI), implementation of a Communication Plan, including taxpayer education on

abusive scheme awareness, and field Counsel support to examiners.

Compliance

Area 15 –

Establishment

of Special

Enforcement

Program (SEP)

Five Special Enforcement Program (SEP) groups have been created in Compliance Area 15 (International) to focus on the

Offshore Abusive Tax Avoidance Transactions and the John Doe Summons cases. These groups and a Collection group will

report to the same Area 15 Territory Manager.

Attachment C-I

Internal Structures Established by Units to Identify and Combat Abusive Schemes and Shelters

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Operating

Division

Organization/

Group

Description

SBSE Taxpayer

Education &

Communication

(Centers for

Excellence on

Abusive

Schemes)

Toolkits)

The TEC Abusive Schemes Center of Excellence (COE) Team is the creators of the toolkits. The toolkits that have been

developed to address abusive schemes are a collaborative effort among TEC, Compliance, CAS, LMSB, CI, Chief Counsel,

and Communications and Liaison. Also, the primary content of the toolkit is an accumulation of many of the initial products

and tools developed through the collaborate efforts in addressing abusive schemes.

The comprehensive strategy outlines that the COE’s tiered structure is designed to provide communication linkages between

the COE, TEC Headquarters, and all TEC Areas and Territories in order to accomplish the following goals:

Provide consistent guidance throughout TEC to address abusive scheme issues.

Eliminate duplicative efforts in the creation of counter-marketing messages.

Develop and deploy a consistent, nationwide abusive scheme counter-marketing strategy.

Develop and deliver consistent messages to internal and external national and local stakeholders about abusive schemes.

Identify locations and types of promotions to ensure this information is shared with other functions, such as Compliance and

CI.

TE/GE Internal

Abusive

Scheme

Committee

The TE/GE Abusive Tax Scheme Committee has been in existence since January 2003. This group consists of

representatives from each of the different areas within TE/GE – Employee Plans, Exempt Organizations and Government

Entities. They are in the process of moving from education to actually discussing and addressing specific issues.

Attachment C-I

Internal Structures Established by Units to Identify and Combat Abusive Schemes and Shelters

A-14

Operating

Division

Organization/

Group

Description

CI CI Lead

Development

Center-

Philadelphia

As of the Summer of 2002 the CI Philadelphia Lead Development Center was designated to specifically work on researching

and identifying abusive tax schemes and their promoters. This change of focus was dramatic and required extensive

planning and implementation of new procedures and partnerships with other areas of the Service.

For instance, the Philadelphia LDC installed several key databases for data mining and researching patterns of abusive

schemes and their promoters. The Philadelphia LDC formed partnerships with Operating Divisions in the Philadelphia

Campus that assist their LDC in the identification of abusive returns. These partnerships have been instrumental in the

identification of abusive schemes.

The CI Philadelphia LDC researches their databases by performing queries on known abusive patterns to identify potential

cases. These cases are thoroughly developed and research packages are prepared and sent to the CI Field Office for further

investigation.

Also, they are partnering with the Examination and Collection Operating Divisions to send parallel investigations to their

respective Field Offices. Both civil and criminal investigations are being worked in conjunction with each other. This is

ground breaking territory. The Philadelphia LDC has invited Examination and Collection Revenue Officers and Revenue

Agents to work in the LDC to form a "research lab" and partner with the analysts to research and identify abusive schemes,

promoters and investors.

The Philadelphia LDC has been identified in the CI Bulletin as the lead center for developing abusive schemes nationwide.

This LDC was advertised as a "resource" for questions and specialized research involving offshore trusts and other flow-

through entities. As a result, this LDC has received and is handling numerous field office requests for advice and research

on established investigations.

Some of the program areas and cooperative projects being worked with SB/SE includes the following:

Offshore Voluntary Compliance Initiative (OVCI)

Parallel Civil and Criminal Investigations (6700 Program)

Offshore Credit Card Program (OCCP) – Merchant Summons

Abusive Scheme Identification and Case Development.

The Philadelphia LDC is working with HQ Financial Crimes on a recommendation to consolidate all CI abusive scheme

investigations relating to foreign/domestic trusts in the Philadelphia LDC for coordination, control and development. A

database is being developed to centralize information relating to abusive schemes to facilitate coordination nationwide.

Attachment C-I

Internal Structures Established by Units to Identify and Combat Abusive Schemes and Shelters

A-15

Operating

Division

Organization/

Group

Description

Return Preparer

Program (RPP)

The Return Preparer Program was implemented in 1996, and established procedures to protect revenue by identifying,

investigating, and prosecuting abusive return preparers. The program was developed to enhance compliance in the return-

preparer community by engaging in enforcement actions and/or asserting appropriate civil penalties against unscrupulous or

negligent return preparers.

Return Preparer Fraud generally involves the preparation and filing of false income tax returns (in either paper or electronic

form) by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive

exemptions on returns prepared for their clients.

Questionable

Refund

Program (QRP)

The Questionable Refund Program, administered by CI, is a nationwide multifunctional program established in January of

1977. The QRP was designed to identify fraudulent returns, to stop the payment of fraudulent refunds and to refer identified

fraudulent refund schemes to CI field offices. While the primary focus is on individual tax returns, business tax returns are

also reviewed under the QRP.

In addition, QRP has been responsible for the identification of substantial abuse in other programs, which has resulted in the

savings of hundreds of millions of dollars from fraudulent schemes in abusive tax shelters and fraudulent claims for the

Earned Income Tax Credit (EITC).

W&I N/A W&I does not have comparable structures for identifying and mitigating abusive tax schemes but supports many of those

established by other units through its operating priority (OP) which specifically deals with W&I Compliance work to support

high-priority Service commitments such as high income taxpayers, NRP priorities, abusive schemes and offshore credit card

abuses. In addition, W&I work with others through its support of CI’s Questionable Refund Program (QRP) and the

Questionable W-4 Program.

Attachment C-II

Cross Cutting Structures Established to Identify and Combat Abusive Schemes and Shelters

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Operating

Unit

Organization/

Group

Description

Cross-

divisional

Abusive Tax

Evasion,

Avoidance

Schemes &

Devices

(ATEASD)

Executive

Steering

Committee

(ESC)

The ATEASD ESC serves as a forum to develop a unified cross-divisional IRS strategy for dealing with abusive schemes

and devices, both internally and externally. The ESC will ensure thorough coordination of enforcement activities and

resource issues on promoters. The work of the ESC may involve all IRS divisions and functions as well as outside

stakeholders including other federal and state agencies.

The ESC will not supplant line authority and accountability, which resides within the Business Units. The ESC members

include:

Large & Mid Size Business (LMSB) Division

Small Business/Self Employed (SBSE) Division

LMSB Counsel

SBSE Counsel

Tax Exempt & Government Entities (TEGE) Division

TEGE Counsel

Chief Counsel, Special Counsel on Tax Shelters

Criminal Investigation (CI) Division

CI Criminal Tax Counsel (Adhoc)

Appeals (Adhoc)

Wage & Investment Division (Adhoc)

Other ad hoc members may be identified as needed to facilitate data gathering and analysis, address legal issues and

consider decisions on use of enforcement tools. The ESC is co-chaired by the Director, Pre-Filing and Technical Guidance

(LMSB) and the Deputy Director, Compliance Policy (SBSE).

An Executive Oversight Committee has recently been formed that is comprised of Senior Management Officials from each of the ODs, Chief Counsel and

Appeals. The purpose of this group is to deal with broad overall policy decisions relating to abusive tax avoidance transactions and schemes. The status of this

committee is pending.

Attachment C-II

Cross Cutting Structures Established to Identify and Combat Abusive Schemes and Shelters

A-17

Operating

Unit

Organization/

Group

Description

NHQ

Commun-

ications &

Liaison

(C&L)

Commun-

ications

Division &

Media

Relations

The Communications Division, led by National and Field Media Relations, plays an important role in countering tax scams

that have surfaced. In recent years, their activity has increased significantly. They have issued dozens of news releases and

added exposure on IRS.gov for tax scams and schemes.

Their basic goal is to relay information to the public, by way of the news media, when they become aware of scams or

potential scams affecting taxpayers. These consumer alerts are designed to heighten awareness and prevent taxpayers from

being scammed.

They use a variety of methods to deliver the agency’s messages to the media and the public, including:

Writing and distributing news releases and Tax Tips.

Targeting e-mails for group distribution to the media, practitioners and others via Digital Dispatch, IRS Newswire and Tax

Tips (Combined circulation: approximately 120,000).

Posting material on IRS.gov on the front page and in The Newsroom section.

Disseminating information for use by other parts of the agency, including C&L’s Internal Communications National Public

Liaison, Legislative Affairs and Government Liaison and Disclosure. Other parts of the agency using these include CI,

TEC and SPEC.

Media Relations learns about scams through several avenues:

Internal Sources – Media Relations can be alerted to scams through internal channels, such as the Operating Divisions, CI

and TIGTA. These contacts generally come through the imbedded communicators in these organizations.

External Sources – Another frequent source of scams, particularly emerging scams, is through external sources. These can

be from the news media, who contact Field or National Media Relations with questions. They also can hear from external

groups that have contact with the agency through organizations such as Governmental Liaison (example state attorneys

general office) and Legislative Affairs (congressional offices). The agency also gets outside information from groups such

as the Better Business Bureau.

Attachment C-II

Cross Cutting Structures Established to Identify and Combat Abusive Schemes and Shelters

A-18

Operating

Unit

Organization/

Group

Description

Chief

Counsel

Senior

Counsel

Executive for

Dealing with

Potentially

Abusive Tax

Avoidance

Transactions

Beyond the normal Counsel activities for advice, guidance and litigation of cases or issues raised for its consideration, in

December 2002, a new Senior Counsel position, reporting directly to the Chief Counsel, was created within the immediate

Office of Chief Counsel to focus on potentially abusive tax avoidance transactions and other marketed tax products. The

new Senior Counsel works with IRS personnel on early identification and interdiction of potentially abusive tax avoidance

transactions through analyzing information obtained from various sources, including from disclosure initiatives, tax shelter

registrations, taxpayer and promoter examinations and other sources (both public and private).

In addition, the Senior Counsel supervises a staff of attorneys and leads multifunctional Task Forces composed of both

Chief Counsel and IRS personnel formed to analyze particular transactions and structures and to make determinations as to

whether listing notices or other forms of published guidance should be issued on the transaction or structure, and to expedite

the publications of such guidance. In addition, the Senior Counsel acts as the Chief Counsel's principal representative on

these matters in dealings with the Operating Divisions of the IRS and with the Department of the Treasury. Finally, the

Senior Counsel will interact with the private sector to continually stress the attention, focus and priority the Office of Chief

Counsel places on potentially abusive tax avoidance transactions, and to foster a dialogue with the private sector on matters

such as the disclosure and registration processes and settlement initiatives.

Appeals

Technical

Services

In addition to their traditional role in supporting IRS by resolving tax controversies, without litigation, Appeals is working

with the ODs to combat abusive tax avoidance transactions and schemes.

The Office of Technical Services within Appeals is comprised of two Tax Policy & Procedure units as well as a Technical

Guidance unit. These units are responsible for participating in working groups with the ODs to do independent assessments

and develop settlement guidelines.

Appeals has noted in its FY 2003 - 2004 Strategy and Program Plan that abusive tax shelters are expanding into additional

areas and increasing in complexity. Tax shelter promoters are soliciting more industry and high-income individuals.

Appeals will partner with LMSB and SBSE to make productive use of Appeals Alternative Dispute Resolution (ADR)

Strategies for tax shelters across IRS business units. They have outlined their intent to accomplish this strategy through the

following actions:

Coordinate with the operating divisions and Counsel with respect to identification and development of abusive promotions

and schemes. Continuously evaluate the success of the process applied and make adjustments, as warranted.

Include abusive tax shelters in the Appeals Coordinated Issue (ACI) program. Select an ACI Specialist to coordinate issue

resolution and articulate case resolution practices. A Specialist was selected. Timely develop Appeals settlement

Attachment C-II

Cross Cutting Structures Established to Identify and Combat Abusive Schemes and Shelters

A-19

Operating

Unit

Organization/

Group

Description

guidelines for each abusive tax position with an identifiable, well-defined fact pattern. (Note that some issues may be broad

and encompass numerous fact patterns, and thus could be considered multiple shelters. In this case, the issue would be

addressed in a different manner than a specific position with an identifiable fact pattern).

Expand Delegation Order (DO) 247 to delegate settlement authority to LMSB and SB/SE following review and approval by

the Appeals ACI coordinator. This was accomplished by DO 4-25.

Tailor the resolutions process to individual shelters, utilizing the following Appeals tools, as appropriate:

DO 247

Fast Track Settlement

Early Referral

Traditional Appeals process including Post-Appeals mediation and arbitration programs.

Conduct joint outreach strategies for internal and external stakeholders. Milestones for tax shelters are dependent upon the

development and communication of the strategies by the Operating Divisions.

Attachment C-III

Research Projects in Support of IRS Efforts to Identify and Combat Abusive Schemes & Shelters

[For illustrative purposes only- not intended to be all inclusive account of Research Initiatives]

A-20

Research

Unit

Description

NHQ Office

of Research-

Intelligent

Business

Group (IBS)

The mission of the Intelligent Business Solutions (IBS) Group is to explore new, intelligent software technologies and apply these technologies

to the solution of IRS business problems. Research’s IBS group has been involved in providing support to combat abusive tax shelters since

1992 when they participated in a collaborative effort between Los Alamos, the AI Group and CI with the Electronic Fraud Detection System

(EFDS) effort for CI. Many of IBS’s recent projects were initiated to use advanced technologies (i.e, neural networks, fuzzy logic, data

mining, & behavior modeling) to help curtail the proliferation of abusive tax schemes and shelters. Some of NHQ Research’s current efforts

that are being developed in conjunction with the ODs include:

Abusive Corporate Tax Shelter (ACTS) Model I & II – This project was initiated as a proof-of concept to determine if neural networks is an

appropriate tool for the IRS to employ. The purpose of this project was to 1) develop a probability model to detect the likelihood of non-

compliance by corporations in the CIC, and 2) scope the size of the abusive tax shelters in terms of compliance/loss of revenue. (NHQ

Research, LMSB Research, and HNC Contractor)

Schedule K-1 Link Analysis – provides link charts showing entities that are connected and use Schedule K-1 to report taxable income or losses

(S Corps, Trusts, & Partnerships). Link analysis and visualization techniques will assist IRS in uncovering tiered structures both domestic and

offshore, (flow-through entities) that are often used to camouflage taxable income with questionable schemes and abusive tax shelters. Graph

mining is being used to look for structures of financial transactions using flow-through entities to avoid tax. (NHQ Research & SB/SE, LMSB,

CI, and MITRE)

Financial Products – pilot to test application of internet software for the purpose of developing an automated system to analyze unstructured

financial data for the purpose of identifying questionable financial products that are used by business entities to reduce tax liability. (NHQ

Research & LMSB Research)

Off-Shore Credit Cards – application designed to uncover and develop leads for identifying taxpayers that are using an off-shore issued credit

card account to camouflage income and/or evade taxes. (NHQ Research, SB/SE Compliance Policy, Reporting Enforcement, and a Contractor)

SB/SE

Research

SB/SE Research in its current configuration was created upon the stand-up of SB/SE. Each of the major Operating Divisions, including

SB/SE, acquired an embedded Research operation by virtue of receiving and incorporating a percentage of the former District Offices of

Research and Analysis (DORAs). The allocation of DORAs to the new Operating Divisions was determined by various analyses and decisions

made during the Modernization process.

Some of the projects involving abusive schemes that SB/SE Research is engaged in include:

Off-Shore Credit Cards – project researches offshore credit card holder information to identify abusive schemes. This information is also used

to determine the best cases for Examination selection. (Contractor Supported)

Internet Promoters – SB/SE Research has been profiling Internet promoters of abusive schemes, including their methodology. The purpose of

this effort is to determine the feasibility of designing and implementing an efficient Internet search process for proactively identifying

promoters or abusive schemes, and characterize the process that promoters may use to establish web sites and how taxpayers may find such

web sites. Research has offered suggestions including having the IRS counter-market sites displayed at the top of Internet search results for

certain keyword phrases such as “stop paying taxes”. Project results are also used in lead development and Examination case selection.

Attachment C-III

Research Projects in Support of IRS Efforts to Identify and Combat Abusive Schemes & Shelters

[For illustrative purposes only- not intended to be all inclusive account of Research Initiatives]

A-21

Research

Unit

Description

K-1s and Link Analysis-a joint project with NHQ Office of Research requested by SBSE Compliance. (See NHQ –Intelligent Business Group

Schedule K-1 Link Analysis.)

K-1s and Tiering of Flow Through Income from Partnerships, S-Corps, and Trusts-An analysis of tiering structures including such items as

income flows and business relationships between the K-1 payers and payees to identify possible areas of compliance risk due to tiering. What

is the relationship between tiering and abusive tax schemes/tax shelters? Do different patterns of tiering, income flows and loss flows exist

when a tax shelter entity or abusive scheme is involved in the tiering structure?

K-1 Profile Reports for Form Types 1041, 1120-S and 1065- Conduct research to build our knowledge base. This includes analysis of income

and losses to foreign recipients, those with missing or invalid TINs or other potentially abusive situations.

OVCI Profile-Profile Per Return and Amended Return Characteristics of Taxpayers that Self-Identify and/or File Amended Returns Under the

ffshore Voluntary Compliance Initiative. Obtain information from examination and collection outcomes so that risk based scoring models

can be developed.

Profile the Universe of SB/SE Taxpayers With International Features-Describe the population of international filers and identify the needs of

SB/SE international taxpayers with relation to the four TEC priorities of e-submission, abusive schemes, voluntary agreements, and burden

reduction.

Study Abusive Trust Audits After Examination to Determine Taxpayer Behavior Patterns.

Profile Foreign Trusts that File a F1041NR to Identify Promoters and Participants of Offshore Abusive Schemes.

Implement Strategies to Combat Abusive Tax Schemes by Identifying Schemes, Alerting the Public, Taking Enforcement Action Against

Promoters and Participants, and Utilizing Research to Assess the Magnitude of the Problem.

Assist in Quantifying the Measurement of TEC’s Effectiveness in Counter-Marketing the Promotion of Abusive Tax Schemes.

Identify Schedule C legitimate businesses Versus Part Time Dabblers, Hobbyists, and Abusive Scenarios.

Profile of Taxpayers Claiming the Disabled Access Credit -- This profile was completed as an example of initial research steps that would be

useful when prioritizing abusive schemes for outreach and identifying markets for the outreach. The purpose was to characterize the taxpayer

population claiming the disabled access credit, understand the background of the ADA and the disabled access credit, and offer

recommendations and opinions on how to measure the extent of abuse and TEC impact on this abuse. The profile includes quantification and

description of the market segment that could potentially abuse the credit, a literature survey on other research and oversight, and an overview

of IRS processing related to this abusive scheme. Also included were conclusions and recommendations on next steps for TEC as they

consider outreach for other abusive schemes.

LMSB

Research

LMSB’s embedded Research function came to be in the same fashion as SB/SE’s. The LMSB Operating Division stood up a bit sooner than

the others. Research is currently working on projects such as:

Compliance Lab – This project looks at complex interrelationships between returns which are created solely to avoid tax.

Abusive Tax Avoidance Transactions Predictive Model – predicts the likelihood a corporation is engaging in abusive tax avoidance

transactions.

Attachment C-III

Research Projects in Support of IRS Efforts to Identify and Combat Abusive Schemes & Shelters

[For illustrative purposes only- not intended to be all inclusive account of Research Initiatives]

A-22

Research

Unit

Description

W&I

Research

A major focus of the Wage and Investment Research function has been in support of the Division’s efforts to fully engage and combat abusive

tax avoidance transactions and schemes. Some of the projects W&I Research is involved in include:

Business Rules for Filing Analysis Module (FAM) – A joint venture between W&I and SB/SE Research to develop a set of methodologies for

particular tax issues to allow prototyping for identifying non-compliance. Early results from the customer are exceptionally positive and this

project will result in these methodologies functioning as the “engine” for the FAM Module in the Remote Exam Reporting Compliance

CONOPS.

Questionable W-4 Program – This project profiled taxpayers who has shown evidenced of under withholding of their Federal Income Tax

liabilities and did not pay their balances due upon filing of their returns or receipt of notices. The project included highlighting of multiple-

year offenders and amount of income tax under withheld. This research now permits the ability to “hone in” on those taxpayers who clearly

demonstrated the improper use of the W-4 system.

Alimony Paid: Risk Determination and Application of Risk-Based Compliance Techniques – A project that is designed to test and analyze

potentially non-compliant filers who claim payment or do not claim receipt of alimony. The research looks not only at a single year of non-

compliance but the year-to-year use by certain taxpayers of alimony claimed payments as a means of incorrectly reducing tax liabilities by

varying degrees.

EITC Claims Study – A project that assesses the population of filers (and practitioners) who amend tax returns (1040X)

EITC Implementation Team - Upcoming work with the IRS EITC Implementation Team, which is responsible for implementing the three

increments of Treasury Task Force recommendations stemming from the 1999 EITC compliance study. The first piece of this study is a test of

procedures for certifying qualifying children.

Standard Mileage Rate Project – This project has identified the schemes taxpayers are using to avoid proper reporting of Schedule C expenses.

Federal Case Registry (FCR) Evaluation Study – A project that analyzed the FCR data as applied to examinations of putative and 3

party

claimants of EIC. The study identified those taxpayers who attempted to claim EIC by using various dependents they were not entitled to claim

under EIC rules.

Child Tax Credit (CTC) Analysis – Research that identified the over-claim schemes in CTC filers’ arena. The results are to be provided in

July to those responsible for processing incoming returns in preparation for CY04 filing season. The application of the “flags” will enable the

Service to identify false claimants of CTC.

CI QRP Project - Research is working as part of the CI QRP project to identify those return preparers who may be incorrectly or illegally

claiming dependents for their clients. This is the sixth consecutive year W&I Research has assisted CI with this project.

TE/GE

Research

TEGE Research is a small operation, which came about with the standup of the operating division. Discussion with the Director of Research

indicates that there are currently no projects concerning tax avoidance schemes ongoing.

Attachment C-III

Research Projects in Support of IRS Efforts to Identify and Combat Abusive Schemes & Shelters

[For illustrative purposes only- not intended to be all inclusive account of Research Initiatives]

A-23

Research

Unit

Description

CI Research Criminal Investigation Research – The function spends the vast majority of its time working within and alongside the larger Criminal

Investigation programs. One Research project they did conduct is the:

The Pilot Connection Society (TPCS) Compliance Report – Criminal Investigation analyzed the results of a comprehensive compliance effort

to counter the activities of TPCS, a frivolous non-filer organization. TPCS promoted the use of abusive trusts, “untax” packages, and other

sophisticated means to enable members to evade their income taxes by concealing assets and withdrawing from traditional banking systems.

The subsequent compliance of over 10,000 members of TPCS was also analyzed years later.

Attachment D-I

Snapshot of Unit Identification & Mitigation Activities to Combat Abusive Tax Schemes

A-24

LMSB SB/SE TE/GE CI W&I

Issue

Identification

Activities

Office of Tax Shelter &

Analysis (OTSA)

Hotline

Disclosure Initiative

Resolution Initiatives for

taxpayers engaged in

selected tax shelters

New Policy on Tax

Accrual Workpapers

Mandatory penalty

consideration in tax

shelter listed transaction

cases

Mandatory Information

Document Requests

(IDRs)

Summonses to promoters

3 Regs: (Disclosure

Statements

Registration Rules, &

Investor Lists)

Promoter Investigations

Field Audits

Registration Filings

Confidential Informants

Referrals from the Field

Investor Lists

Other Operating Divisions

(ODs)

SB/SE's Lead

Development Center

(LDC)

CI's LDC

Corporate Tax Shelter

SB/SE Lead Development Center

(LDC)

Hotline

Systematic Internet Research

SB/SE LDC working with research

and counsel to develop more

aggressive techniques for finding

promoters and schemes marketed

over the web

Promoter Investigations

Secured revision to Services

Voluntary Disclosure Practice (News

Release IR 2002-135)

Offshore Voluntary Compliance

Initiative (OVCI)

Last Chance Compliance Initiative

(LCCI)

Taxable Amended Returns Project

Field Audits

SB/SE redesigned its Abusive Tax

Avoidance Transaction (ATAT)

Program Infrastructure to support

identification of emerging issues

ATAT Promoter Strategy

Issue Management Team (IMT)

Strategy

Centralized case building and

centralized classification by subject

matter experts (SMEs) and Technical

Advisors (TAs) in 2 Campuses, to

improve case quality and facilitate

identification of inventory

FTA - Information Sharing

Agreements with State Tax Agencies

Determination Letter

Program

Exam Process

Other OD Exams

Tax Professionals

(attorneys, accountants)

Newspapers, Trade

Publications

ATEASD ESC

Toll-Free Number

Internal Training

RICS/Guidestar

Internal TE/GE Abusive

Schemes Committee

Normal

Investigative

Process Produces

Leads

Informants

Practitioners

Employers

External

Stakeholders

Questionable

Refund Program

(QRP)

Return Preparer

Program (RPP)

Service Center

Leads

SB/SE LDC

CI LDC

Newspaper

Research

Compliance

Strategy

Enforcement

Strategy

Questionable W-

4 Program

CI QRP

EITC Program

Attachment D-I

Snapshot of Unit Identification & Mitigation Activities to Combat Abusive Tax Schemes

A-25

LMSB SB/SE TE/GE CI W&I

Check Sheet

Internal Training for

examiners

ATEASD ESC

Foreign Country tax information

exchange agreements

TEC/SPEC (internal/external

communication) building coalitions

with practitioner and other external

groups to help identify emerging

schemes

Partnering with FinCen to obtain

access to Bank Secrecy Act (BSA)

data to conduct Trend Analysis /

Data Mining

Offshore Compliance Working

Group (cross-divisional) exploring

improved use of existing data, and

new sources of data to identify

offshore compliance risks and

emerging issues

OTSA

Questionable W-4 Program

CI-sharing of promoter lists

CI’s LDC

Coordination with other ODs

Newspaper Articles

Cases from the field

LMSB promoter investigations

Ogden Frivolous Return Unit

Internal Research

SB/SE Executive Steering

Committee

OCCP Oversight Board

ATEASD ESC

Emerging Issue subgroup of

ATEASD ESC

DOJ Credit Card Summons

Attachment D-I

Snapshot of Unit Identification & Mitigation Activities to Combat Abusive Tax Schemes

A-26

LMSB SB/SE TE/GE CI W&I

Investor Lists

Referrals from Field

Internal Training

Tax

Schemes/Shelter

Transactions

Listed transactions” are

those identified by the

IRS as abusive tax

avoidance transactions.

Summary of Listed

Transactions

404,401 Accelerator

Multi-employer welfare

Lease Strip

Foreign Tax Credits

Transactions substantially

similar to those at issue in

ASA Investerings

Partnership and ACM

Partnership

Charitable Remainder

Trusts

Lease in Lease Out

(LILO)

BOSS

301 Reg re Liab

Assumed, BOSS

Fast Pay

Using Conduit to

artificially allocate

income

Debt Straddle

Son of BOSS

Stock Compensation

Guam Trust

Domestic Abusive Trusts/Foreign

Issues

Abusive Preparers

Charitable Trusts

ADA Credit

Anti-Tax

Corporate Soles

Offshore Compliance Projects

“10 or More Employer VEBA

Plans”

IRC 861 Stop Filing Scheme

(Employer Abatement Project)

Basis Shifting (IRC 302/318; Notice

2001-45)

CARDS (Custom Adjustable Rate

Debt Strategy)

Cash or Deferred Arrangements

(CODA) (401k Accelerator Plans)

Charitable Contribution Schemes

Corporate Owned Life Insurance

(COLI)

Constitutional Arguments

Contingent Liabilities (IRC 351;

Notice 2001-17)

Domestic Abusive Trusts/Foreign

Issues

Eliminator I Notice 2002-50)

Eliminator II (Notice 2002-65)

Equity Swaps (Notice 2002-35)

Executive Compensation

Listed Transactions:

Certain Trust

Arrangements Seeking to

Qualify for Exception

for collectively

bargained welfare

benefit funds

Abuses associated with S

Corp ESOPs

Certain reinsurance

arrangements (PORC)

401K Accelerators

Intermediary

Transactions

LILO Transactions

Certain trusts purported

to be multiple employer

welfare funds

Frivolous tax

arguments

Foreign & domestic

abusive trust tax

evasion schemes

Refund fraud

schemes

Return preparer

schemes

Questionable W-

4 abuses

EITC abuses

Other Credits

Schemes

Questionable

refund schemes

High income

taxpayers related

schemes

Offshore credit

card abuses

Attachment D-I

Snapshot of Unit Identification & Mitigation Activities to Combat Abusive Tax Schemes

A-27

LMSB SB/SE TE/GE CI W&I

Intermediary Transactions

Contingent Liability

Basis Shifting

Sec 302 NRPM-

Redemptions taxable as

Dividends

CARDS

Notional Principal

Contract/Contingent

Swaps

Notional Principal

Contract

401k Accelerator

401k Accelerator, not

reportable

Modified Rev. Rul. 2002-

45 for taxpayers electing

to change method of

Accounting

Eliminator I-Tiered

Partnership Straddle

Eliminator II-S Corp &

P/ship Straddles

-Privately Owned Re-

Insurance Corporations

(PORC)

Abuses assoc. with S

Corp Employee Stock

Ownership Plans (ESOPs)

Offshore Deferred

Arrangements

Collectively Bargained

Welfare Benefit Funds

Family Limited Partnerships

Frivolous Filer

Home-Based Business

Lease In - Lease Out (LILO)

Lease Stripping (Notice 95-53)

Miscellaneous Credits (EITC,

Housing, etc.)

Offshore Credit Card Promotions

(OCCP)

Offshore Employee Leasing

Producer Owned Reinsurance

Company (PORC)

Private Foundations

Questionable W-4 Program

Slavery Reparations

S-Corp – ESOP Ownership

Son of BOSS (Notice 2000-44)

Split-Dollar Life Insurance (Notice

2002-59)

Stock Options – non qualified

Stock Options – sales to family

partnerships

Synfuel Credit (IRC 29)

Supporting Organizations – TE/GE

Trust Owned Life Insurance (See

Split-Dollar Life Insurance)

Taxable Amended Returns

Zero Tax

Attachment D-I

Snapshot of Unit Identification & Mitigation Activities to Combat Abusive Tax Schemes

A-28

LMSB SB/SE TE/GE CI W&I

Mitigation

Efforts

Requiring Promoters to

transactions

Practitioner Coordination

(i.e. ABA, AICPA, TEI)

Published Guidance

Outreach & Education

(tax forums)

Promoter & Investor

Audits

Coordination with ODs,

Chief Counsel, Appeals,

DOJ

ATEASD ESC

Internal RA Training

Procedures & Handbooks

Internal Memos, News

Releases, Checksheets

Issue Champions

IRS Website

Settlement Initiatives

Issue Management Tools

Pre-filing Agreements

(PFA)

Industry Issue Resolution

(IIR)

Fast Track Dispute

Resolution

Limited Issue Focused

Examinations (LIFE)

Other Alternative Dispute

Resolution Tools

Internal & External Abusive

Schemes Toolkits

Developing Service-wide ATAT

Toolkit that includes methodology

for identifying, coordinating, and

handling emerging issues, frivolous

tax schemes, and complex technical

issues

Taxpayer & Stakeholder Outreach

Practitioner Coordination

IRS Website

Tax Forums

Consumer Awareness sites

Issue Management Teams

Issue Champions

CI/SB/SE Parallel Investigations

ATEASD ESC

SB/SE Executive Steering

Committee

Offshore Compliance Oversight

Board

Offshore Compliance Working

Group

Media Outreach

Civil (Injunctions) & Criminal

Actions

DOJ Press Releases

IRS News Releases, and Public

Notices

Court Injunction Orders posted on

enjoined promoter web site

Treasury Statements

Congressional Statements

Promoter/ Promoter Penalty

Coordination with

LMSB, SB/SE, CI

Published Guidance

Website (Soft Guidance)

TE/GE Internal Abusive

Schemes Committee

ATEASD ESC

Outreach/Education

Internal Training

Determination Letters

Collaboration with DOL

RICS/Guidestar data

analysis

Investigations/Convi

ctions

Tax Fraud Alert

(counter marketing)

Intercept Searches

with metatags or key

word tags

Fraud Detection

Centers

Parallel

Investigations

Outreach/Media/Pub

licity Activities

Tax Scheme

Promoter Strategy

(Non-filer

Enforcement

Program, Foreign &

Domestic Abusive

Trust Program,

Fraud Program,

Employment Tax

Program, Return

Preparer Program, &

Questionable

Refund Program)

Enforcement

Strategy

Computer Crime

Development Center

DOJ Press Releases

Coordination with

other ODs

IRS & CI Internet

Coordination

with SB/SE & CI

Outreach/Educati

Website

IRS News

Releases

Attachment D-I

Snapshot of Unit Identification & Mitigation Activities to Combat Abusive Tax Schemes

A-29

LMSB SB/SE TE/GE CI W&I

Investigations

Participant Examinations

Coordination with other ODs, Chief

Counsel, Appeals, DOJ and other

Government and State Agencies

Return Preparer Program

Taxable Amended Return Project

Designed Risk Assessment Matrix

and Prioritization Process

Developed Inventory Brokering

Model

Developed Integrated Process

Reports

Cross Divisional Leadership and

Coordination

Initiated Guidance Projects to

Support Field

Developed Promoter Strategy

Developed Issue Management

Strategy

Designated Field Case Coordinator

positions

Created Teams on emerging issues

with LMSB/TEGE

Questionable W-4 Program

Bundling Offshore Collection Cases

to DOJ to effectuate simultaneous

Court filings and publicity

sites

Practitioner Target

CI Public

Information Officers

Coordination with

other Government

Agencies (FBI,

FTC, SEC, DOJ,

USAO)

ATTACHMENT D-II

Description of Select Programs Offered by SB/SE and LMSB

A-30

SB/SE Programs

Frivolous Return Program (FRP) (Ogden Campus)

The FRP identifies those individuals filing frivolous returns, documents, and/or

correspondence and attempts to educate them as to their obligations to file and pay taxes.

FRP has been essential in countering abusive tax scheme activity surrounding Reparation

claims, Foreign Tax Credit Claims, Zero Tax cases, Constitutional Arguments, etc. This

centralized processing unit provides early and accurate identification of frivolous filings

and appropriate tax assessments, denial of erroneous refund claims, and consistent

treatment. This includes working frivolous filings from identifying them in initial

Submission Processing to conducting audits and assessing tax and penalties as well as

identifying promoters of the schemes. Since its inception in January 2000, the unit has

received 293,838 cases and closed 179,671 cases. Revenue protected was

$3,200,000,000 with $142,000,000 in additional tax assessments and 9,617 in frivolous

return penalties assessed.

Questionable W-4 Program

SB/SE designated an executive to work closely with other SB/SE employees and W&I to

develop a strategy for stemming the flow of Questionable W-4s. New tools to identify

egregious W-4s are under development. The Questionable W-4 database was mated

against the Frivolous Filer Database. This match was used to identify common

characteristics and will be used in future decision-making processes. SB/SE is making

employer contacts to ensure that their responsibilities are being met and to survey for

potential promoters using the W-4 process to advise participants on strategies for “opting

out” of their filing requirements.

Offshore Credit Card Program (OCCP)

The OCCP is an initiative aimed at bringing back into compliance with U.S. tax laws

participants who used “offshore” payment cards or other offshore financial arrangement

to mask or shelter their income. Judicial summonses have been issued to several major

credit card companies and merchants. Data obtained is analyzed to identify U.S. persons

from the offshore card transactions. Identified U.S. cardholders are forwarded to a

central processing site in Philadelphia where relevant data is collected from internal and

external sources to build case files with information useful for the classification and

examination process. An outside vendor has been secured to automate the identification

and case building process being used in the Philadelphia Campus. Sorted and prioritized

cardholder data will be run against this automated process.

In January 2003, SB/SE announced the Offshore Voluntary Compliance Initiative

(OVCI) aimed at encouraging the voluntary disclosure of unreported income hidden by

taxpayers in offshore accounts and accessed through credit cards or other financial

ATTACHMENT D-II

Description of Select Programs Offered by SB/SE and LMSB

A-31

arrangements. Under the initiative, eligible taxpayers have to pay back taxes, interest,

and certain accuracy and delinquency penalties, but will not face civil fraud and

information return penalties. To obtain the benefits of the initiative, taxpayers must

disclose information about who promoted or solicited their participation in the offshore

financial arrangement. OVCI reflects an attempt to bring taxpayers back into compliance

quickly while simultaneously gathering more information about the promoters of these

offshore schemes.

The Taxable Amended Return Project is aimed at identifying high-income individuals

who have attempted to avoid detection, penalties, and the disclosure of OVCI promoter

information by filing amended or delinquent returns that do not identify offshore

activities. An initial test review of a sample of delinquent and amended returns indicated

that criteria established by the project did assist in identifying taxpayers attempting to

avoid detection in offshore schemes. The project is still being tested.

Last Chance Compliance Initiative (LCCI)

Similar to OVCI, LCCI reflects a “last” attempt to bring taxpayers with unreported

income from offshore transactions back into compliance quickly while simultaneously

gathering more information about the promoters of these offshore schemes. The first

waive of LCCI letters will go out June 16, 2003 to individuals identified in connection

with OCCP but who failed to come in under OCVI.

ATAT Strategy

Reporting Enforcement recently redesigned its ATAT Program infrastructure to add an

additional ATAT Program Manager to cover Abusive Offshore Transactions. Seven new

Compliance Policy Technical Advisors, two Senior Compliance Policy Program

Analysts, and a new GS-15 Project Manager will also be hired to support the ATAT

Promoter, Emerging Issue, and Issue Management Strategies. Issue Management Teams

(IMTs) that include Executive Champions, have been formed to identify emerging issues

and to develop and implement alternative resolution strategies in ATAT promotions. The

hiring of six fields

GS-14 Case Coordinators to support the IMTs has also been

authorized. Further, ATAT Case Building and Classification efforts have been

significantly restructured. Both are now centralized in two Campuses (Philadelphia –

offshore ATAT cases; Ogden – Domestic ATAT cases) with classification now being

conducted by Subject Matter Experts (SMEs) and Technical Advisors (TAs).

Partnering with other Divisions to Identify Emerging Issues

SB/SE is working with FinCen to obtain access to Bank Secrecy Act (BSA) data to

conduct Trend Analysis / Data Mining. SB/SE participates in the cross-divisional

Offshore Compliance Working Group exploring improved use of existing data, and new

ATTACHMENT D-II

Description of Select Programs Offered by SB/SE and LMSB

A-32

sources of data to identify offshore compliance risks and emerging issues. SB/SE also

participates on the “emerging issues” sub-group of the ATEASD ESC.

LMSB Programs

3 Treasury Regulations under Sections 6011, 6111 and 6112 of the Internal Revenue

Code

At the same time the Service announced the creation of OTSA, it issued three separate

groups of temporary and proposed regulations as part of a coordinated attack on shelters.

Disclosure Statements (section 6011)- Every corporate taxpayer that is required to file a

return for a taxable year and that has participated directly or indirectly in a “reportable

transaction” must attach to its return a disclosure statement. A separate disclosure

statement is required for each “reportable transaction.” A reportable transaction is either

a listed transaction (or a substantially similar transaction), or a transaction which meets

two out of five prescribed characteristics, and that meets the projected tax effect test.

Note: Effective June 14, 2002, this regulation was modified to extend the same reporting

requirements to individuals, trusts, partnerships, and S Corporations.

One of the items that must be included in the disclosure statement is: the names and

addresses of any parties who promoted, solicited, or recommended the taxpayer’s

participation in the transaction and who had a financial interest, including the receipt of

fees, in the taxpayer’s decision to participate.

Tax Shelter Registrations (section 6111) & Maintenance of Investor Lists (section 6112)-

IRC 6111 & 6112 require tax shelter organizers or sellers to register all tax shelters with

the Secretary and to maintain lists of investors and information about the transactions.

Registration: An organizer or seller of a tax shelter must register the shelter no later than

the day on which the first offering for sale of interests in a tax shelter occurs by filing

Form 8264 with the Ogden Compliances Service Center. Information required on the

registration includes identification and description of the tax shelter and the tax benefits

represented to the investors.

Investor Lists: any person who organizes a potentially abusive tax shelter or sells an

interest in such a shelter has to maintain a list identifying each person who invested in the

shelter. Any person who is required to maintain a list shall make the list available to the

Secretary for inspection upon request, and shall retain any information required to be

included on such list for seven years.

OTSA Hotline

OTSA maintains a Tax Shelter Hotline, which allows interested persons to submit

information to the Service relating to particular tax shelter transactions and activities.

Persons wishing to submit information to OTSA may do so via mail, telephone, fax or

email. All information received is entered into a log and a file is established. OTSA

reviews the information and makes appropriate referrals for compliance or other action.

ATTACHMENT D-II

Description of Select Programs Offered by SB/SE and LMSB

A-33

Corporate Tax Shelter Check Sheet- OTSA disseminated a tax shelter check sheet to

assist LMSB agents in identifying corporate tax shelters.

Information Document Request (IDR)- A mandatory IDR is required to be issued in all

LMSB corporate examinations started after April 23, 2002, or in process on April 24,

2002. The purpose of the IDR is to assist agents in identifying and developing tax shelter

issues.

Issue Champions

Issue champions are approved by the Commissioner, LMSB, upon recommendation of

the LMSB Tax Shelter Committee. They are appointed when a particular abusive tax

avoidance transaction becomes significant enough to warrant executive oversight and

direction. For several transactions that impact more than one OD, multiple issue

champions are appointed to ensure compliance and resolution matters are properly

evaluated and coordinated.

ATTACHMENT E

Large and Mid-Size Business (LMSB) Example on Disclosure Initiative

A-34

[For illustrative purposes only – not intended to be a comprehensive account of LMSB

OTSA initiatives and/or activities].

Background Why IRS Offered This Disclosure Initiative

IRS believed that many taxpayers entered into questionable transactions based on

representations of financial advisors who marketed these transactions to them. These

taxpayers became aware that those transactions may be challenged upon an IRS audit and

result in additional tax and penalties. IRS recognized that taxpayers might have been

reluctant to voluntarily come forward and disclose the transactions due to the potential

substantial penalties that might follow. As a result, the IRS offered a disclosure initiative

to give taxpayers a limited time to come forward and disclose transactions without fear of

incurring a penalty.

Disclosure Initiative-Announcement 2002-2: The disclosure initiative, that began

December 21, 2001 and concluded April 23, 2002, provided taxpayers with a 120-day

opportunity period to voluntarily disclose their participation in questionable tax shelters

and other items that may have resulted in an underpayment of tax. The initiative was

designed to provide IRS with information that would help them more readily identify tax

shelter promoters, find other taxpayers who have not disclosed their participation in a tax

shelter and identify emerging abusive transactions.

Taxpayers making disclosures were required, among other things, to describe the material

facts of the item, provide the names and addresses of the promoters who solicited their

participation, provide copies of materials and documents requested, and sign a penalty

perjury statement regarding the accuracy of the information provided.

IRS aggressively examines the activities of promoters, who by law are required to

maintain lists of all investors who bought tax shelters from them. Once IRS receives the

investor lists from the promoters, they are able to identify other taxpayers who may have

participated in tax shelters but failed to disclose them.

OTSA received 1,664 disclosures from 1,206 taxpayers who disclosed their questionable

transactions. Taxpayers have disclosed transactions in which they claimed deductions or

losses amounting to billions of dollars. These disclosures have been assigned to field

agents to audit and resolve the disclosed transactions.

Mitigation Efforts

For those who voluntarily disclosed a transaction in accordance with the announcement,

IRS promised to waive certain accuracy-related penalties that might apply to tax shelters

and other questionable items that resulted in an underpayment of tax.

Disclosure under this initiative did not affect whether the IRS would impose, as

appropriate any other civil penalty applicable under Code, or investigate any associated

criminal conduct or recommend prosecution for any violation of any criminal statute.

ATTACHMENT E

Large and Mid-Size Business (LMSB) Example on Disclosure Initiative

A-35

Published Guidance

Published Guidance such as notices, revenue rulings, and announcements provide the

general public with IRS’s position on certain transactions. The intended purpose of

published guidance is to serve as an early warning system to inform and deter taxpayers

from participating in abusive transactions.

It has been noted that although abusive tax avoidance transactions are not easy to define,

once they are disclosed and discovered they can be easily recognized. For this reason, the

best tool IRS has in dealing with abusive transactions is early identification. Identifying

questionable transactions early enables IRS to gather information and issue published

guidance, in some cases even before transactions show up on tax returns.

[Note: Source of data is from OTSA documents, IRS News Releases, and discussions with

OTSA officials]

ATTACHMENT F

Small Business and Self-Employed (SB/SE) Example on

Lead Development Center Activity on Schemes and Promoters

A-36

[For illustrative purposes only – not intended to be a comprehensive account of SB/SE

initiatives and/or activities].

The Office of Reporting Enforcement within SB/SE Compliance Policy has the

responsibility of providing Division-wide policy guidance for Fraud, Anti-Money

Laundering, and Abusive Tax Avoidance Transaction (ATAT) compliance processes.

Also, the office has the Lead Development Center (LDC) that identifies and builds

promoter cases.

Issue Identification

Lead Development Center

The LDC was established in April 2002 to centralize the receipt, identification,

development of leads on Abusive Tax Schemes and Promoters, as well as authorize and

refer 6700/ 7408 investigations to the Planning and Special Programs (PSP) offices to the

field groups for examination. The Center receives internal and external leads, and

researches abusive tax promotions for purposes of detection and case building. Also, the

LDC systematically conducts Internet research to identify leads and detect sites,

promoters, and promotional materials that market Abusive Tax Schemes over the Web.

Currently, the LDC is working with research and Counsel to develop more aggressive

techniques for finding promoters and schemes marketed over the internet.

The SB/SE Delegation Order 4.60 provides the authority to the LDC Program Manager to

approve promoter investigations under IRC sections 6700, 6701 and 7408. As of July 1,

2003, there are 489 promoter investigations in the field and 526 promoter leads in the

LDC to be evaluated and developed.

Mitigation Activities

Internal and External Toolkits

The ATAT Internal Toolkits (Anti-tax Law Evasion, Home-Based Business Schemes,

Employee Leasing, Abusive Trusts, Disabled Credit Schemes, Offshore Schemes,

Offshore Voluntary Compliance Initiative) were developed to provide SB/SE employees

with the official language and products that they are expected to use in abusive scheme

outreach efforts. Also, this is an effort to ensure consistent messages are delivered

nationwide. The External Toolkits (Anti-Tax Law Evasion, Home-Based Businesses,

Abusive Trusts, Disabled Credit, and Offshore Schemes) are prepared as an effort to

reach the maximum audience by partnering with external stakeholders. These toolkits

will aid stakeholders in assisting the IRS with counter-marketing against abusive tax

schemes. It has been publicize that TEC has a major priority to counter-market against

abusive tax schemes by educating potential investors to avoid the schemes.

ATTACHMENT F

Small Business and Self-Employed (SB/SE) Example on

Lead Development Center Activity on Schemes and Promoters

A-37

It is noted in the abusive schemes internal toolkits comprehensive strategy, that most of

the schemes encountered, will fall within, or have components of the following general

topics:

Abusive Offshore Tax Avoidance Schemes

Abusive Home-Based Business Schemes

Abusive Trust Schemes

Anti-Tax Law Evasion Schemes

However, the Service is working on developing additional toolkits that would address

specific schemes. One of the more specific toolkits developed address the subject

regarding Misuse of the Disabled Access credit. As of March 2003, TEC noted that 78%

of the schemes match up to the five toolkits

Reporting Enforcement is also working with other ODs to develop a Service-wide ATAT

Toolkit that includes a methodology for identifying, coordinating, and handling emerging

issues, frivolous tax schemes, and complex technical issues.

Parallel Investigations

A parallel proceeding between SB/SE and Criminal Investigation involves

simultaneously investigating or litigating of separate civil and criminal aspects of a case

involving a common set of facts. Due to the fact that the Service is facing numerous

abusive schemes, it has been recommended that the Service perform parallel

investigations. The Service’s civil and criminal functions would consider all the potential

benefits and risks involved in conducting parallel proceedings and make the best possible

decision to enforce the tax laws, promote voluntary compliance and protect the revenue.

In the past, the Service has traditionally completed the criminal investigation before

seeking civil remedies. This practice allowed the promoter(s) to continue marketing the

abusive scheme while being investigated criminally.

The parallel approach does not mean the IRS should conduct civil and criminal

investigations jointly. However, it allows simultaneously civil and criminal

investigations to be conducted separately and distinctly.

An example of some of the civil remedies includes the following:

Section 6700, penalties against promoters of abusive schemes.

Section 6701, penalties against preparers.

ATTACHMENT F

Small Business and Self-Employed (SB/SE) Example on

Lead Development Center Activity on Schemes and Promoters

A-38

Section 7408, authorizes an injunction in a U.S. District Court if a person violates 6700

or 6701.

Some of the criminal violations are:

Internal Revenue Code (IRC) 7201, Tax evasion.

IRC 7206(1), Filing false returns.

IRC 7206(2), Aiding and assisting in the preparation of false tax returns.

The SB/SE operating division with the IRS has developed procedures, which documents

the process for starting a parallel investigation with the CI.

[Source: SB/SE web-site and discussions with SB/SE officials]

ATTACHMENT G

Coordination Activities

A-39

[Efforts identified below may not include all coordination activities across IRS units on

schemes and scams]

ATEASD ESC

- forum to develop a unified, cross-divisional IRS strategy for dealing

with abusive tax schemes and shelters. The primary focus is on coordination of

enforcement activities and resource issues. The ESC’s efforts are also coordinated with

outside stakeholders, including federal and state agencies.

Issue Champions- Issue Champions are appointed by the LMSB Commissioner upon the

recommendation of the Tax Shelter Committee when a particular tax shelter issue is

significant enough to warrant executive oversight and direction. In some instances, when

an issue impacts another IRS Division, that division may appoint a co-issue champion to

serve with the LMSB champion to ensure compliance and resolution matters are properly

evaluated and coordinated. For example, for the Son of BOSS tax shelter issue,

executives from both LMSB and SB/SE have been appointed to serve as joint issue

champions.

Issue Management Teams- Similarly, SB/SE established Issue Management teams that

include Executive Champions to provide a strategic approach to issue management.

Parallel Investigations- CI & SB/SE pursue civil and criminal investigations in parallel.

A six-way conference is held between CI & SB/SE to ensure IRS makes business

decisions about investigations that are in the best interest of IRS’s efforts to stop the

promotion of abusive schemes. LMSB is considering incorporating parallel investigation

methods in its promoter investigations.

Coordinated Outreach/Communication Efforts- to educate and warn taxpayers through a

consistent message about abusive schemes and the consequences of participating in them.

One of the most prominent public warnings has been the “Dirty Dozen” of Tax Scams for

2003, which has appeared in every major media outlet and picked-up by many other local

outlets as well. In addition, LMSB issues notices of “Listed Transactions”, alerting the

public to transactions it identifies as abusive and warning taxpayers not to invest in these

transactions.

News releases developed by C&L are utilized by the various ODs to raise awareness to

each of their respective customers about the IRS’ position on abusive schemes.

SB/SE’s internal and external toolkits are developed through a collaborative effort with

TEC, Compliance CAS, LMSB, CI, Office Chief Counsel and the Office of

Communications and Liaison (C&L). The internal toolkits are used by SB/SE employees

in their abusive scheme outreach efforts and the external toolkits are used to aid

stakeholders in assisting the IRS with counter marketing against abusive tax schemes.

An Executive Oversight Committee has recently been formed that is comprised of Senior Management

Officials from each of the ODs, Chief Counsel and Appeals. The purpose of this group is to deal with

broad overall policy decisions relating to abusive tax avoidance transactions and schemes. The status of

this committee is pending.