Cover letter L-907 may be used for this purpose. If in litigation it is determined that the taxpayer did not commit civil fraud, then the statute of limitations for the assessment of the underlying tax and penalties will have expired. See IRM 109.3. Referral guidelines to CI are contained in functional manuals. The major difference between civil and criminal fraud is the degree of proof required to establish fraud on the part of the taxpayer.
Criminal fraud requires sufficient evidence to prove guilt beyond a reasonable doubt.
Civil fraud requires clear and convincing evidence of tax evasion. The civil fraud penalty may be imposed upon a taxpayer whose criminal case verdict was not guilty . If the taxpayer has been convicted of criminal tax evasion under IRC section 7201, the civil fraud penalty should be asserted for the same tax year. However, the criminal case conviction does not mean the civil penalty will be automatically sustained. The civil fraud penalty is derived by multiplying the 75 percent penalty rate times the underpayment attributable to civil fraud.