The agent must also verbally inform the taxpayer that their records are inadequate. Refer to IRM 4271.22, for further explanation. Fraud Fraud must be considered for all of these cases with large amounts of unreported income. For a criminal referral, other badges of fraud must be evident in the case beside that which resulted from the Lundberg Survey. In most instances, this is also necessary for District Counsel to sustain the fraud penalty.
Inadequate records is one badge of fraud.
Altered documents, illegal activity, self-serving statements with no documentary proof, false or inconsistent statements, are just a few other common badges of fraud. Whole station activity omitted from the return 2. Unreported sale of a station 3. The following are items to develop for a Fraud Referral. The examiner should do as much of this as necessary for the particular case under examination.