Form 2797 allows an IRS agent to report a case of suspected criminal fraud. According to the IRS, an agent may not report civil fraud using this form; it can only be filed when the agent believes that a person may have committed criminal fraud. The IRS agent fills out this form, not the taxpayer.
Intent and Action
Two elements are necessary for the IRS to prove that a taxpayer has committed fraud. The taxpayer must intentionally try to deceive the IRS by reporting a smaller income--or a larger loss--than the taxpayer believes is accurate. The taxpayer must also pay the IRS less money than the amount the taxpayer actually owes in federal income taxes.
The IRS examiner does not always decide that a taxpayer's underpayment is criminal fraud. The IRS may assess a civil penalty instead of a criminal penalty. In that case the taxpayer is not charged with a crime, but does have to pay a fine to the IRS. If the IRS only pursues a civil penalty, the tax examiner does not file Form 2797.
Form 2797 cases often involve Form 8300. A taxpayer fills out this form to report the transfer of more than $10,000 in cash for a business purpose. According to the IRS, federal law requires a business to file this form any time it receives more than $10,000 in cash from a customer, or spends more than $10,000 in cash to purchase an item.
Declining the Case
The examiner sends Form 2797 to the Criminal Investigation Division of the IRS, which decides whether to press charges. If the Division decides not to pursue the case, the investigator checks off a box on Form 2797 to state that the Division will not press charges, and explains why the Division has decided not to pursue a criminal case against the taxpayer.
The IRS examiner considers other factors before submitting Form 2797. The taxpayer may have received several earlier warnings about inaccurate information, especially about information on Form 8300. The examiner considers carelessness and negligence, as well as intentional falsehoods, when deciding to send this form to the Criminal Investigation Division. The examiner also considers whether the employees of a business are willing to cooperate with an IRS investigator by providing the information that the investigator requests.