Tag Archive for: Criminal Investigation

What is the Average Jail Time for Tax Evasion?

The threat of a tax audit is not news to most business owners. While some may be willing to risk the chance of ignoring their tax responsibilities when the outcome is simply fees and financial penalties, that may change when they realize that tax evasion may lead to more than just monetary punishments. It may be news to some that tax evasion is a crime punishable with jail time.  With that in mind, is it still worth the risk?

The average jail time for tax evasion ranges between three to five years. It varies on a case-by-case basis, but jail time for tax evasion occurs more often than one would think. What other penalties exist for tax evasion?

According to Internal Revenue Code, “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”

Needless to say, IRS takes tax evasion seriously. With a 90.4%.conviction rate on criminal cases, going up against the IRS criminal investigations department is not to be taken lightly. 

Is Tax Evasion A Criminal Or Civil Offense?

IRS has the ability to determine if a case of tax evasion is a criminal or civil offense or both. While criminal penalties have the ability to send you to jail for up to 5 years in addition to a fine of up to $100,000, as stated above, civil tax penalties can hold you responsible for repaying up to 75% of the tax due, plus interest. 

While the actions that lead to both criminal tax penalties and civil tax penalties can be the same, IRS is held to a different standard of proof for each penalty type. In a criminal tax case, the IRS must prove tax fraud “beyond reasonable doubt.” To impose a civil tax fraud penalty, the IRS must only prove tax fraud by “clear and convincing evidence.” This lower standard of proof raises the urgency of having impeccable representation in civil cases as well as criminal. 

Types Of Tax Evasion

IRS identifies two types of tax evasion. They are defined as “the willful attempt to evade or defeat the assessment of a tax”, and “the willful attempt to evade or defeat the payment of a tax.” 

The first represents a taxpayer that files a falsified return either by omitting income or claiming deductions that they are not entitled to. The latter encompasses taxpayers that conceal money or assets that could be used to repay the taxes that they owe. 

Below are a few examples of tax evasion practices:

  • Failure to file returns
  • Understating income/assets
  • Overstating tax deductions
  • Filing of false returns
  • Sales tax fraud
  • Failure to pay employment withholding taxes

What is the Average Jail Time for Tax Evasion?

Tax Evasion vs Tax Avoidance

It should be noted that there is a distinct difference between tax evasion and tax avoidance. Tax avoidance occurs when individuals can lawfully mitigate tax liabilities using methods that have been approved by tax authorities—tax evasion is purely illegal evasion of the tax burden that befalls your company.

FBAR Penalties

If an individual willfully fails to report foreign accounts, IRS can potentially collect the full maximum balance of foreign accounts through a civil penalty. IRS accomplishes this by penalizing the maximum balance by 50% numerous times over a multi-year period. Criminal penalties may also be issued for FBAR penalties. These can result in more than $400,000 and potential jail time—similar to tax evasion.

How To Defend Against Tax Evasion Charges

You may be able to show that there was no intent to defraud the government if you are able to prove that there was a legitimate miscalculation of taxes. With proper guidance, it is possible to partake in tax resolution negotiations with IRS or state tax authorities. It is always advised that you receive counseling from an experienced tax attorney who can help in creating a defensive strategy to bolster your case. 

The attorneys at Milikowsky Tax Law have extensive experience in dealing with tax evasion charges. Contact us today if with further questions or to discuss your case. 

Tax fraud
In the eyes of the federal government, there is a vast difference between a criminal tax fraud offense and a civil fraud offense. These differences focus primarily on the different burdens of proofs, penalties, statues of limitations, and defenses available to the taxpayer. 

For several reasons, often the IRS will first pursue a criminal tax fraud suit before pursuing a civil tax fraud suit. According to the IRS’s own Tax Crimes Handbook, a criminal tax fraud conviction “carries the most severe penalty of the criminal tax offenses.”

Civil tax fraud and criminal tax fraud have different burdens of proof. The IRS carries a “clear and convincing” evidentiary standard for civil tax fraud. (This is otherwise known as a “preponderance of the evidence” standard). By contrast, criminal tax evasion requires proof “beyond a reasonable doubt”—which is a higher evidentiary standard. In other words, the government must prove “more” to show criminal tax fraud than civil fraud.

Civil tax fraud and criminal tax fraud also have different associated penalties. There are several categories of civil tax fraud—for example, there is the fraudulent failure to file a return, accuracy-related penalties under IRC, spousal liability under IRC, and the fraudulent tax return for, e.g., failing to report income on your return and failing to pay tax. Each of these has different associated penalties. For instance, the penalty for fraudulently failing to file a tax return is 15% of the net tax due for each month (up to five months), with a maximum penalty of 75% of the unpaid tax. Similarly, the penalty for filing a fraudulent tax return (e.g. failing to report income) is 75% of the underpayment amount.

The penalties for criminal tax evasion are steeper. Under code 7201, a taxpayer found guilty of willfully attempting to evade tax (or its payment) could face a fine of $100,000 ($500,000 for a corporation) plus five years of imprisonment. Similarly, if a taxpayer is found to have willfully failed to pay tax, file a return, keep sufficient records, etc. he or she may face a penalty of $25,000 ($100,000 for a corporation) plus one year in prison.

Moreover, civil tax fraud and criminal tax fraud have different statute of limitations. For civil tax fraud, there is no statute of limitations, and the tax may be assessed at any time. By contrast, there is a criminal statute of limitations, but it applies only to the prosecution of the crime—the actual tax evasion—not the assessment of the tax owed. Typically, the statute is three years after the taxpayer commits the offense. But there are certain, specified carved out offenses for which a six-year statute of limitations applies.

Finally, different defenses are available for civil tax fraud and criminal tax fraud. When a civil suit for tax fraud follows a criminal proceeding for tax fraud, the doctrine of “collateral estoppel” may apply. Under this legal theory, provided certain technical requirements are met, once an issue is decided in one proceeding, it may not be retried again in a second proceeding.

This doctrine may be helpful to either the government or the taxpayer, depending upon the order of the civil/criminal proceeding and the outcome of the first case.

Consider first a criminal proceeding followed by a civil proceeding. If the government wins the criminal tax evasion suit, the taxpayer generally is “collaterally estopped” in the second (civil) proceeding from contesting that he committed fraud. Why? Because the government already proved fraud “beyond a reasonable doubt” and for the civil suit it needs even less evidence than that (requiring only “clear and convincing” evidence).

Alternatively, suppose the taxpayer is acquitted of criminal tax evasion in the first suit. Does collateral estoppel help the taxpayer? Unfortunately for the taxpayer, no, it does not. The first suit showed conviction was not provable “beyond reasonable doubt.” It remains to be seen in the civil suit whether it can be established using the lower evidentiary standard of “clear and convincing evidence.”

Now consider the reverse order of the proceedings, with the government first bringing a civil suit and losing—and then tries to bring a criminal suit for tax fraud. Does collateral estoppel help the taxpayer? It may; the taxpayer may attempt to collaterally estop the government in the second (criminal) proceeding from asserting the existence of fraud. In other words, under this scenario the doctrine of collateral estoppel helps the taxpayer.

In sum, the differences between a criminal and a civil suit are huge. It is best to speak with a qualified tax attorney, like one of the partners at Milikowsky Tax Law, to help you walk through these important nuances before the situation gets out of hand. 

 

handcuffs and mullet

IRS Criminal Investigations, How They Begin and Why

IRS Criminal investigations begin with a suspicion of fraud and violations of:

  • Internal Revenue Code
  • Bank Secrecy Act
  • Money laundering statutes

…Among others.

When IRS determines there is a case against a violator, they refer it to the Department of Justice.

Why IRS Special Agents target a business for investigation

  1. An IRS revenue agent, an auditor detects possible fraud.
  2. An IRS Revenue officer – a collections officer detects possible fraud.
  3. A member of the community reports possible fraud.
  4. Another agency, such as law enforcement or EDD or state tax board reports possible fraud.

What happens if an IRS Audit is begun?

  • The primary investigation starts  when the special agent’s front line supervisor looks at the initial findings and decides whether to continue the investigation.
  • Then a subject criminal investigation commences.
  • At this point, at least two Criminal Investigators at a management level have reviewed the ‘primary investigation’ material and determined there is sufficient evidence to initiate a subject criminal investigation*.

The Process of a Criminal Investigation

The special agent works closely with IRS Chief Counsel Criminal Tax Attorneys during the course of the criminal investigation.  AS in any criminal case the accused, or investigated, party has rights.  Among those rights are the right to counsel. IRS Special Investigators will gather information by any means necessary.

  • Interviews of third party witnesses
  • Surveillance
  • Search warrants
  • Subpoenaing bank records
  • Reviewing financial data.

A determination is made to go to trial or not

If the special agent determine that the evidence does not substantiate criminal activity, then the audit is discontinued.

If the special agent determines that the evidence does incriminate, then prosecution is recommended and a prosecution recommendation is sent to:

1.  The Department of Justice, Tax Division, (if it is a tax investigation) or
2.  The United States Attorney for all other investigations.

Prosecution by the Dept. of Justice

Once the case is turned over, the IRS special agent turns over all findings to the lawyers for the prosecution and is no longer involved in the case. The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction – either by a guilty verdict or plea. There are approximately 3,000 criminal prosecutions per year * as of 2017.

If IRS Criminal Investigators contact you, know your rights, contact a qualified Tax Attorney immediately and take the 5th amendment which is the right to remain silent.

*https://www.irs.gov/compliance/criminal-investigation/program-and-emphasis-areas-for-irs-criminal-investigation

FBI Agent IRS Criminal Investigation

If an IRS agent shows up at your door what should you do?

When IRS or FBI conduct a criminal investigation into a company’s taxes they often show up unannounced at that company’s place of business or, at the home of the company’s controlling partner. In addition to being jarring for the business owner this can result in mistakes being made that are irreversible.

If IRS or FBI arrives at your business or home in connection with your tax returns here are 5 things we recommend you do:

Take the 5th.

Be sure to let the agent know that You will have your attorney contact them.  State clearly that you fully intend to comply and cooperate with the investigation but that until you have your attorney with you, you will not answer any questions..  This is your right.

Do not provide any information or documents.

Repeat to the agents that you will comply, that you are going to cooperate but that, unless they have a search warrant, they may not enter your home or place of business and they may not take any documents, computers or laptops.

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Ask specifically what the investigation is about.

Don’t be afraid to ask them questions. Find out if you are a witness or the target.  Get as much information as possible to relay to your criminal tax attorney.

Get the business card of the agent.

To reinforce that you intent to comply and to have the necessary information for your attorney to proceed, make sure you get their contact information in the form of their business card so you and your attorney will know how to reach them.

Call an experienced Criminal Tax Attorney.

Do not call your CPA (caveat: you should call them, but not first.) Call a tax attorney with experience in criminal tax.  The decisions you make will directly impact the course of your case.  With the right representation your process can be less intrusive and damaging to your company’s health.

 

Woman talking to a lawyer

Al Capone | Leona Helmsley (AKA the Queen of Mean) | Spiro Agnew | Wesley Snipes (He thought he was Blade)

The list of deplorable characters brought down for tax fraud may get another famous name… Uber.  The notoriously culture-challenged ride-sharing service is being investigated by IRS for tax evasion in the years 2013 and 2014. 

While Uber can’t and won’t comment on the case, here’s what we know… and why it’s important to have a tax attorney on your side when IRS calls.

Uber recently went public on the NYStock exchange and, as a publicly traded company, had to disclose that “the IRS is examining the tax years for 2013 and 2014. …and that its tax benefits are to be cut due to the company’s transfer pricing positions.”  Transfer pricing is a way to shift money to lower tax areas.

Big or small, IRS does not stand for companies who deliberately engage in tax evasion.  While we don’t know the details of the case against Uber it does highlight that businesses should set aside money to cover tax discrepancies and review all filings thoroughly before submitting to IRS.

If you think you may have mis-filed taxes it is always better to talk to a tax attorney, go over the questionable year(s) and formulate a plan should IRS open an investigation into that time period. 

Unlike a CPA, tax attorneys have the protection of attorney-client privilege so businesses can lay all questions, transactions, and concerns on the table without fear that their advisor might be subpoenaed by IRS in an investigation.

At Milikowsky Tax law we are dedicated to reducing your tax liability while keeping your business compliant with current tax laws.  Our proprietary system of review will uncover any red flags and allow us to address any tax mis-steps proactively.

If you think your company may have mis-filed a tax return in years past, please reach out to one of our experienced tax attorneys today to schedule a free consultation.

People looking at a graph chart

Many taxpayers hedge their bets when filing their tax returns but most of us are careful to pay our fair share and stay on the sunny side of the IRS.  Not so for these eight Americans who thought they could get away with cheating IRS. Read on to see how their attempted tax evasion landed them in trouble with IRS; as Benjamin Franklin stated, “ in this world nothing can be said to be certain, except death and taxes.” 

While some tax issues arise from genuine mistakes made by people who don’t fully understand the nuances of their tax returns, other tax actions are more difficult to justify, and they arise across all sizes of businesses, from Sole Proprietors to major Corporations. 

Here are some of the recent most notable tales of tax cheats.

Darryl Strawberry

The former right fielder for the New York Mets and NY Yankees went to court in February of 1995 and pleaded guilty to one count of tax evasion. According to the 32-year-old at the time, he was aware that he hadn’t paid over $100,000 of owed federal taxes when he failed to report $350,000 in income from autograph signings and other promotional appearances. 

It wasn’t until 2015 that IRS was able to successfully collect $1.3 million to cover Strawberry’s ongoing debts — 10 years after the initial court case. For restitution, the agency auctioned off the annuity that the baseball star was owed for his contract extension with the New York Mets. 

Chris Tucker

Chris Tucker proved that tax evasion was no laughing matter in 2014 when he went to court for more than $14 million in unpaid taxes. IRS gave Tucker a tax lien of $2.5 million as a result, raising his debt substantially

Eventually, Tucker and his lawyers reached a resolution and settled his phenomenal tax debt privately with IRS. 

Lindsey Vonn

In 2012, IRS issued a $1.7 million tax lien against skiing champion Lindsey Vonn, who owed a considerable amount in back taxes. Vonn stated that she was “disappointed” with the situation and that she had been relying on someone else to handle her taxes up until that point. 

Although Vonn wasn’t the only major athlete to fall victim to tax issues during her career, she took the right approach by nipping the situation in the bud as quickly as possible.  

Willie Nelson 

Willie Nelson is known his amazing music career, however less known is his massive tax debt. In February of 1993 he settled one of the most significant tax bills in history. Nelson came to terms on a $16.7 million bill with IRS, after the government showed that his “tax shelters” were not valid. Much of Nelson’s property was sold at auction to cover some of the debt. In a stunning show of loyalty and devotion, many pieces were bought by friends and supporters who returned them back to Nelson. 

Eventually, the music legend settled his tax debt in an agreement with IRS, coming up with a “creative payment plan” that suited both parties. 

Wesley Snipes

One celebrity who seems to have had constant run-ins with the IRS over the years is Wesley Snipes most famous for his role as “Blade”.  In 2018, he lost a case after attempting to argue that he couldn’t pay the massive $23.5 million debt owed to the government. Snipes offered to pay around $842,000 in an attempt to wipe out the debt, but IRS refused the payment and is continuing to demand that Snipes pay the full amount owed. 

IRS reported multiple tax infractions from Snipes dating back to 1999. In 2008 Snipes was convicted of 3 misdemeanor counts of failure to file tax returns, and served time on 2 sentences. Snipes avoided another $7 million in taxes after he proved his belief in an accountant that told him he wasn’t legally required to pay taxes. Note: When it comes to financial matters, certified public accountants (CPAs) cannot use ignorance as a defense if their clients’ tax returns are later investigated.

Pete Rose

Pete Edward Rose holds more records in the game of baseball than any other player but it is his run-ins with authorities that dominate his legacy.  From illegal gambling on baseball games while managing, to run-ins with IRS, Rose did not get away with cheating the system. In 1990, Rose pleaded guilty to failing to report more than $350,000 in income from his appearances at public events, autograph signings and memorabilia sales. The government chose to dismiss a more serious charge of tax evasion following the plea.

Rose managed to skip extensive jail time for his tax issues and served only 5 months instead. He was also required to pay a $50,000 fine, alongside his back taxes and interest fees. 

Leona Helmsley

Leona Helmsley, dubbed “The Queen of Mean” has had an off putting reputation throughout her lifetime. She was often in trouble with the media and faced her share of repercussions from IRS. When charged with tax evasion, a former employee claimed that she had said there was no need to pay taxes. According to Helmsley, taxes were only for “the little people.”

Eventually, Helmsley’s case went to trial and she was convicted of 33 counts of felony fraud. Originally sentenced to 16 years in prison and a fine of $7 million, her sentence was reduced to 4 years on appeal, of which she served only 21 months. 

Martha Stewart

Despite her home maker persona, knack for design and green thumb, this home and garden icon was sentenced to prison in 2004 for insider trading. At that time she was also required to pay more than $220,000 in back property taxes and penalties to New York for the home she held there.

According to Stewart, she didn’t realize that she needed to pay taxes on the New York property because she didn’t spend a lot of her time there. We’re certain, however, that it was beautifully landscaped and decorated.


Tax issues can be very serious, regardless of your business size. If your business owes back taxes, and you cannot afford your current tax bill, or are facing another legal tax matter, don’t risk ending up like these celebrities. Contact Milikowsky Tax Law for expert legal support. Our experienced team of tax attorneys will be your expert ally in tackling your most complex tax law issues.

 

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Man smiling while using a laptop
Whenever you’re contacted by IRS, the first step any business owner should take is to reach out to a qualified Tax Attorney.  There are questions a tax attorney can answer for you such as: What kind of an investigation is being conducted? What information is IRS actually asking for? What are my next steps?

Your Tax Attorney will walk you through the process, advising you on when and if you need to meet with IRS investigators, what information you must share with IRS and what kind of investigation is being conducted.

There are 3 main types of investigations by IRS:

The first is a correspondence audit in which IRS sends a form asking for certain information.  While this kind of inquiry may seem less serious, the way those questions are answered will directly impact the investigation they are conducting and your potential legal and tax liability.

The second type of investigation is when you as a business owner are asked to go to the office of IRS .  In that case IRS gives you only two opportunities to share information.  If you should miss that first meeting, they will make assumptions and give you only thirty days to correct those assumptions or their assessment of your tax responsibility will become a final tax debt.

The third type of IRS criminal investigation is the one in which IRS comes to your place of business to ask questions.

When IRS is conducting a criminal investigation, agents may pull up in a black car with badges and come into your place of business,  or residence, or, they may reach out to your CPA and ask them questions about your business. In any and all of these cases bringing a tax attorney onto your team is the best decision you can make.

A qualified Tax Attorney can exercise attorney / client privilege and support you and your CPA in times of IRS investigation.

Woman writing on a notebook

 

When it comes to financial matters, certified public accountants (CPAs) cannot use ignorance as a defense if their clients’ tax returns are later investigated.

This is especially true if those financial matters involve legal issues — as they do if your client happens to engage in fraudulent or criminal activity. While you may wish ignorance were an option, it’s always better to prepare for these circumstances by doing proper due diligence when the return is prepared and understanding how to respond if a criminal investigation is opened after the return is filed.

It’s important to understand that, unlike the attorney-client privilege, there is no accountant-client privilege. That means if your client is under investigation for tax fraud or other criminal activity, then as their CPA, you could be subpoenaed as a witness and forced to share evidence or testify about matters discussed with your client.

Balancing your obligations to your client with legal responsibilities can result in complicated scenarios, but that doesn’t mean you’re out of options. Here are a few ways to mitigate and prepare for dealing with clients under criminal investigation.

What Should You Do?

When faced with the news that your client is undergoing a criminal investigation, don’t panic. There a few things you can and should do, and some things you definitely shouldn’t do.

Dos

  • Establish Strong Record Keeping

The best way to minimize these legal issues before they start is by keeping detailed records. Ask your clients for hard copies, receipts, or third party verification of the items they’re claiming and reporting on their tax return. Make sure there’s a clear paper trail to support the details of transactions and questionable items (that are not ordinary items, such as large net operating losses and other items that offset income) that you are aware of as their CPA.

  • Explain the Tax Laws and Rules to Your Client

As a CPA, it’s your responsibility to inform your client of relevant tax laws and rules when reviewing your client’s accounting records and reporting transactions. Make sure you update them frequently and thoroughly, especially if you’re worried they may be veering into areas not clearly defined by tax laws and regulations. It’s better to give too much information than too little.  If your client’s situation involves legal issues that are not clearly defined by tax law, consult with a tax attorney before the return is prepared or when you discover that a criminal investigation may have commenced.

  • Cease Representation During an Investigation

Most CPAs aren’t qualified to represent their clients during a criminal investigation. Often, the best solution is to stop representing them to avoid becoming further embroiled in the case yourself.

  • Refer Your Client to a Tax Attorney

Protecting yourself and your business doesn’t mean you have to leave your client out in the cold — familiarize yourself with legal tax experts in your area, so you can refer your clients to them for help if they are being investigated. Maintaining a good relationship with a trusted tax attorney allows you to smoothly extricate yourself from a client’s legal situation when necessary, while putting your client in the hands of someone who can provide legal guidance where communication is protected by the attorney-client relationship.

Don’ts

  • Don’t Put Your Client Above the Law and Public Good

Don’t forget your legal responsibilities are both to your client and the government (to accurately and fairly report items on a tax return) (See Circular 230). While it is important to offer clients qualified and accurate tax advice, your advice does not extend to assisting clients with questionable items that may later be deemed fraudulent or illegal. If you are concerned about a client’s request to report items on their tax return, consult a tax attorney who may be able to provide legal guidance to clarify the risks and benefits of reporting a transaction on a return.

  • Don’t Trust Clients Implicitly

While you may trust clients you’ve been serving for several years, don’t assume all clients will be straightforward and provide all relevant information. Maintain a healthy level of suspicion. If your client has jumped from accountant to accountant, has unexplained sources of income, or other suspicious transactions, trust your gut.

  • Don’t Practice — or Appear to Practice — Law

It is your duty to inform your client of relevant rules or laws during your professional relationship with them, but once they’re under investigation, it’s critical not to provide any advice that could be construed as practicing law. The distinction between an accountant and an attorney must be maintained.

  • Don’t Keep Information from Investigators

Finally, if you or your client is subpoenaed to be a witness or summoned to give up evidence, cooperate with investigators. Withholding evidence in this context is usually against the law. A tax attorney can review the subpoena or summons and determine if a privilege can be raised regarding the information or testimony demanded. If you want to learn more about the details related to this process, reach out to a tax attorney for professional guidance.

What Could Happen If My Client is Under Criminal Investigation?

Sometimes it’s impossible to catch everything and mistakes happen. If one of your clients goes to court relating to transactions characterized as tax fraud or other criminal activity, know that you may be called on as a witness and compelled to share evidence you have.

If one of your clients is under criminal investigation and you want to be certain you’re protecting yourself, don’t wait until it’s too late. Reach out to an experienced tax attorney who can help you navigate through these legal tax matters. At Milikowsky Tax Law, we have more than a decade of business, legal, and tax experience. Our experienced tax lawyers can help with everything from IRS and State of California civil audits to criminal investigations. Our strong relationships with reliable CPAs in California allow us to better serve our clients and support our fellow tax professionals to minimize civil and criminal tax risks.

Contact Milikowsky Tax Law today and speak to our experts about how you can protect yourself and your business if you suspect or discover that your client is under criminal investigation.

A woman signing a document

 

There are few calls less welcome than a call from the IRS.

It could come directly to your accounting office or you might hear from a client after they have been contacted. Either way, you need to take the issue seriously and act carefully because your immediate actions may negatively affect both you and your client.

Initially, confirm that it’s the IRS and not scammers who are calling. IRS scams are common, so don’t hesitate to vet the credentials of anyone who claims to be official. In almost all cases the agency provides written notification before calling, and if they arrive in person they will show two pieces of identification.

Once you’re certain that you’re dealing with the IRS, your next steps depend on how you have been contacted. Read on to find out what you should do if your client contacts you or if the IRS contacts you directly.

When the Client Contacts You

This is the more likely way you’ll hear about a criminal investigation. When you receive a frantic call from a client, your instinct may tell you to be helpful, apologetic, or reassuring. Think before you speak. It’s important to choose your words very carefully to avoid making the situation worse:

  • Avoid Giving Legal Advice – Unless you are an attorney you cannot give legal advice no matter how informal it may seem. You shouldn’t even inquire about the nature of your client’s legal troubles.
  • Recommend Finding Immediate Representation – The only person who can help your client is a tax attorney. Advise your client to find a lawyer immediately and to make that lawyer the primary point of contact moving forward.
  • Cut Off Further Contact – There is no such thing as accountant-client privilege, so if you give any advice, you may have to disclose it later in court. For everyone’s sake, the best policy is to avoid having any contact with your client after an investigation is launched.
  • Preserve Any Relevant Documents – At some point, you may have to turn documents over to the IRS or to your client’s lawyer. Ensure that any relevant documents are not scheduled to be destroyed or lost in a forgotten file folder.
  • Consult with Third Parties – Contact your malpractice insurance provider to explore your personal liability. You may also want or need to retain personal legal counsel.
  • Look for Another Client – It’s prudent to formally break ties with any client accused of a tax crime. For many accountants and CPAs, the relationship with a client involved in this type of investigation creates legal and reputational risks that are just too high to accept.

When the IRS Contacts You

You may be contacted by the IRS directly regarding your client’s case before your client has a chance to contact you. Given the authoritative status of the IRS, it’s tempting to be compliant, but remember you are not always under obligation. In fact, you could face penalties if you do provide certain details. Your best plan of action in this situation is to:

  • Decline to Offer Assistance – Politely but emphatically decline to offer any assistance until you have representation. Stress that you are willing to cooperate later, but only after there is a lawyer in your corner.  
  • Contact Legal Counsel – Your very next call should be to a lawyer. Counsel can help you assess the situation, safeguard your interests, and assert your rights before the IRS. You may be tempted to call your client, but it’s better to avoid contact unless advised otherwise.
  • Comply with Any Summons – A summons requires you to begin gathering documents before turning them over at a later date. You will want to comply with any summons you receive unless your lawyer advises otherwise.
  • Cooperate with Any Warrant – You must comply with any search warrant, but you are not required to answer questions without a lawyer present. Having legal counsel is incredibly important in this situation because executing a search warrant implies that you are implicated in the investigation.

When the IRS comes calling it’s essential for CPAs to seek outside assistance. Only a tax lawyer can provide your client with the legal aid he or she desperately needs. A tax lawyer is also the only professional who can defend you and your firm.

Don’t feel responsible for a tax crime and don’t take the blame. Instead, contact a tax lawyer immediately. Reach out to Milikowsky Tax Law for expert counsel and experienced advice.