What to Know When Your Client is Facing a Criminal Investigation by the IRS
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.