The first thing C.P.A.s, accountants, enrolled agents and tax preparers need to understand when a client is under criminal investigation for tax fraud is THERE IS NO ACCOUNTANT CLIENT PRIVILEGE! Unlike the attorney-client privilege, communications between an accountant and their client are not protected and are discoverable by the IRS.
If an accountant is approached by an IRS criminal investigator asking questions about a client, the account should not discuss the criminal inquiry with their client. Conversations and communications between accountants and clients are not privileged and you could be compelled to disclose the substance of these conversations at a later date.
Accountants should also not provide any tax return or tax return information to an IRS criminal investigator or federal prosecutor without a subpoena or court order. Accountants may be subject to criminal and civil penalties for unauthorized disclosures of tax return and tax return information under 26 U.S.C. § 7213, 26 U.S.C. § 7431 and 26 U.S.C. § 6103.
See https://www.irsvideos.gov/Governments/Safeguards/ProtectingTaxInformation for a link to an IRS video explaining the disclosure process.
You and your client may not know that the client is under criminal investigation by the Internal Revenue Service until criminal charges have been filed.
The IRS does not typically conduct parallel civil and criminal investigations. Revenue Agents and Officers work with “Fraud Referral Specialists” that assist in the development of cases and provide advice as to when a case should be referred to the Criminal Investigation Division. If your client’s civil tax investigation is suddenly suspended or the Revenue Agent stops returning your phone calls, it may mean the Revenue Agent has made a fraud referral and IRS criminal investigators are evaluating whether to recommend charges against your client.
You may also be tipped off that a criminal investigation is ongoing if:
The IRS investigates criminal cases through administrative investigations and grand jury investigations. Administrative investigations are conducted solely by the IRS without the assistance of the U.S. Attorney’s Office or other federal law enforcement agencies.
The Internal Revenue Service Criminal Investigation Division investigates alleged violations of:
In a civil case, the burden of proof is on the taxpayer to establish that the information reported on a tax return is true and correct. In a criminal case, the burden of proof is on the government. Methods of proof used in a criminal case include:
In a civil case, the IRS usually has three years after a taxpayer files a return to conduct an audit. In a criminal case, the IRS has six years to investigate and bring criminal charges.
When your client is under investigation for a tax crime, you should recognize how you can and cannot help your client and what the ramifications may be for you and your practice.
Bill Lovett is a former auditor for a national bank and attorney with over 20 years of experience prosecuting and defending tax cases. He understands complex accounting and tax issues. His experience includes: