What the Accountant Needs to Know When His Client is Under ... · Implications of IRS Circular 230 and AICPA Statements on Standards for Tax Services. 7. Tax Crimes that may affect

ACCOUNTANT PREPARED A

RETURN AND IT IS UNDER

CRIMINAL INVESTIGATION BY

THE IRS, NOW WHAT ?

Prepared by Robert P. Brennan CPA

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Robert P. Brennan, CPA LLC

6 Alcott Way

Marlton, NJ 08053

[email protected]

856 470 0579 Cell

856 295 4826 Fax

mailto:[email protected]


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Learning Objectives

1. How to Respond to your Client’s initial phone call…. Client says, “I think I have a

Problem”.

2. What rights do you and your client have during the Criminal Investigation? What is the

IRS looking for?

3. How to determine whether you will be a target of the Investigation along with your

Client.

4. What to expect if called as a Government Witness.

5. Should you help your Client during the Investigation? Will you need a Lawyer?

6. Implications of IRS Circular 230 and AICPA Statements on Standards for Tax Services.

7. Tax Crimes that may affect your Client


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1. The Initial Phase

Your Client gets a Knock at the

Door

He Then Calls You


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A. When an IRS Criminal Investigator shows up at yourClients Front Door in the Evening, this is not Good!

B. The Special Agent already has completed a pre-investigation inquiry. So if the Special Agent is atyour Client’s Front Door, the Agent is Looking for anAdmission of Guilty from the Client.

C. The Special Agent will try to get Admissions of Guiltyto confirm Indicia of Fraud.


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D. How did it get this far?

E. The Special Agent will identify him or herself and tellthe Client, they just have a few questions about arecently filed return.

F. The IRS Special Agent’s Goal is to catch the Client off-guard.

G. The Client will be hyperventilating and will sayanything to have the Special Agent go away.

H. The Special Agent is from the Government and is not there toHelp!


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I. Client should be calm and polite but stern and insist theclient wants talk to an Attorney.

J. The Special Agent is taught to take control of theinterview and make the Client feel uncomfortable or hassomething to hide.

K. The Special Agent will respond with some variation of“Well, we only have a few questions and you havenothing to hide, correct”?

L. The Client has the RIGHT NOT TO TALK TO THE SPECIALAGENT! (See IRM Part 9.4.5.11.1 12/01/2005)


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II. What Rights Do you and

your

Client have during the

Criminal Investigation? What is

the IRS Looking for?


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A.Client has the right NOT to talk to the IRS and seek Counsel immediately.

B. The Client SHOULD NOT TALK TO ANYBODY BUT HIS/HER ATTORNEY.

C.The Accountant SHOULD NOT TALK TO THE CLIENT AFTER HE/SHE HAVE BEEN

CONTACTED BY THE IRS Criminal Investigators.

D. If the Accountant talks to the Client after the IRS has Interviewed the Client

and tells the accountant, he/she (the Client) believes they have a problem,

that can be an admission.

E. There is no Accountant Client privilege. Whatever the Client tells the

Accountant is discoverable by the IRS/Government.


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F. Does the Accountant need an Attorney? If the

Client has engaged an Attorney, it would be

prudent if the Accountant engages an Attorney.

G. Production of the Accountant’s Workpapers

should be negotiated by the Accountant’s

Attorney.

H. IRC Section 6103 covers disclosures of Client

Information. BE FAMILIAR WITH THIS SECTION.


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I. Know your Preparer Obligations under Circular 230

and AICPA Standards of Statements in a Tax Service.

J. The Accountant must be prepared for an Interviewwith the IRS Special Agent.

K. Review all notes and workpapers before theInterview.

L. The Client nor the Accountant should ever beinterviewed by IRS Special Agents without thepresence of an Attorney.


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III. How to Determine whether You

(the Accountant) will be a Target of

the Investigation along with Your

Client!


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A. If a Special Agent of the IRS shows up at your office

unannounced, this is UNUSUAL.

B. You should ask him/her if you are the subject of

the Investigation.

C. You should ask him/her that you want to see the

Client’s case file under IRC Section 6103(e).

D. Remember, according to your Client, you knew

everything about the preparation of the Return!


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IV. What to Expect if called as a Government

Witness


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A. The IRS/Government wants the Accountant to be aGovernment Witness in a Criminal Tax Case.

B. The Accountant is a very credible Witness.

C. All Communications, workpapers, notes, oralconversations are not protected by any AccountantClient Privilege in a Criminal Tax Case.

D. The Accountant will be a Fact Witness, Not an ExpertWitness.


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V. Should You Help Your Client During the

Investigation? Will the Accountant Need An

Attorney?


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A. NO! NO! and NO! Don’t Talk To The Client!!!

B. Anything the Client tells you is subject to Discoveryby the Government.

C. The Accountant is always well meaning during thatinitial Call from his client asking for help.

D. The Accountant’s inclination is to ask “What is theProblem” – Big Mistake…. Don’t talk to Client!!!

E. In Most Cases, the Accountant usually will not needan Attorney, however, it is a case by case situation.


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VI. IRS Circular 230

A. Central Theme is -- if a taxpayer’s position regardingIncome or Expenses is unusual, irregular andsuspicious, then the Accountant should seekClarification.

B. The Preparer is NOT an auditor!

C. Due Diligence is Required. Conscious Omission isNot Good Enough.

D. More emphasis on Preparer Penalties by IRS


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VI. Continued – AICPA Statements on Standards for

Tax Services

E. Review SSTS Interpretations No. 1-1 Realistic

Possibility Standard – Tax Return Positions

F. Review SSTS Interpretation No. 6 Knowledge of

Error: Return Preparation

G. Additional Tax Practice Standards and Ethics

Rules


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VII. Tax Crimes and Defenses


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A. Statute of Limitations – Generally Six Years

B. Intent is required in most Tax Crimes

C. IRC Section 7201 Evasion

D. IRC Section 7203 Willful Failure To File

E. IRC Section 7206(1) False Returns and Preparers of FalseReturns

F. IRC Section 7207 Submitting False Documents