Throughout all stages of dealing with the IRS, my primary concern is to protect my clients from exposure to criminal prosecution. Often times, criminal cases begin by a referral made from a civil unit within the IRS to the Criminal Investigation Division of the Internal Revenue Service. Civil IRS agents are trained to refer cases to the Special Agents within the IRS, when clear indications of fraud are present. Because each civil agent’s opinion on what constitutes fraud is different, it is critical that counsel address this issue early and take the necessary precautions to protect the client’s interest.
If you are being audited, and the tax returns you have filed contain either substantial understatements of income or overstatements of deductions, you should end all discussions with your accountant and seek the advice of legal counsel. This is referred to frequently as an “egg shell audit” situation. The "accountant-client privilege" does not extend to criminal investigations, so your accountant could be compelled to tell the IRS everything you have told him or her. Moreover, the accountant could be forced to testify as to these same facts during grand jury indictment or at trial. The government cannot compel the testimony of confidential communications between an attorney and client “attorney-client privilege” during any proceeding.
Warning signs that a criminal investigation may have started include:
- Revenue Agents who have been auditing your tax return disappear.
- Revenue Officers who were once aggressive stop calling.
- You or someone else associated with you is contacted by an IRS Special Agent.
If you are contacted by an IRS Special Agent tell them that you do not wish to answer their questions and that you are seeking legal counsel. At this point, it is likely that the IRS knows more than you may think. It is crucial that you are not put on the spot during an IRS criminal investigation, as the implications could severally hinder your case.
An IRS criminal investigation is a massive intrusion into a person’s life. If handled improperly, it could lead to an extended period of incarceration and have several financial and social impacts to one’s life. The goal during representation is to minimize this impact and allow the client to resume a normal life.