IRS on line 1: criminal tax investigations and the CPA.

• Author: Dellinger, kip
• Position: IRS on line 1

It might happen this way: "Good morning, CPA, we are from the IRS Criminal Investigation Division. We'd like to ask you some questions about your client, John Smith, for whom you've prepared numerous federal income tax returns."

Or, how about a phone call or voice mail from a client stating, "Oh, my gosh, two people from the IRS Criminal Investigation Division showed up at the house this morning and wanted to speak to me about my tax returns! What should I do?"

These are but two of the ways that CPAs can find out that their client is the subject of a criminal inquiry by the IRS (or the FTB criminal investigation arm).

Though most CPAs will not encounter such criminal tax investigators, it's still wise to know how to respond if it occurs.

The Client Informs the CPA

Follow these steps if the initial discovery of a criminal investigation of a client comes from the client:

1. Emphatically recommend that the client immediately seek legal counsel experienced in handling criminal tax matters.

2. Do not allow the client to begin any discussion of the matter -- even if merely to relate the client's conversations with the criminal investigators.

   It's tempting for CPAs to want to know what happened, but the client could reveal information that may compromise the client with the tax authorities. The client's communication with his or her CPA in a criminal tax matter at this point is not privileged. Thus, CPAs could be placed in the position of being a government witness against a client. The ramifications to a CPAs reputation and possible malpractice claims for failing to exercise a known duty not to allow the client to waive privilege could be damaging.

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3. Contact your malpractice (errors and omissions: insurance provider and inform them of the matter. Also, the risk management and liability personnel at the company may be able to offer suggestions concerning the CPA's future course of action.

4. Bring in legal counsel experienced in criminal tax matters. Persons at the insurance carrier may offer suggestions about qualified legal counsel if the CPA is not aware of counsel that works in this area of tax law. Counsel can provide invaluable guidance in anticipation of the inevitable interview of (he CPA by (he criminal investigators.

   The CPA is Confronted by Criminal Investigators

   If approached by criminal investigators, CPAs should politely inform the investigators that they recognize they are a witness and will answer questions -- alter first consulting with legal counsel.

   Surprise visits can be stressful and CPAs will be templed to appear that you have nothing to hide. However. CPAs should insist on the opportunity to confer with legal counsel, assure the investigators of full cooperation and, if possible, set a date to continue the matter.

   CPAs should then contact legal counsel for advice -- prior to engaging in any contact with the client under investigation and contact their malpractice insurance carrier.

   Where a summons is part of the process, CPAs should comply. Generally a summons requires a future production of records, so there is time to confer with counsel with regard to the matter. If a summons is issued, the client generally also will be notified of its existence (pursuant to "third-party record keeper" rules in the...