Navigating the CriminalTax Fraud Investigation

Meagan F. TempleJohnson, Bruzzese & Temple

How Do Investigations Start?

Audit “Cooperating witness” (i.e. a snitch)

Divorced spouse Disillusioned business partner Illegal immigrant worker

What Types of Investigation?

Failure to file Failure to report

Includes international/offshore “investments”

Failure to withhold Fraudulent deductions

Who’s Being Investigated?

Subject – has information that suggests his/her involvement

Witness – has information that does not suggest his/her involvement

Target – the person being investigated

*status can change without notice!

Federal Investigations

When you first learn the IRS is conducting a criminal investigation, make sure you secure all records relevant to the client being investigated.

Watch out for obstruction of justice

Federal Investigations

Summons Grand jury subpoena Visit from investigating agent

Summons

Issued to taxpayer “Administrative” Was it given by CID agent?

If yes, client should contact an attorney immediately.

Grand Jury Subpoena

Not usually given to client first Likely given to accountant for records What should you do?

Grand Jury Subpoena

Contact an attorney Need to talk to an attorney who handles

*criminal* tax investigations Ok to ask attorney friends/colleagues for

referral, but use caution before retaining attorney who does not practice in this area

Don’t want to incriminate yourself Don’t want to incriminate client

Grand Jury Subpoena(Why do I need a lawyer?)

Protection against self-incrimination You don’t know what you don’t know Does CID agent think you were

complicit? Attorney can contact investigating

agent Find out if they consider you a

target/subject Help to narrowly tailor response to

subpoena May avoid having to appear

At some point, CID will want your cooperation – you will need representation

Why Can’t I Just Call My Client’s Lawyer?

Because… Your client might be claiming you are at

fault Your client’s lawyer is not your advocate You have no way of knowing if your

client’s lawyer has experience in this area

Your client’s lawyer may advise you to do something the IRS would consider obstruction

Visit from a CID Agent

You are entitled to speak with a lawyer They won’t tell you that

Even if you did everything right, you are too close to a very serious situation

They love to visit people at their place of business or homes because it’s comfortable

“We’re not sure he did anything wrong.”

Visit from a CID Agent, cont’d.

CID agents ARE NOT ACCOUNTANTS They’re cops

They probably won’t know the accounting nuances even if you explain it to them So what benefit is it to you or your client

to speak to them? All you have to say is, “I wish I could

help you today, but I need to speak with an attorney. Can I have your card? I’ll have my lawyer contact you.”

Visit from a CID Agent,cont’d.

Won’t I “look guilty” if I don’t talk to the agent?

You’ll look a lot more guilty if you admit to conduct that was criminal

Remember – you don’t know, what you don’t know

Right against self-incrimination means you don’t have to say anything that tends to incriminate you

Client’s Investigators

Your client may hire a special investigator to interview witnesses

Former law enforcement personnel Direct them to your lawyer, if you are

represented

Forensic Accounting in Criminal Cases

Consultants at investigative stage Work covered by attorney-client

privilege Caution – conversations with taxpayer-

defendant Role

Help lawyers understand accounting problems

Determine tax deficiency

Forensic Accounting inCriminal Cases

Federal prosecutions driven by the sentencing guidelines

Sentence will largely be a function of tax deficiency

U.S.S.G. 2T4.1 28% default tax rate on unreported

income

Forensic Accounting inCriminal Cases

Purpose To cooperate To challenge

Don’t assume IRS has fully investigated They’re overworked & underpaid

Klein conspiracy

Privilege

Forensic accountants as consultants to lawyers covered under attorney-client privilege But not as witnesses

No accountant-client privilege under Federal law

Pennsylvania does recognize accountant-client privilege

Reliance on Counsel Defense

Applies to advice from lawyers and accountants

Negates element of willfulness and knowledge

Client must have acted honestly and in good faith

Client must have fully and honestly laid all the facts before the accountant

Reliance on Counsel Defense, cont’d

Client must have honestly and in good faith followed the advice of the accountant

Client must have actually believed the advice to be correct

Client intended acts to be lawful when he/she went to account for advice

QUESTIONS?

Meagan F. Temple

Johnson, Bruzzese & Temple707 Grant Street, Suite 1720

Pittsburgh, PA 15219mtemple@jbtattorneys.com

(412) 338-4790