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Navigating the Criminal Tax Fraud Investigation. Meagan F. Temple Johnson, 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 - PowerPoint PPT Presentation
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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 [email protected]
(412) 338-4790