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Why it's important to have a tax attorney by your side when facing an IRS criminal investigation

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Why it's important to have a tax attorney by your side when facing an IRS criminal investigation

If your tax compliance issue has been referred to the Internal Revenue Service’s Criminal Investigation Division, you are probably already aware that you face extremely serious consequences. However if you were expecting or relying on your tax preparer to testify on your behalf or to explain your actions, your reliance is misplaced. Your original tax preparer will be unable to represent you in a criminal tax proceeding because it would represent a conflict of interest. You original accountant may, in fact, be facing tax preparer penalties that can be imposed by the IRS and referral to the IRS Office of Professional Responsibility (OPR). Faced with defending against tax preparer penalties and the potential loss of his or her license, your tax preparer will not be able to defend you.  They also are most likely the first witness the government would call against you in a subsequent criminal prosecution.  Worst of all, they do not have attorney client privilege and anything conveyed to them can be legally compelled as detrimental testimony against you.

In truth, even if a conflict of interest did not exist, and the  accountant were to somehow magically granted attorney client privilege,  an accountant would still not be the best choice to defend against criminal tax allegations because they are trained in accounting accuracy – not advocacy. A criminal tax lawyer, however, is trained in advocating for his or her clients. Furthermore, working with an attorney can present other advantages versus relying on an accountant.

A tax attorney is trained in advocacy and negotiation

To start, an accountant’s experience and training prepares them for handling a variety of financial matters including financial planning, bookkeeping, tax planning, tax preparation, business budgeting and many other financial and tax services. However, the accountant’s focus is on understanding finances and making the numbers work for you. Furthermore, an CPA is typically focused on accuracy.

By contrast, a lawyer is trained in legal advocacy and negotiation. A lawyer’s experience and training teaches them how to analyze the impacts and interactions between dense laws and statutes, including the US Tax Code. Lawyers understand evidentiary and procedural issues and how they relate to the client’s Constitutional rights including how to protect and preserve those rights during these proceedings.  Furthermore, lawyers are equipped to apply a particularized set of facts to their understanding of the law. From that starting point, a lawyer can develop a legal strategy that is likely to minimize the multitude of negative consequences surrounding a criminal tax issue. The lawyer can then negotiate with the IRS and seek reduced penalties and consequences.

Attorney-client communications receive a greater degree of confidentiality

Aside from the fact that an attorney is equipped with the appropriate skill-set when a taxpayer is facing criminal tax prosecution, the confidentiality provided by the attorney-client privilege is essential to a successful tax crime defense. The purpose of preserving confidentiality through privilege is to encourage individuals to seek professional assistance without fear that their disclosure will create additional liability. Without such protections individuals are likely to forego professional assistance. Thus, it is surprising to many that while the attorney-client privilege is universally recognized and rather robust, the account-client privilege is extremely limited and in no way applies once an issue goes criminal.

While the attorney-client privilege protects communications in all 50 states and in federal court, the accountant-client privilege is recognized in only three states and in the federal courts. However, the existence of the privilege in federal proceedings is misleading because, to the extent it exists, it is extremely limited. The accountant-client privilege applies only to non-criminal tax proceedings in the federal courts and before the IRS. 26 U.S.C § 7525(2). Additionally, if communications were made to promote the direct or indirect use of a tax shelter, such communications would not be protected.

In contrast, the attorney-client privilege is strong and applicable in proceedings in any court in the United States. While the privilege does not cover the actual preparation of taxes, it will protect communications in relation to the tax problem that provide legal advice or guidance.  The protections afforded by the attorney-client privilege can, in many instances, be extended to an accountant if the tax attorney seeks out an accountant to assist in his or her understanding of the underlying financial issues. This is typically accomplished by sending what is known as a Kovel letter to the accountant. However it is essential to note that the letter must meets substantive legal requirements. Furthermore, the attorney may not merely act as an intermediary – the attorney must actually bring the accountant under his or her direction in regard to the relevant criminal tax action.

If you are facing criminal tax charges, contact a tax attorney immediately

If you are facing criminal tax charges, you need a dedicated advocate who will fight for you against the IRS and US government. Tax Attorney and CPA David W. Klasing of The Tax Law Offices of David W. Klasing is experienced in tax accounting, negotiation and legal advocacy. To schedule a reduced rate tax consultation, call our firm at 800-681-1295.