A CPA should take necessary steps to protect any materials or documents related to services rendered related to a criminal matter. Such documents will help the taxpayer’s attorney identify potential issues and protect the CPA from any further exposure. To facilitate this, the CPA should have a document retention policy that extends the retention period to prevent inadvertent disposal or destruction of important documents. To the extent the CPA is engaged on behalf of the client through a Kovel arrangement, the CPA should look to the attorney for direction with respect to the maintenance and retention of any materials that are related to the potential criminal matter. Where the attorney does not provide the CPA with such direction, the CPA should consider taking measures to adequately label the materials, segregate the materials from other client-related materials, and adopt access restrictions as appropriate.
Having effective client acceptance policies and procedures in place is advisable when meeting with new clients. When the CPA screens or performs investigative procedures regarding a new client, the issue of potential criminal matters may be uncovered. In these cases, the CPA should take precautions to ascertain whether the potential criminal matters are indicative of the nature of the client and other potential risks that may be associated with the business relationship.
When a CPA becomes aware that a current or former client could be exposed to allegations of fraud or other criminal misconduct, the CPA should advise the taxpayer to consult with an attorney before the taxpayer takes any action. Additionally, the CPA should consider whether to withdraw from the performance of further tax (or other) services for the client and whether to continue a professional or employment relationship with the client.
If a client has obtained legal counsel for a potential criminal matter, in order to best protect the client’s rights, the CPA should work with the client’s attorney. In this regard, the CPA should avoid any unsupervised communication with IRS personnel. The nature and content of any and all information that is to be shared with the IRS once the investigation has commenced should be approved in its entirety by the client’s legal counsel.