Question 5

Tax Fraud – Frequently Asked Questions (page 5)

What measures should the defendant take if the IRS refuses to abstain from indicting?

If the IRS refuses to make any promises with respect to its forbearance from referring to the Department of Justice the case with a recommendation for criminal investigation, ordinarily, there are indications during a civil audit that a case is about to continue in a criminal investigation . These include, but are not limited to: a) the acknowledgment by the client or his professionals that there is a large number of errors on the return which is being audited or that significant items have been omitted or falsely deducted, b) a large number of third party interviews by the Revenue Agent, c) obtaining affidavits during a civil examination, d) the use of Formal Document Requests and e) the request for affidavits from the client or third parties.

(When a taxpayer learns that he is under investigation, he may undertake to destroy, backdate or create evidence in order to support a possible defense. One who undertakes such activity commits independent federal crimes, often much easier to prove than criminal tax fraud and other substantive defenses. Further, taxpayers who engage in such conduct also provide the government important proof of elements required to prove § 7201, namely willfulness and intent. 18 U.S.C. § 1505 et. seq.)

(Moreover, as previously stated, delinquent or amended returns constitute admissions and if they are not complete and truthful, constitute a separate criminal offense; defendants may be indicted for filing false amended returns. See, Barrow, 1997 U.S. App. Lexis 16239 (6th Cir. July 2, 1997). Thus, it would seem that the most important thing a lawyer can do during the initial meeting with the client is to advise him not to tamper with the evidence and not to talk to other potential witnesses.)

If the client chooses not to dispute the summons, then counsel should supervise the process of compliance by advising the taxpayer on specific steps to be taken in the production of documents and by preparing the taxpayer for any question and answer session that the agents may conduct. That said, the taxpayer may choose to produce documents in response to the summons where the documents are not privileged but nonetheless assert his Fifth Amendment privilege and decline to provide testimony.

Because communications between taxpayers and accountants are not privileged, Couch v. United States, 409 U.S. 322 (1973), counsel should hire the accountant (so that the work performed qualifies as attorney work product) and counsel should, in turn, inform the client (taxpayer) so that the communication qualifies under attorney-client privilege.

The average length of a criminal tax investigation is anywhere from 18 to 30 months. In criminal tax cases authorized for prosecution, the Government enjoys a conviction rate of more than 90%. The collateral civil tax case involving taxes due, interest and penalties is separate and generally has been held in abeyance pending the conclusion of the criminal tax case. With a small number of exceptions, the statute of limitations for criminal tax violations is 6 years (see U.S.C. § 6531).