Protecting Yourself and Clients in IRS Criminal Investigations

In most situations, when a taxpayer violates the Internal Revenue Code, it will be a civil tax issue and not a criminal tax violation. But sometimes the violation may turn criminal, especially in situations in which the taxpayer actively committed fraud or intentionally filed inaccurate returns — which may ultimately lead to a criminal investigation, indictment, and possible conviction for tax evasion or other tax crimes. However, just because a person or a client commits a tax crime does not mean that they will automatically be indicted and convicted of the violations. Taxpayers and other tax professionals who may find themselves under criminal investigation must be cautious when communicating with the U.S. government on matters involving potential violations. Let’s look at some tips to help tax professionals and their clients in IRS criminal investigations.

Taxpayers

First, let’s look at how taxpayers can protect themselves if they become subject to a criminal investigation.

Is the Taxpayer Already Under Investigation?

Oftentimes, taxpayers may not be aware that they are under criminal investigation until they are approached by the IRS special agents. However, sometimes taxpayers may have some insight as to whether they may already be under investigation — such as learning that their bank received a subpoena for their account information or learning that a business partner or other associate is under investigation. Taxpayers who may be under investigation should be very cautious about what actions they take and who they speak with, since they do not know who may be cooperating with the IRS or DOJ.

Taxpayer Must Be Careful in a Civil Audit

If the taxpayer is in a civil audit and knows that they committed tax fraud, evasion, or other tax violations, they have to be very careful during the audit. This type of audit is referred to as an eggshell audit or reverse eggshell audit. Any taxpayer who believes that they might ultimately become investigated for criminal tax violations should be sure that they have an attorney with them during a civil audit.

Did The IRS Special Agents Contact You?

One of the key tools for IRS special agents is the element of surprise, which is why taxpayers are typically not made aware that the IRS special agents will be investigating them until the agents appear ‘unscheduled’ at the taxpayer’s doorstep or other location. Taxpayers should be respectful to the agents, but not speak with the special agents and instead reach out to an attorney to assist them and help protect their rights.

Did the Taxpayer Receive a Summons or Subpoena?

If a taxpayer receives a subpoena for appearance or information/documents, they should be sure to respond to that subpoena timely — but should typically not respond directly. Instead, they should contact an attorney to assist them, again to ensure that their rights are being protected and to assess whether any motion to quash can be made.

Tax Professionals

The IRS has significantly increased enforcement of criminal investigations against tax professionals as well, with a recent tax investigation culminating in a 15-year jail sentence for the convicted tax professional.

Tax Professionals Should Probably Not Attend the Audit

It is not uncommon for the tax professional who may have provided the legal advice to want to appear at the audit to get an understanding of what the IRS may be looking for. The problem is that if the tax professional is under investigation as well they could find themselves in a precarious position if they attend the audit (depending on what information the client provides during the examination). Therefore, tax professionals should probably steer clear of an audit in which they may be implicated for providing the tax advice that led to the violation(s).

Is the Tax Professional Under OPR Investigation?

Whenever a tax professional receives an OPR investigation notice, they should be sure not to respond directly to the IRS but instead to retain an attorney to assist them to try to protect themselves, their business, and their livelihood.

Did the Client Already Speak with the IRS/DOJ?

If the Client has already spoken with the IRS or Department of Justice, the tax professional may be tempted to speak with the client again to get an idea of what information they provided. The problem is that the tax professional may not be aware if the client is already cooperating with the government — and may be wearing a wire. Therefore, tax professionals should tread lightly before communicating with a client they know has already been in contact with the IRS or DOJ.

Late Filing Penalties May Be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.

**Need Help Finding an Experienced Offshore Tax Attorney?**

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. *

This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.

Contact our firm today for assistance.

For Tax Pros or Their Clients Under IRS Criminal Investigation