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7 Habitual Mistakes Companies Make – Chapter 4 (12)



TaxConnections Blog Post
How Would a Taxpayer Know If They Are Also the Subject of a Criminal Investigation? -

GENERALLY, THE IRS will not advise taxpayers that they are also the subject of a criminal investigation when they commence with a civil audit of the taxpayer’s tax affairs.

Herein lies the problem in that a taxpayer may provide the IRS with information or documentation pursuant to the compelling provisions of tax legislation that the IRS may subsequently attempt to use against the taxpayer in a criminal investigation once the civil audit has been finalized.

A remedy may lie in favor of such a taxpayer which can successfully argue that the information or documentation they provided was under compulsion. The taxpayer could then state that as the information was given under compulsion, it had not waived its right not to self-incriminate itself. Any evidence obtained by a criminal investigation department under such circumstances would arguably be inadmissible evidence given that the taxpayer has a right not to incriminate itself and to remain silent in accordance with most constitutions.

Any information or documentation given to the IRS should clearly be marked that the information is given to the IRS under the compelling provisions of the relevant tax legislation and as such does not constitute admissible evidence against the taxpayer, other than for the IRS to make a revised assessment of tax in terms of a civil audit.

In any event, when an audit is engaged by the IRS, an attempt should be made to determine the precise nature of the investigation into the taxpayer’s affairs.

- – For this series posted to date, please select “Daniel Erasmus” in the Authors category on the Worldwide Tax Blogs page.

In accordance with Circular 230 Disclosure

International Tax Attorney, EA, US Tax Court Practitioner in the USA, Counsel of the High Court in South Africa, adjunct Professor of International Tax at Thomas Jefferson School of Law.

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