Tip #8: Disabuse Your Client of the Notion That if the Audit Turns Criminal, He Can Just Pay Up and Move On

Your client will likely believe that if the audit turns criminal, that he can merely pay up and move on – with the expectation that the criminal problem will go away. It won’t. Payment of the tax won’t deflect a criminal investigation or prosecution. In appropriate cases, payment may permit your client to urge that he really wanted to pay the taxes that he owed all along and, when first advised that he may have underpaid, moved promptly to pay.

However, the government cannot generally accept that as a resolution of the criminal case. If it did, then every target would simply pay the tax. And the criminal enforcement Read More

Tip #7: Dealing With the Agent

Who Should Handle the Exam?

i. The Problem: Many accountants and enrolled agents are comfortable handling examinations and tax controversies. However, when an examination involves overtones of fraudulent or false statements, it is recommended that an attorney handle the examination.

ii. The Choices: There are several different methods for handling sensitive examinations:

1. The return preparer can appear and represent the client in the examination; Read More

Tip #6: Keep in Touch With the Revenue Agent

Staying in touch with the revenue agent is critical. The practitioner can learn a lot, even if the agent does not come out and say that he suspects fraud or is in the process of making a referral to CI.

The careful and experienced practitioner should be able to sense when the audit has turned criminal. In this regard, one of the classic warning signs that a referral to CI is looming is that the civil audit has turned quiet.

Civil audits are conducted on a time line, which may vary from case to case. However, if the audit is not progressing, the practitioner needs to know why. Often, it is because an Read More

Tip #5: Conduct a Shadow Investigation

Representatives should “audit” the auditor. In other words, track his investigation to determine what – and how much – he knows at all times. It goes without saying that the representative should interview any witnesses with whom the government has already spoken.

This task has been made easier under 1998 legislation. The IRS must now notify the taxpayer before contacting third parties and keep records of any third party contacted, at least during the civil phase of an investigation. I.R.C. § 7602(c).

Moreover, section 7609, as amended in 1998, now requires the IRS to notify taxpayers of Read More

Tip # 4: Control and Advise The Client

In an eggshell audit, controlling the client is of paramount importance and can mean the difference between whether the audit remains civil or is referred to CI. However, I would be naïve if I didn’t acknowledge that this is easier said than done.

a. During the audit, the practitioner should limit the contact between the agent and the client.

As a general rule, your client should not speak with the revenue agent. This is good practice even if there is no criminal potential. In the event that your client is contacted by the revenue agent, he should be instructed to tell the revenue agent that he has Read More

Tip # 3: Interview All Potential Witnesses As Soon As Possible

The careful practitioner will want to interview all potential witnesses as soon as possible. The reason is to learn the lay of the land. But, more subtly, there can be an important benefit to nailing down each witness’s testimony before the civil agent has had an opportunity to influence the witness’s memory by leading questions and other mind-shaping techniques.

The witness may be much more amenable to a taxpayer-favorable recollection before being put upon – maybe even intimidated – by an IRS agent, particularly a Special Agent. However, obtaining witness interviews in a potential criminal case is rife with danger for Read More

Tip # 1: Establish Your Priorities And Communicate Them To Your Client

In an eggshell audit, your goals should be the following:

• Primary Goal: To prevent a criminal referral.

• Secondary Goal: To reduce potential adjustments and tax liability.

Tip # 2: Don’t Make Your Client’s Problems Your Own

The practitioner needs to be very careful not to make the client’s problems his problems – i.e., by doing something in the course of the audit that is itself criminal or otherwise Read More

You wake up out of a sound sleep. You look over at your clock. It’s three o’clock in the morning. Your heart is pounding. Your entire body is trembling. Beads of sweat are rolling down your forehead, and it has nothing to do with the ambient temperature inside. You know this feeling. You’ve felt it before.

Your mind begins to race. Before you know it, you’re now daydreaming back to that day three months ago – the day when you got that dreaded call. For you, it was a day that will live in infamy. That one call, barely a minute long, has single-handedly caused an untold amount of anxiety and countless sleepless nights. It’s funny how the mind works – always reliving the past, as if it can somehow be altered. And while it is of course possible to learn from past mistakes, all that this exercise has succeeded in doing is conjuring up Read More