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Civil and Criminal Tax Return Preparer Investigations

The Internal Revenue Service (“IRS”) and the Comptroller of Maryland routinely conduct civil and criminal investigations of tax return preparers. These cases are a high priority for the IRS due to the amount of tax revenue that can be lost by an individual that prepares suspect tax returns for hundreds, or thousands, of clients each year. The IRS has a formidable arsenal of civil and criminal penalties that it can impose against return preparers. IRS Revenue Agents investigate potential civil violations of the Internal Revenue Code and recommend the imposition of penalties and referrals to the IRS’s Office of Professional Responsibility (“OPR”). Moreover, a referral can be made to the U.S. Department of Justice for a lawsuit to be brought to enjoin, or stop, the preparer from continuing to operate their business. Criminal cases are investigated by IRS Special Agents and the full range of investigative tools can be used to determine if a crime has been committed. For example, the IRS will send a Special Agent posing as a client and wearing a wire to the preparer’s place of business in an attempt to extract an incriminating statement by the target of the investigation. In criminal tax cases, the tax loss to the government is one of the primary factors in determining the sentence. The higher the loss; the longer the sentence. Therefore, a conviction for preparing fraudulent tax returns can involve a lengthy period of incarceration.

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Experienced Legal Counsel for Return Preparer Investigations

A civil investigation of a return preparer often begins with clients of the practice being notified that their returns are being audited by the IRS. This is obviously disruptive to the business and can create conflict with the preparer and their clients. Frequently, the client will attempt to shift any responsibility for the return to the individual that prepared it. The assigned Revenue Agent will also interview employees of the practice, as well as a substantial group of clients. A civil return preparer investigation can take a year, or in many cases, significantly longer. If the IRS proposes penalties, a report will be issued setting out in detail the violations and the amount due. The return preparer has the opportunity to appeal the findings to the IRS Office of Appeals and reduce or eliminate the amount owed. If a resolution is not reached in that forum, there is the opportunity to challenge the assessment in federal court.

Investigations by IRS CI Special Agents demand immediate attention. The stakes are much higher than civil penalties, as the government is also seeking to bring criminal charges against the return preparer. This can result in a felony conviction and a lengthy prison sentence. Such investigations can be underway for many months before the target is aware of it. In some cases, the preparer first learns of the investigation when the IRS executes a search warrant at their place of business, home, or both. As with civil investigations, the government will interview the clients and use that information in order to prosecute the return preparer.

The Assistance of a Tax Attorney is Essential to Protect Your Interests

It is important to have an experienced attorney involved in any investigation as early as possible in order to minimize your exposure to civil penalties, a referral to the Department of Justice, or an IRS Criminal Investigation (“CI”). I have been representing tax return preparers accused of civil and criminal violations for 25 years. I am thoroughly familiar with the procedures and policies of the IRS and the Department of Justice and have successfully resolved many such cases during my career. Please contact my office for a consultation to discuss your case and how I can be of assistance.

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