How to Protect Yourself From The IRS Special Enforcement Program
In the past few years, ever since the legalization of marijuana for medicinal and recreational use in a number of states – including Michigan – people in the industry (dispensary owners, wholesalers, growers, etc.) have for the most part, seen a decent amount of financial success in their respective trades. But now it seems, the other shoe, has dropped. These entrepreneurs have also become the target for police raids, IRS inquiries, and just a whole slew of government scrutiny due to the nature of their business.
What (or Who) Is The Special Enforcement Program?
Did you know the IRS has a special audit group specifically designed for targeting fraud cases? No, I am not talking about the criminal division (though I will cover that in a later blog). What I am talking about is The Special Enforcement Program or (SEP) and they have been making the rounds, targeting and auditing those in the marijuana industry. These are civil auditors – not criminal ones – but they don’t exactly behave like typical civil auditors.
According to the IRM (section 4.16.1), SEP, is a specialized compliance program within the Small Business/Self-Employed Operating Division directed toward that segment of the population which derives substantial income from either legal or illegal activities and intentionally understate their tax liability.
So…what does that mean for someone in the legal marijuana trade, you might be asking? Well, I’ll tell you. The agents in this Department work toward building a case for the criminal division of the IRS. So they work tirelessly to find as much evidence as they can of wrongdoing or illegal activity by these small business owners or self-employed operators and once they have it, they pass the case along, and then it becomes a criminal matter (more on that in a later blog). But, what you need to know now is that while these technically aren’t criminal audits, they also aren’t just regular auditors performing run-of-the mill audits either….though they will make them seem that way.
Wolves in Sheep’s Clothing
These agents are very cunning and much smarter than they let on. They will typically call you in for a brief “interview,” which you MUST appear at. But here is the clincher, once there, you by no means HAVE to speak to them. They, of course will not tell you this, nor will they inform you of your Fifth Amendment Rights (which you can and should invoke). But more on that later.
If you do happen to speak to these agents, they will be nothing but extremely polite and friendly-seeming. The initial chat will just be general questions about your business and so forth, probably peppered with some genial small talk. They may even play dumb – claiming to not know anything about you or your case, saying “this case just landed on my desk.” DO NOT BELIEVE THEM. This is a common interviewing technique to get you to relax and let your guard down. They know exactly who you are and a lot more about you than you realize and they are just waiting for you to say something they can use against you later. These agents are highly skilled in reading people and can sense, by reading body language, psycholinguistics, and other nonverbal communication, when you are holding something back or concealing something. While that is not enough to use in a court of law, it is enough for them to confirm what they may have already suspected and to then lure you into a trap. You cannot outsmart these people and you shouldn’t even try.
This brings me back to what I mentioned earlier – about refusing to speak without a lawyer or invoking your Fifth Amendment Right against self-incrimination. A couple things on that lawyer note.
First off, you may be thinking “no durr. I’m not an idiot. I know not to speak to anyone without a lawyer present.” Well guess what? That’s because you’ve only ever seen situations (on tv, in movies, or maybe even in real life) where the person was under arrest or being charged with a crime and was specifically informed of their rights. These interviews are not hostile and not even remotely like that. In fact, they don’t have to tell your rights because, this technically isn’t an interrogation. It’s an “interview” and these guys (and gals) are civil agents. The worst part is, during a criminal investigation when you “lawyer up” or invoke your Fifth Amendment Right, the agent must – by law – stop talking immediately and cannot engage with you any further. During these civil proceedings, when you do so, the agent can just keep on going as if you hadn’t said anything at all. Don’t let that intimidate you. Just stick your guns and refuse to speak or answer anything without a lawyer present.
Not All Lawyers Are Created Equally
Secondly, and of equal importance, not all lawyers are equally adept at handling SEP audits….and what’s worse, they don’t even know they are ill-equipped for those cases. For starters, during any audit or tax issue, you need to go with an experienced tax attorney. But in cases like these, you need to go with a skilled tax attorney who knows all about SEP audits. Because here is the thing….a great deal of them do not know about them…which is unfortunate. The attorney wrongfully operates under the assumption that these audits are just like regular tax audits and this winds up making strategic missteps.
SEP Audit or Regular Audit?
As I mentioned before, these auditors are cunning little wolves in sheep’s clothing…..and they are bloodthirsty. More to the point…they do not fight fair (see above). So they will not inform the target of their “interview” that they are working for the Special Enforcement Program and are actually building a case centered around fraud allegations.
But here is an expert tip: if the Agent in question has a 313 area code office phone number, and they offer to meet you at your place, then it’s likely a SEP agent. The only group of “field auditors” (ones that will come to you) in the Detroit office is the SEP group. All other auditors located in Detroit are just office auditors and work small cases.
Contact An Attorney Experienced In Dealing With SEP Audits
If you find yourself in a situation like this or just need legal advice, contact the attorneys at Ayar Law today for a free confidential consultation 248.262.3400