Tax preparers such as CPAs face a lot of pitfalls and potential traps when dealing with clients. In case such an event happens, only a qualified tax preparer defense attorney can help to resolve the criminal tax exposure that CPAs face. Although CPAs help clients to sort out their taxation problems, they are often the first to get the blame when a client is trying to save their skin. This means that CPAs need to be cautious when accepting clients and even during the annual tax interviews they have with clients. The hefty penalties and even sentences make it necessary for tax preparers such as CPAs to have qualified advocates when facing a criminal tax investigation
Common Criminal Tax Violations for CPAs
There are different tax charges that both state and federal taxing agencies can file against a CPA and their client. Some of the common tax violations include tax evasion, filing false returns or failing to file returns. Other charges that the IRS can prosecute you under the Federal Criminal Code include conspiracy, making false statements or presenting false claims to the government. CPAs should be aware of some of the potential liabilities that they may face when preparing returns for their clients. Here are some of the common criminal tax violations that CPAs should be wary of.
Vicarious liability for corporate entities
While the IRS mostly prosecutes individuals for their own tax liability, it is not uncommon to find a person having vicarious criminal liability due to their actions over other people’s liability. A director, employee or even corporate officer can be convicted under the legal concept of vicarious liability. Similarly, a CPA or even a corporate attorney could face conviction under the concept of vicarious liability if they are found guilty of attempted tax evasion. Since it is also a crime to willfully subscribe false documents, third parties such as CPAs are often convicted if they knowingly sign false documents relating to the tax liability of other individuals. For example, a tax preparer who signs a false return that they prepared for their client is likely to get convicted under vicarious liability.
This does not, however, mean that companies and other legal persons cannot be prosecuted for tax crimes. These entities can still be held liable if the criminal tax issue in question was done by employees but was within their authority or duty. For example, a corporation can be held liable for criminal tax acts if its president made it file a false return even if the employee or owner was unaware of it.
Aiding and abetting criminal tax violations
Another common crime that can apply to CPAs under the Federal Criminal Code is aiding and abetting a criminal tax violation. CPAs, in their capacity as tax advisors, preparers and even representatives of clients, are expected to ensure that they file accurate returns and advise their clients accordingly. In a practical sense, aiding and abetting is mostly charged against tax preparers such as CPAs who assist others evade tax. This can be done by concealing the assets and sources of income of a client.
To successfully file a claim of aiding and abetting a criminal tax violation, the government needs to prove beyond reasonable doubt that:
- There was a substantive criminal tax offense.
- The accused person assisted or participated in the commission of the offense.
- The defendant shared the intent to commit the substantive offense with the principal.
It is worth noting that the principal need not be convicted or even identified for the courts to convict the person accused of aiding and abetting.
In the tax world, conspiracy arises where two or more people agree to defraud or commit an offense against the United States through filing a false refund claim or income tax evasion. Conspiracy may either be a felony or a misdemeanor but this depends on the underlying criminal objective. If the objective of the conspiracy is a felony, those found guilty face imprisonment for up to 5 years or a maximum fine of $10,000. For misdemeanors, the conviction is punishable to the same extent of the underlying criminal objective. To prove and earn a conviction for conspiracy, the government must prove that:
- An agreement was made between two or more persons.
- The particulars of the agreement was to defraud the United States or commit an offense against the United States.
- One or more parties to the conspiracy committed an overt act to further the agreement.
This offense has a six-year statute of limitations under the provisions of the Federal Code.
Filing false returns
All CPAs should know that filing false returns definitely leads to the prosecution of both the client and the tax preparer. It is also worth noting that clients normally shift the blame to their tax preparers when the false return is audited and a possible prosecution ensues. CPAs should thus be mindful when preparing tax returns and should withdraw their representation if a client is not being truthful. In the event that a CPA feels like a client’s books have been manipulated, income understated or an unexplained use of cash, they should refer the client to a tax attorney.
Teaming up with a criminal tax defense attorney
It is important for any CPA to consider their possible criminal exposure with any client they work with at all times. The CPA should work hard to ensure that their clients do not share any information that may result in criminal actions. In certain cases, CPAs are forced to testify against their clients but all this is avoidable. How can a CPA avoid criminal tax exposure? You are probably wondering. Well, you should direct your client to a qualified tax defense attorney if the client indicates that they are about to share anything that may expose you to criminal prosecutions. The CPA can also help the client avoid criminal prosecution if they enter a Kovel agreement with an attorney. This agreement basically means that the CPA is hired by the attorney and any correspondence with the client is confidential under the attorney-client privilege.
In summary, CPAs need to be careful when working with clients to ensure they do not face criminal tax charges. To avoid this, CPAs and other tax preparers need to advise their clients to consult tax defense attorneys before they are also charged. Some of the common tax violations by CPAs include aiding and abetting evasion, filing false returns, vicarious liability among others. Teaming up with a competent tax defense attorney is the only way to ensure that you and your clients are not prosecuted.
If you are a CPA in need of a tax attorney or would like to refer your client to a tax attorney, contact Ayar Law 800.571.7175