What Happens During an IRS Criminal Investigation (IRS CI) Interview? Tips for Tax Preparers - Healthcare Fraud Defense Firm
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What Happens During an IRS Criminal Investigation (IRS CI) Interview? Tips for Tax Preparers

IRS

The Internal Revenue Service’s Criminal Investigation division (IRS CI) is responsible for investigating suspected federal tax crimes. If IRS CI has reason to believe that you, as a tax preparer, have aided your clients in violating the Internal Revenue Code, Bank Secrecy Act, or any of the multitude of other federal statutes that apply to U.S. taxpayers, it may ask you to sit for an interview. Sitting for an IRS CI interview is a high-risk proposition; and, before you do so, you need to make sure you are thoroughly prepared.

IRS CI has placed increased emphasis on targeting tax preparers in recent years. While this is due in part to growing concerns related to tax preparer fraud, it is also reflective of IRS CI’s efforts to maximize the efficacy of its resources. By targeting tax preparers who are suspected of aiding in the filing of fraudulent returns, IRS CI can not only potentially substantiate charges against the tax preparer, but against the tax preparer’s clients as well.

What to Expect During an IRS CI Interview

Let’s say you’ve been asked to sit for an interview with an agent from IRS CI. To prepare effectively, you first need to know what to expect. Broadly speaking, the IRS CI interview process can be divided into four parts: (i) administrative investigation matters, (ii) introductory questions, (iii) questions regarding your due diligence, and (iv) questions focused on uncovering fraudulent tax preparation practices.

1. Administrative Investigation Matters

At the beginning of the interview, the IRS CI agent will go over some administrative investigation matters. An administrative investigation differs from a full-blown federal criminal investigation in that it involves certain different procedures; however, it is important for tax preparers not to get lulled into a false sense of security. All IRS CI investigations have the potential to result in criminal charges, and a referral to the U.S. Department of Justice (DOJ) could lead to an indictment, criminal trial, fines, prison time, and other consequences.

Here, there are two matters that are of particular importance to tax preparers:

  • Tax Directive 111 – Tax Directive 111 pertains to what is known as the Expedited Plea Program. This is a program that IRS CI has implemented in cooperation with the DOJ’s Tax Division in an effort to streamline the resolution of cases in which tax preparers (and taxpayers) acknowledge violating the law. Participating in the Expedited Plea Program can facilitate a favorable outcome (given the circumstances) in appropriate cases; however, tax preparers should generally only participate if they do not have complete defenses to the allegations that are the subject of IRS CI’s investigation.
  • 18 U.S.C. Section 1001 – Under 18 U.S.C. Section 1001, it is a federal crime to make false or misleading statements to federal agents. Even if a tax preparer has not engaged in or facilitated tax fraud, the tax preparer can still face charges under Section 1001 as a result of making inaccurate statements during an interview. If charged with lying to an IRS CI agent under Section 1001, a tax preparer can face statutory fines and up to five years of federal imprisonment.

2. Introductory Questions

After addressing all pertinent administrative investigation matters, the interviewing IRS CI agent will ask a series of introductory questions. Most likely, the interviewing agent will know the answers to many—if not all—of these questions already. As a result, while this may appear to be an information gathering exercise on its face, it is more likely an attempt to assess your credibility. If you misrepresent or omit any material information, this will serve as a red flag to the interviewing agent that you may also provide false answers later in the process.

With this in mind, it is important not to overlook the importance of answering these introductory questions truthfully, accurately, and comprehensively. This, of course, is subject to the major caveat that you generally should not be sharing any information that could lead to criminal prosecution. If you intend to cooperate and provide incriminating information, this is a matter that you and your counsel should address up front, as it will change your preparations and your approach to the interview significantly.

Some examples of introductory questions that tax preparers should be prepared to answer during an IRS CI interview include:

  • What is your educational background?
  • What is your professional background?
  • What is your criminal history?
  • What are your sources of income?
  • What are your assets (real estate, cars, investments, etc.)?
  • What are your liabilities (loans, child support, etc.)?
  • Do you receive unemployment, Social Security disability, or other benefits?
  • Do you gamble?

3. Due Diligence Questions

Next, the interview will likely shift its focus to due diligence. The interviewer will likely ask you to walk through your processes for accepting clients and preparing returns for both new and existing clients. At this stage of the interview, tax preparers will need to be prepared to answer questions such as:

  • Do you accept walk-ins, or do you only meet with new clients by appointment?
  • What questions do you ask during your intake meetings?
  • What identifying documentation do you require new clients to provide?
  • Do you ask clients whether they owe child support?
  • Do you ask clients whether they owe taxes to the IRS or other taxing authorities?
  • How do you assess the complexity of clients’ filing needs (i.e., whether a 1040 will be sufficient or additional forms will be necessary)?
  • How do you validate write-offs?
  • How do you verify cash contributions?
  • Do you require clients to provide copies of receipts for donations and deductions?
  • Do you rely exclusively on client-provided information when preparing returns?
  • How does your process change if a client is missing information or provides suspicious information?
  • How do you address the possibility of clients buying identities on the black market to use as dependents?

4. Questions Focused on Uncovering Fraud

Finally, based on the allegations or concerns underlying IRS CI’s investigation, the interviewing agent will likely ask questions that are focused on uncovering fraudulent tax preparation practices. While some of these questions may be fairly direct (i.e., “Did you do anything to verify the identity of Mr. Smith’s claimed dependents?”), others may seem more innocuous.

This is critically important to keep in mind, and tax preparers must remain cognizant of the fact that the interviewing agent is trying to uncover evidence of fraud. If the agent is asking a question, there is probably a specific reason why, and providing information without a clear understanding of this reason could be dangerous. This is especially true for questions focused on topics such as:

  • Why the tax preparer has a high number of IRS-rejected returns
  • Excessive listing of dependents and/or questionable dependent identities
  • Filing a high volume of returns with minimal client interaction
  • Excessive use of charitable contributions, including cash contributions and charitable contribution carry-overs
  • Unsubstantiated claims for child, education, or residential energy credits
  • Unsubstantiated claims for conservation easements
  • Small Business Administration (SBA) and Paycheck Protection Program (PPP) loans
  • Failure to adequately disclose clients’ offshore accounts and other foreign financial assets

How to Prepare for an IRS CI Interview

Given the range of topics that are likely to come up during an IRS CI interview, tax preparers must devote the necessary time and effort to preparing their answers—and to developing their defense strategy if necessary. Some of the key steps involved in preparing for an interview during an IRS CI investigation include:

  • Collect All Pertinent Records – Tax preparers should collect all internal and client records that are relevant to IRS CI’s investigation. Tax preparers should review these records to refresh their recollection as necessary, and they should work with their counsel to assess any risks for administrative enforcement action or prosecution.
  • Assess Potential Criminal Culpability – Tax preparers can face criminal culpability under a broad range of circumstances. Based on a review of the relevant records, tax preparers should work with their counsel to assess their potential criminal culpability and anticipate issues that are likely to arise during IRS CI’s investigation.
  • Decide Whether to Pursue the Expedited Plea Program – If mistakes have been made, tax preparers will need to decide whether to pursue IRS CI’s and the DOJ Tax Division’s Expedited Plea Program. Making this decision will involve working closely with legal counsel to assess the risks and benefits involved.
  • Practice Interview Answers – Tax preparers should work with their counsel to anticipate questions and practice their interview answers. Tax preparers should rehearse extensively on their own as well, as appearing unprepared or nervous can also raise red flags.
  • Avoid Making Potentially Costly Mistakes – When facing scrutiny from IRS CI, tax preparers need to be extremely careful to avoid any mistakes that could lead to prosecution. This includes continuing to engage in fraudulent preparation practices or providing false or misleading information or records to IRS CI. To avoid these mistakes, tax preparers should rely on the advice of their legal counsel in all respects for the duration of IRS CI’s investigation.

Schedule a Complimentary Initial Consultation with a Federal Defense Lawyer at Oberheiden P.C.

Have you been asked to sit for an interview with an IRS CI agent? If so, our federal defense lawyers can help you prepare, and we can defend you against criminal allegations if necessary. To get started with a complimentary initial consultation, call 888-680-1745 or request an appointment online now.

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