A Warning to Tax Preparers: Part 3

If you are a tax preparer, what should you do right now to protect yourself from an IRS investigation later? First, retain electronic copies of your records;

Second, train your employees concerning an IRS raid, and;

Third, consider making changes to how you review a tax return with a taxpayer.

Nothing is 100% fool proof, but these strategies should help lower your risk of being the target of a grand jury or indictment. The intent here is to simply give you the means to defend yourself should you face a criminal trial.

It is crucial to retain all documents that support the information freely furnished by a taxpayer. But what records are most important to retain? You should already be asking all taxpayers for all of their receipts, documents, and evidence supporting any estimated or totaled numbers that they provide to you. These documents, and any spreadsheets and written information provided by taxpayers, are exactly the types of documents that will most protect against any allegations of violating 26 U.S.C. § 7206(2)—aiding, assisting, procuring, or counseling the preparation of a fraudulent or false tax return.

Furthermore, it can be very useful to save these documents in electronic form, preferably backed up on a cloud-based service. Too many times the IRS or Department of Justice has apparently ‘misplaced’ documents that were taken during a raid from a tax preparer’s office. Unfortunately, most tax preparers do not retain these documents more than a few years, and most never bother to make backed-up, electronic records. Without this evidence, the tax preparer is left defending themselves against the IRS with little more than pleading statements stating the tax preparer did indeed perform adequate due diligence before filing the returns. Indeed, the IRS commonly will prosecute a tax preparer for returns that were filed no less than five years ago, outside of the period that most preparers will retain documents received from a taxpayer.

In addition to purposefully retaining exculpatory evidence, it is important to properly train your employees. It seems many tax preparers are damned by the statements of their employees during the initial IRS raid. Typically, the IRS will try to conceal any investigation into a tax preparer until the initial IRS raid of the tax preparer’s office. At this raid, the IRS will isolate and interview all employees one at a time. Too often employees will make statements against the owner of the business—you, the tax preparer—that will be highlighted repeatedly at trial. To protect yourself from these statements, elicited by fear, and often false, it is crucial to include training for all employees regarding how to act and react to any IRS raid, IRS questioning, or IRS summons. With proper training and preparation, you will be removing a highly effective tool the IRS uses to build evidence against the target of their investigation: shock and awe.

Finally, consider making changes to the manner in which you review tax returns with taxpayers before having them sign the authorization documents. It would be useful to memorialize the understanding of the taxpayer of all information reviewed with them. A very common component of an IRS case against a tax preparer is witness testimony from taxpayer clients. This testimony is typically used to illustrate that the client did not actually review the information that was in their return, but simply trusted their tax preparer and signed the forms. To rebut this, consider recording conversations, having the taxpayer transcribe important information, or filling out proprietary forms to make it indisputable that the taxpayer signed their tax return with intent and with knowledge of all of the information therein. As noted in Part 1, IRS Form 8879 is not sufficient to exonerate a tax preparer from liability. Juries are often persuaded by the testimony of a taxpayer that he/she did not review the information contained in those forms before signing.

The best defense against an IRS investigation or prosecution is to stop them before either begins. To protect your checkbook, and your freedom, take preemptive precautions rather to panicking when IRS agents burst through your door.


–By Tony Nasser, Esq., Barnes Law

Tony Nasser is an attorney with Barnes Law, licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.