Topic: Right to Rely on Accountants

Right to Rely on Accountants Against IRS Tax Evasion Charges

by Robert Barnes 


The United States Attorneys’ Offices promises every American the “rights of individuals” will be “scrupulously protected.” See United States Attorneys Manual, Principles of Federal Prosecution, 9-­‐27.110 (B).

One of the foremost rights of individual Americans in tax matters is the right of reliance upon professionals for the tax filings, tax submissions, and tax law interpretations attendant thereto concerning their individual and business affairs. See United States v. Moran, 493 F.3d 1002 (9th Cir. 2007) (reversing verdicts and vacating all verdicts for government and trial court’s failure to allow all evidence concerning reliance, including defendant’s own subjective memories and recall, as one who relies upon the advice of professionals cannot be guilty of a tax crime); see also United States v. Kottwitz, 627 F.3d 1383, 1384 (11th Cir. 2010) (one of the most pro-­‐government Circuits in America reversing all convictions for all defendants, recognizing fifty years of case law and undisturbed precedent recognizing right of reliance as complete defense to criminal tax charges; in full disclosure, this was another of the successes of Barnes Law’ work). The existence of reliance is recognized within the Tax Division as the principal reason to decline tax prosecutions, as they do daily in cases wrongly recommended by the IRS.


As the Internal Revenue Manual itself recognizes and respects, “Avoidance of taxes is not a criminal offense. Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible.” Equally, as the Service itself acknowledges, “mere understatement of income and the filing an incorrect return does not in itself constitute a willful attempt to evade tax.” See Internal Revenue Manual (05-­‐15-­‐2008).

As the Ninth Circuit repeatedly reiterated in quoting other Circuit: “A taxpayer is free to arrange his financial affairs to minimize his tax liability.” See Malone & Hyde Inc. v. Commissioner of Internal Revenue., 62 F.3d 835, 840 (9th Cir. 1995) (quoting Estate of Stranahan v. Commissioner of Internal Revenue, 472 F.2d 867, 869 (6th Cir. 1973). Indeed, the Supreme Court long ago recognized “the legal right of a taxpayer to decrease the amount of what otherwise would be due his taxes, or altogether avoid them, by means the law permits” and this right “cannot be doubted.” See Gregory v. Helvering, 293 U.S. 465, 469 (1935).

One of the most pro-­‐government Circuits in the country recognized that a defendant was not guilty, and must be so instructed to the jury, “if before taking any action with regard to the alleged offense, the Defendant consulted in good faith an accountant” whom the Defendant consulted and relied upon. United States v. Kottwitz, 614 F.3d 1241, 1273, n.46 (11th Cir. 2010).

Notably, the same court recognized “a complete defense to the charges in the indictment is where the tax violation was the result of a failure of an accountant to exercise due care or diligence, and not the result of the Defendants’ actions.” United States v. Kottwitz, 614 F.3d 1241, 1273, n.46 (11th Cir. 2010).

Hence “if you find that an accountant or tax preparer ignored any information, did not make reasonable inquiries as to whether any information provided to him was complete and correct, or otherwise was not diligent, thorough or careful to the best of his ability, and that the failure to exercise due care cause the tax violations charged in the indictment, you must acquit the Defendants.” United States v. Kottwitz, 614 F.3d 1241, 1273, n.46 (11th Cir. 2010).

Even post-­‐hoc “tactic approval of Defendants’ accounting methods” would acquit defendants under the right to rely upon the advice of financial and legal professionals, “even though no evidence directly showed that Defendants’ accountant was involved in initially entering/hiding transactions on the corporate books,” compelling instruction to jury on the legal defense of the right of reliance negating any crime. United States v. Kottwitz, 627 F.3d 1383, 1384 (11th Cir. 2010).

Where a defendant keeps books internally and those books were reviewed by outside accountant, then the defendant is entitled to the reliance defense. See United States v. Kottwitz, 614 F.3d 1241, 1272 (11th Cir. 2010). A defendant is entitled to the defense even if he never testified at trial or even if the only evidence is his own testimony or even if his advisor is a codefendant. See United States v. Kottwitz, 614 F.3d 1241, 1272 (11th Cir. 2010). As this Circuit instructs, good faith reliance upon advisors need not even be reasonable. The government must prove the defendant “did not have a good faith belief he was complying with the provisions of the tax laws. A belief may be in good faith even if it is unreasonable.” See Ninth Circuit Pattern Criminal Jury Instructions 9.35, Comment.

If there are non-­‐criminal means of punishment available, that is also a factor in whether the federal government should abandon pursuit of criminal prosecution. An example of “such non-­‐criminal approaches” includes “civil tax proceedings.” See United States Attorneys Manual, Principles of Federal Prosecution, 9-­‐27.250. The United States Attorney Manual also points out that sentencing (certainty of criminally intended tax loss) must justify time expended. See United States Attorneys Manual, Principles of Federal Prosecution 9-­‐27.230. This is especially so where the tax deficiency is non-­‐existent or the tax issues iinvolved prove complex.

A knowledgeable IRS defense lawyer can assert, help enforce, and guard your rights in the IRS criminal investigation process at many stages of the case before it gets too far. While the past cannot guarantee the future, it is a resume worth knowing when choosing your tax defense lawyer. Barnes Law enjoys a 90% success in preventing the government from imprisoning its clients even when only hired after a fraud audit or IRS criminal investigation has commenced, while protecting your privacy in the process and limiting the amount of fines, fraud penalties, tax and interest the IRS can charge. Barnes Law is often the best investment you will ever make. Choose wisely: your freedom, your future, and your finances often depend upon it.