The U.S. tax code can be impenetrable to most people, which is why many hire accountants to keep their books and do their tax returns. A taxpayer can put all of their financial records into the accountant’s hands, answer a few questions and trust the professional to prepare an accurate return. Or can they?
Sometimes the IRS still finds inaccuracies and false information. When IRS agents turn to the taxpayer for answers and indicate that they believe fraud is involved, the taxpayer may be genuinely surprised because they relied on their accountant in good faith.
Good-faith reliance can be a way out
Good-faith reliance on a qualified accountant can be a defense to certain federal tax fraud charges because the government must generally prove that tax evasion was a result of willfulness on the taxpayer’s part. Anyone who honestly followed professional advice may not have acted with the criminal intent necessary for a conviction.
The taxpayer must make a full disclosure
Simply saying, “My accountant did it,” is not enough for a defense. Accountants can only provide reliable guidance when they have accurate information. A taxpayer seeking to establish good-faith reliance must usually show that they disclosed all relevant information, including income, business transactions, assets and expenses. A good-faith reliance defense would not be possible if the taxpayer:
- Concealed income from the accountant
- Supplied false or altered records
- Failed to disclose offshore accounts or cash payments
- Invented personal expenses and characterized them as business deductions
A taxpayer also cannot ask an accountant to prepare a return using questionable figures and then avoid responsibility by signing it.
The surrounding circumstances can help determine whether the taxpayer truly relied on the accountant. Investigators may examine emails, financial records and conversations between the taxpayer and the tax professional. They may also consider the accountant’s qualifications, the advice provided and whether the taxpayer followed that advice.
Tax returns can contain errors without anyone committing a crime. An accountant may misunderstand a transaction, apply a rule incorrectly or enter the wrong number. Negligence and poor recordkeeping can lead to additional taxes, interest or civil penalties, but they do not necessarily establish purposeful tax fraud. Anyone facing an IRS criminal investigation should seek legal guidance immediately as a result.