tax fraud

New York City Criminal lawyers of Norman Spencer Law Group PC represent individuals and corporate clients who face criminal investigations and charges for violations of New York State tax code. We built a successful track record of defending tax fraud cases – from easy to very complex.
[Read more…] about New York Tax Fraud Cases

Best Defenses During The IRS Investigations

The IRS is authorized to issue administrative summonses to tax payers during civil audits and criminal investigations. In a way, these summonses serve as subpoenas and are enforceable in federal court. The government uses its power to issue administrative summonses as a way to engage in fishing expeditions, looking for incriminating information. When you are issued an administrative summons, you should speak with an experience defense attorney right away. Just because the government wants the documents doesn’t mean they are entitled to it and it certainly doesn’t mean that you should give up and not try to limit the scope of the summonses.

There are several defenses that are available in defending taxpayers in criminal tax investigations when the government demands production of documents.

Fifth Amendment

When you receive a summons to produce books and records, or if the IRS agents ask you to produce any documents, you may raise the Fifth Amendment privilege to refuse production. The Fifth Amendment provides that you may not be forced to make any self-incriminating statements, and that protection extends to producing documents that can be potentially incriminating. To raise the 5^th Amendment argument you have to show that you are being compelled to respond, that the response required is testimonial in nature, and that the testimony is incriminating.

You need to be very careful about what you tell the agents because the 5^th Amendment does not protect voluntary statements, it only applies to cases when you are forced or compelled to give testimony, not when you give it to the government voluntarily. The 5^th Amendment also doesn’t protect against turning over documents, which you are obligated to create and keep by law. If the government only wants such documents and not your testimony, the 5^th Amendment protection may not apply.

This can get more complicated. In one case, the Supreme Court dealt with a situation when the government served a subpoena on a small business owner ordering him to produce the records of the business. The Supreme Court held that even though the records themselves were not privileged, producing them would be testimonial communication because the owner would have to be compelled to admit that the records existed and that he was in possession of them, and that they were authentic.

In another Supreme Court case, the question was whether the custodian of corporate records may resist a subpoena for corporate records on the basis that the act of production would personally incriminate the custodian. The Court held that the records were not privileged and that artificial entities such as corporations and partnerships are not protected by the 5^th Amendment. The Court also held that a corporate custodian couldn’t claim a privilege as to corporate records even if the records, or the act of producing them, would personally incriminate the custodian.

So, in short, to successfully use the 5^th Amendment defense in these cases, the compulsion should be directed at the one who may be incriminated, not a third party.

How can we know if the testimony the IRS wants to receive is incriminating for the purposes of invoking the 5^th Amendment privilege?

Testimony is considered to be incriminating if the answer would either result in a criminal conviction or even could be used as a link in the chain of evidence that potentially could result in criminal prosecution. The taxpayer has a burden of prove to demonstrate that the testimony could be incriminating. For this, he needs to show that he has a reasonable basis to believe that it will be. In many case it is clearly obvious. In some case, though, it is not obvious at all that the questions are incriminating in nature. In those cases, the argument is that the questions could be potentially incriminating under certain circumstances. Also, the taxpayer must demonstrate that his fear of being criminally prosecuted is reasonably justified.

Fourth Amendment

The Fourth Amendment protects against “unreasonable searches and seizures,” and states that no warrant shall be issued unless it “particularly describes the place to be searched and the persons or things to be seized.”

Even though an IRS summons does not involve a search and seizure and is not a search warrant, the Fourth Amendment applies to IRS summons enforcement cases. While the Fifth Amendment doesn’t apply to corporate representatives, the Fourth Amendment provides protections to individuals and corporate representatives.

In order to invoke a Fourth Amendment defense in theirs summons enforcement case, you must have standing, meaning that you must have personally suffered a Fourth Amendment violation. For that, you need to have an interest in the place searched, own or have a right to possession of the property seized, or have a legitimate expectation of privacy.

What if the summons is served on a third party such as the taxpayer’s bank, accountant, or attorney? In this situation the taxpayer cannot use the Fourth Amendment protection – he has no interest in the requested documents unless the third party is an attorney and the attorney-client privilege applies.

Third Party Summonses

What if the IRS sends the summonses to a third party such as a taxpayer’s record-keeper? In some cases the taxpayer may be able to challenge the summons administratively. This becomes relevant when the IRS is seeking business or financial records from banks, financial institutions, or consumer reporting agencies as well as other record keepers such as lawyers, accountants, brokers, etc. For a successful challenge of an IRS summons you need the help of an experienced attorney. Keep in mind that the IRS is allowed to demand production of documents from third party record keepers and when it comes to banks and financial institutions, issuing summons is the only administrative way the IRS can do it. If the IRS issued summonses to a third party requesting information that relates to your case, you may have the right to intervene to quash it in the US district Court. You have 20 days for such application from the day the notice of summons is given to you.

If you are investigated by the IRS for potential tax fraud, contact our New York based tax fraud defense attorneys to set up a confidential consultation.