Are Clients on the Hook For Tax Preparer & Accountant Fraud?

Are Taxpayers on the Hook For Tax Preparer/Accountant Fraud?

Are Taxpayers on the Hook For Tax Preparer/Accountant Fraud?

U.S. Taxpayers should be very careful when choosing their tax preparer, CPA, EA, or even tax attorney. This is because when a taxpayer hires a tax professional to assist them with filing their returns or other tax-related matters, the taxpayer may end up on the hook for issues caused by the tax preparer. In other words, if a tax preparer commits fraud using the taxpayer’s return as the catalyst, the IRS can go after the taxpayer for the fraud, even if the tax preparer perpetrated it unbeknownst to the taxpayer.  And, with the Supreme Court declining to hear the recent case Murrin, taxpayers should be aware of their responsibilities regarding tax preparation and other tax-related matters.

What Happened in Murrin?

Unfortunately for the appellant, this is a cautionary tale of how hiring the wrong tax professional can cause major problems for many years to come — with the outcome of the case being completely unfair to the taxpayer. Here, the tax preparer allegedly filed false tax returns with fraudulent entries with an intent to evade tax. The taxpayer had no intent to commit tax fraud and, in fact, was unaware of the fraud that was perpetrated by the tax preparer. The returns at issue were prepared between tax years 1993 and 1996, and the IRS did not begin pursuing the taxpayer until 2019 — more than 25 years after the 1993 tax return was prepared and filed.

Civil Tax Fraud has no Statute of Limitations

Unlike tax evasion, which is a crime, tax fraud can be broken down into civil tax fraud and criminal tax fraud. With civil tax fraud, technically, the IRS has no statute of limitations in terms of enforcement, which means, as in the current case, the IRS can come back 20-plus years later and initiate an investigation into a tax violation that occurred many years ago.

26 U.S. Code § 6501 – Limitations on assessment and collection

• • • (c) Exceptions

      • (1) False return

        • In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.

Why did the Court rule in Favor of the IRS?

The court concluded the plain letter of the statute simply does not require the taxpayer to have the intent to defraud. Presumably, doing so would be to narrowing and lead to other 3^rd party fraud issues. 

As provided by the court in Murrin:

• • • “Again, the question before us is whether the “intent to evade tax” exception in § 6501(c)(1) requires taxpayer intent.We conclude that it does not.  Absent from § 6501(c)(1) is any express or implied textual indication that the “intent to evade tax” is  cabined  to  the taxpayer.    The structure  of  the  statute  focuses on the presence of “a false or fraudulent return with the intent to evade tax.”  I.R.C. § 6501(c)(1).  That is, an “intent to evade tax” must attach to the “false or fraudulent return.”4  But neither requirement facially includes  any  indication  that  the  taxpayer must be the actor who intends to evade tax.

International Tax Accountants/Attorneys

A few years ago, an international tax accountant who claimed to be an attorney was convicted of tax fraud. Any taxpayer who utilized this tax firm’s services should be cautious and ensure their tax filings are accurate.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a taxpayer misses the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.

Contact our firm today for assistance.