Parallel IRS Investigations a Wolf In Lambs Clothing

Howard RichshaferBackground

A. 34 years ago, a major federal appeals court was outraged by IRS’ conduct. This is the infamous “Tweel Case.” The Court claimed it could not “condone [IRS’] shocking conduct.” The Court admonished IRS that taxpayers expect good faith from the government in enforcing and collecting taxes. The Court directed IRS to discontinue using “sneaky and deliberate deception” during civil audits to gather evidence leading to criminal tax prosecutions.1 Mainly due to Tweel, IRS adopted policies requiring revenue officers, revenue agents, and tax auditors to suspend civil investigations if potential fraud is uncovered.

B. Recent IRS policies (quietly surfacing in 2009 and 2010) introduced new investigative standards teetering on the edge of “sneaky and deliberate deception.” They may even violate your client’s Tweel rights: to be free of unreasonable searches and seizures. These new policies instruct examiners: (1) not to disclose to a taxpayer or the taxpayer’s representative that the investigation has been referred to IRS’ criminal division, (2) to intentionally mislead the taxpayer about the examiner’s sharing of evidence with IRS’ criminal agents, and (3) to continue the civil examination while concurrently working closely with IRS criminal agents. Are IRS’ new policies quietly returning to the old pre-Tweel policies of “sneaky and deliberate deception”?

C. Practitioners must be more careful to protect tax clients and themselves. These new policies relate to IRS’ “parallel investigation” program.

D. They are found in IRS’ Internal Revenue Manual, or “IRM.” The IRM contains IRS policies, guidelines, and instructions concerning its operations. The IRM is updated by “Manual Supplements.” The IRM is not legally binding on taxpayers. This is because they are only directed to its agents, examiners, and other employees. Nonetheless, the IRM is an excellent research source for tax practitioners. It tells practitioners what IRS is looking for during an audit or investigation. It instructs its agents on applying penalties, and other administrative procedures. And, it instructs its examiners on the “do’s and don’ts” of conducting parallel investigations—the topic of this article.

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    Howard L. Richshafer

    Howard Richshafer joined Wood + Lamping in 2008, and his practice is focused on civil and criminal tax problems, estate planning and probate, tax court trial work, mergers and acquisitions, and general corporate business matters. Howard is also a licensed Ohio CPA. Over the past 40 years, Howard has represented clients experiencing all types of civil and criminal tax problems with IRS. Those problems include IRS audits, IRS criminal investigations, enforced collection of unpaid tax liabilities involving levies, liens, and seizures of assets and income.

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