Sales Tax Criminal Investigation

All states may do a civil sales tax audit (seeking money) or a criminal investigation (seeking jail time for a corporate officer or owner) relating to a company. A civil audit is when the State reviews a company’s books and records to determine if the company collected and paid the correct amount of sales or use tax. Usually the worst case scenario on a civil audit is owing money. A criminal investigation often occurs because the State suspects tax fraud. A criminal investigation can end in imprisonment and monetary fines.

In some states, a criminal sales tax investigation is done by the District Attorney’s Office. In other states, such as New York, the Tax Department has a Criminal Investigations Division that does the initial investigation and if they make a finding of sales tax fraud, it is referred to the District Attorney’s Office. Additionally, in New York, a District Attorney’s Office can decide to conduct a criminal investigation into sales tax fraud on its own.

There is no such thing as client privilege between an accountant and his client. This means that during a criminal investigation, the State can subpoena the accountant to testify against the client. The State can also obtain all books and records from the accountant. However, there is client privilege between an attorney and his client. Courts have ruled that when a client hires an attorney, an attorney may hire an accountant to work on the case and the accountant is covered under the umbrella of attorney-client privilege.

If a client fears that a sales tax audit has the potential to turn into a criminal investigation, we recommend that our firm work under an attorney from the start.

Since our firm does not do regular bookkeeping for clients, we do not have previous information about a client that can be subpoenaed. A client’s attorney can hire us to help on a criminal investigation of a sales tax audit, knowing that all knowledge we receive concerning the investigation will be covered under attorney-client privilege.

We will be happy to work with a client’s pre-existing attorney. Our firm also works closely with several attorneys that specialize in sales tax and economic crimes and can offer a referral if a client does not have a pre-existing attorney. We also have an in-house counsel which can be engaged by you to hire us under a “Kovel letter ” to ensure attorney client privilege on the work we do for you.