By Rick Yandle, Esq., CPA — federal criminal & civil tax defense
A grand jury subpoena from the U.S. Department of Justice is not a criminal charge, and it is not a verdict. For a tax preparer, though, it is a warning: a federal criminal investigation is underway involving one of your clients, and how you respond in the first several days can matter as much as anything on the return itself. The instinct to be helpful, or to explain, is exactly the instinct to resist until you have your own counsel.
If you are the client's business partner, bookkeeper, or associate rather than the preparer, nearly all of what follows applies to you as well.
What the subpoena actually is
A DOJ subpoena in a criminal matter is almost always a grand jury subpoena, and it takes one of two forms. A subpoena duces tecum commands you to produce documents. A subpoena ad testificandum commands you to appear and testify. Either way, this is not an IRS civil audit or a routine information request. It means a prosecutor is working with a grand jury, and grand juries exist to investigate crimes.
The question everyone asks: am I a target?
Federal prosecutors sort the people around an investigation into three categories, and which one you occupy changes everything. A witness has information about someone else's conduct and sits at the lowest level of risk. A subject is a person whose conduct is within the scope of the grand jury's investigation: something looks wrong, but the government is not yet certain a provable crime occurred. A target is a person the government believes it can already charge. Categories can and do change: witnesses can become targets, and vice versa.
That mobility is the part preparers underestimate. A witness who volunteers too much can become a subject by the end of the day. A subject whose files are produced can become a target once those files confirm what investigators suspected. The label describes the government's posture today, not its conclusion.
Your own exposure under Section 7206(2)
There is a federal statute written almost precisely for tax professionals. Section 7206(2) makes it a felony to willfully aid or assist in the preparation of a return that is false as to a material matter. It carries up to three years in prison and a fine of up to $250,000 per count. The statute contains a trap worth reading twice: it applies whether or not the client knew or consented. The client can be entirely innocent and the preparer can still be charged. That is why a subpoena framed as being about the client can quietly be about you.
The privilege you may think you have
Many CPAs and enrolled agents assume the federally authorized tax practitioner privilege under Section 7525 protects their client communications. In a criminal case, it does not. The Section 7525 privilege reaches only noncriminal matters, and it never covered communications about return preparation in the first place. There is no accountant-client privilege in federal criminal proceedings. As a practical matter, your workpapers, engagement notes, emails, and text messages with the client are all potentially discoverable. Do not assume that anything you wrote is shielded.
What not to do
Do not clean up the file. Do not delete an email, discard a note, back-date a document, or revise a workpaper. Destroying or altering records once an investigation is underway is a separate and serious federal felony, and it can convert a witness into a defendant faster than the underlying return ever would. In this arena, concealment is often the easier case for the government to prove than the return itself.
Be equally careful about what you say to the client. A well-meant heads-up call can be read as coordinating a story or influencing a witness. And do not call the prosecutor yourself to clear things up. You cannot talk your way out of a criminal investigation, but you can readily talk your way further into one.
What to do
Preserve everything, exactly as it sits. The moment the subpoena arrives, a litigation hold applies to every related record.
Retain your own attorney, separate from the client's. The client's lawyer represents the client, whose interests can diverge from yours quickly and without warning. You need counsel whose only concern is you, and ideally one who practices in criminal tax. Let that attorney read the subpoena, assess whether you are a witness or something more, communicate with the prosecutor, and decide what is produced and how.
Move promptly. Subpoenas carry return dates, and the earliest days are when experienced counsel has the most room to protect you: to narrow an overbroad demand, assert the privileges that do exist, and keep you off a landmine you cannot see.
A note for referring counsel
For attorneys and accountants referring these matters: the preparer or associate who receives a subpoena is frequently treated, at the outset, as a witness, and just as frequently misreads that posture as safety. The value of early, independent representation is not simply compliance with the subpoena. It is preserving your client's optionality before an incautious production or interview hardens the government's view. We are glad to serve as separate counsel for a preparer, partner, or associate whose interests should not be folded into the target's defense.
Facing an IRS audit or criminal tax exposure? Schedule a case evaluation.