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Taxes can be a complex topic, but even more so when it comes to what happens when there is a subpoena of tax records of a taxpayer and/or their certified public accountant by the Internal Revenue Service or another federal government agency.

It is a mistake for an individual or financial to assume that they must automatically comply with a subpoena for tax documents. There could be instances in which the subpoena could be considered unlawful, in which case once that determination is official, it would not require that an individual or tax preparer comply with it.

In order to protect themselves and their rights, both individuals and CPAs must be aware of what happens once a subpoena for tax records or documents issued and what steps should be taken in response.

What Happens When a CPA Receives a Subpoena of Tax Records

The CPA must respond to a lawful subpoena. However, the question becomes if the subpoena is deemed lawful or not. A taxpayer who is subject to a subpoena has the right to challenge it. This can be a difficult position for financial planners as they must protect the confidentiality of documents they have produced for a taxpayer, as well as the documents provided to them by the individual. Yet, they are required by law to respond to a lawful subpoena, with lawful being the keyword.
If a CPA receives a tax subpoena, it generally requires several actions including:

• The tax preparer should immediately enlist the help of a reputable lawyer who is familiar with tax law.
• If the law allows transparency in this specific situation, the CPA should make their taxpayer client aware that the records have been subpoenaed. This, in turn, gives the client notice so they can hire an attorney for themselves. The lawyer can then challenge the validity of the subpoena in question.

What Happens When an Individual Taxpayer Receives a Subpoena of Tax Records

While it is possible that a person’s CPA could receive a subpoena, it is equally plausible that an individual themselves could receive one. If an individual taxpayer receives a subpoena, the following steps should be taken:

• A taxpayer who receives a subpoena is required to respond to it.
• The person should hire an attorney for representation and to defend their fifth and sixth amendment rights.
• If a taxpayer does not already have a tax preparer, they should hire one to help analyze if the data being subpoenaed could be incriminating, contradict tax returns, or could pose other problems for the investigation itself or the individual. A professional financial planner can also better determine if the information being requested is something that is really needed, or if it is something the government would eventually receive anyway.
• The individual should ask their CPA if they should be fighting the subpoena or just providing the information that has been requested. Ultimately the tax preparer, should be able to help the taxpayer understand if the order will have any real effect on them or not.

A Real World Example of a Subpoena of Tax Records

When a federal government agency subpoenaed the tax records of the Donald Trump organization, the appointed CPA did not immediately turn over those documents to the government without question. They first fought the presumption that the subpoena was lawful by taking it all the way to the Supreme Court. The taxpayer, Trump, and his organization also fought the validity of the subpoena.

Ultimately, federal law says that the court makes the final ruling. In this particular case, the court ruled that at least some of the tax documents in question should be turned over to the government. That is in the process of being done now and then it will be reviewed by designated government entities.

This was not a situation where just because the subpoena of tax records was issued, automatic compliance by Trump or the CPA took place. The subpoena did not mean that tax documents should be automatically turned over without any consideration to whether the subpoena is indeed lawful. That said, the attorney and tax preparer were not able to ignore the subpoenas either.

With this example in mind, to best resolve a situation that involves a subpoena of tax documents from a government agency it requires solid assurance from professional financial planners and attorneys. This advice can provide valuable and accurate guidance as to what the next step should be.

 

Should an individual taxpayer or their CPA receive a subpoena of tax records, it is essential that they reach out to a reputable and qualified attorney for representation as soon as possible. This is necessary to best protect their rights and the privacy of their tax records.

By Harold "Hap" May, P.C. on February 20, 2023   /   Blog, The Legal Play Podcast   /   Leave a comment