Peter Hardy was a member of a panel at the 2016 IRS Representation Conference that discussed preparer penalties and the criminal prosecution of tax professionals. He provided insight on several topics, including whether or not preparers should have their own legal counsel defense strategies during an IRS Criminal Investigation (CI) Division probe.

On the issue of preparers sometimes putting themselves at risk during a CI case by being honest about their unethical practices, panel moderator Eric L. Green of Green & Sklarz LLC indicated that preparers always should have their own legal counsel as their clients will not hesitate to let the preparer be held liable. He recommended client and preparer to seek separate counsel.

Hardy disagreed, saying that “your duty and loyalty is to the client, full stop,” even if it means having the preparer sign an affidavit that places criminal liability upon himself.

In terms of defense strategies for sentencing, Hardy said there are two: that there is no underlying violation, or that the violation was unwillful and unintentional. Most of the time it’s the latter. Typically preparers shift blame to the client.

Cases involving preparers who make limited mistakes, as opposed to those deliberately filing multitudes of false returns, are rare and difficult to prove. “I think that most of the time, if you have a situation like that, you need super-clear bad e-mails or an undercover tape, basically,” he said. For example, he cited a case where a taxpayer had several undisclosed offshore bank accounts that the preparer told him in an email to never tell the IRS about.

“Most people aren’t that stupid,” Hardy said, and noted that U. S. attorneys with heavy caseloads usually opt to pursue larger targets, like drug dealers, instead of tax cases.