IRS Criminal Investigation divisionThe IRS has nearly unlimited power over commercial tax return businesses and preparers.  It shouldn’t.

Suppose you own a business that prepares and files tax returns for others.  In today’s internet world, you would be filing those returns electronically.  In fact, you are required by statute, 26 U.S.C. § 6011(e)(3),  to file the returns electronically, if you are filing more than 10 returns per year.

IRS Criminal Investigation division agents are authorized to open a criminal investigation upon a hunch, an anonymous allegation, or for no reason at all.  The basis for the investigation and the investigation itself will be cloaked in secrecy.  But, if an IRS agent opens a criminal investigation of you or your business, the fact of the investigation alone can be the basis for the IRS to summarily suspend you from e-filing returns. (IRS Publication 3112).

You might think that the suspension would occur only after you were given notice of a potential suspension and an opportunity to be heard as to whether suspension is appropriate.  But, you would be wrong.  The IRS need not provide such basic due process.  It merely sends you a letter from IRS Electronic Products & Services Support, and tells you that you have been suspended from e-filing returns.  The letter will tell you that the IRS has determined that you have filed fraudulent returns, but will not identify which returns in what tax years or how they are fraudulent. The letter will advise you that you can appeal the suspension decision (to a higher IRS administrator), but that you must do so within 30 days and establish why you should not be suspended.  That can obviously be difficult to do when you do not know the basis for the suspension, or for the underlying criminal investigation.

This scenario creates serious problems if you receive the letter in February and you have already prepared several hundred tax returns and were ready to e-file them.  Your clients, who are entitled to and counting on tax refunds, are unlikely to be willing to wait for your appeal to be filed and resolved.  So, they will take their business elsewhere.  And, that will substantially damage, if not prove to be the death penalty for, your business.  Of course, that is of no consequence to the IRS.  After all, they think they know best.

No one wants unscrupulous taxpayers or return preparers to file fraudulent returns to obtain undeserved refunds.  Clearly, the federal government has deficit issues, and false tax returns add to them.  But, no one should want American business owners to be presumed guilty and put out of business, without any proof at all, and without an opportunity for a prompt prior hearing.  Due process of law needs to stand for something.