Several years ago, a field audit was begun by the CRA into the affairs of a corporation that operated a very successful restaurant in Ottawa. An audit letter was forwarded to the principal shareholder, who sent it to his accountants for advice.
The CRA auditor met with Mr. X, the shareholder, and an associate of the accounting firm. The auditor also toured the business premises and asked detailed questions about the operations. Then the CRA auditor transferred any corporate records not already in the possession of the accounting firm to the accounting firm’s office, where he conducted an examination of several years of financial information.
Mr. X had yet to contact legal counsel. This was a tax matter, he believed, and it would be well-handled by his accounting firm.
He was proven wrong when, at the conclusion of the office review, the CRA auditor removed the boxes of financial records from the offices of the taxpayer’s accountants without consent, and without completing the mandatory “Borrowed Records” form.
Still without the protection of legal counsel, Mr. X and his accountants participated in further discussions with the CRA auditor that later proved critical to the auditor’s recommendation for an investigation in order to build a case for criminal charges.
Meanwhile, discussions with the taxpayer’s accountants continued. On the CRA auditor’s recommendation, the Agency’s Investigations officers retroactively obtained a search and seizure order, which now gave it the legal permission to seize the boxes of documents that had previously been removed from the accountant’s premises, and which were in the possession of the tax officials. Under the authority of this order, the home of the shareholder, his place of business, and the accounting firm’s offices were also searched.
Several months later, criminal charges were brought against the corporation and the principal shareholder, as well as against some associates of the accounting firm for allegedly conspiring with, counseling, and aiding and abetting the corporation and its principals. Only at this stage did the shareholder retain legal counsel (not our firm).
Ultimately, all criminal charges were dropped, in return for a guilty plea plus a heavy civil fine. We can only wonder if Mr. X still believes he was right to leave such a serious and escalating matter in the hands of the accountants who were themselves eventually charged as co-conspirators.
The foregoing provides only an overview and does not constitute legal advice. You are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained in the context of your own particular circumstances.
