How to Choose a Tax Preparer and Avoid Preparer Fraud - Return preparer fraud involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallocated credits or excessive exemptions on returns prepared for their clients. Preparers may, for example, manipulate income figures to fraudulently obtain tax credits, such as the Earned Income Tax Credit.
How to Choose a Tax Preparer and Avoid Preparer Fraud
By Sandi Lattin
Nov 18, 2010 - 12:47:48 PM
Return
preparer fraud involves the preparation and filing of false income
tax returns by preparers who claim inflated personal or business
expenses, false deductions, unallocated credits or excessive
exemptions on returns prepared for their clients. Preparers may, for
example, manipulate income figures to fraudulently obtain tax
credits, such as the Earned Income Tax Credit.
In some
situations, the client, or taxpayer, may not know of the false
expenses, deductions, exemptions and/or credits shown on his or her
tax return.
However,
when the IRS detects a fraudulent return, the taxpayer – not the
return preparer must pay the additional taxes and interest and may be
subject to penalties.
The IRS
Return Preparer Program focuses on enhancing compliance in the
return-preparer community by investigating and referring criminal
activity by return preparers to the Department of Justice for
prosecution. The IRS can also assert appropriate civil penalties
against unscrupulous return preparers.
While
most preparers provide honest service to their clients, the IRS urges
taxpayers to be careful when choosing a preparer – as careful as
they would be choosing a doctor or lawyer. Even is someone else
prepares a tax return, the taxpayer is ultimately responsible for all
the information on the return. For that reason, taxpayers should
never sign a blank tax form. And they should review the return
before signing it and ask questions on entries they don't understand.
Helpful
Hints When Choosing a Return Preparer
Be
cautious of tax preparers who claim they can obtain larger refunds
than other preparers.
Use
a reputable tax professional who signs the tax return and provides a
copy.
Avoid
preparers who base their fee on a percentage of the refund.
Consider
whether the individual or firm will be around to answer questions
about the preparation of the tax return months, or even years, after
the return has been filed.
Check
the person's credentials. Only attorneys, certified public
accountants (CPA's) and enrolled agents can represent taxpayers
before the IRS in all matters, including audits, collection and
appeals. Other return preparers may only represent taxpayers for
audits of returns they actually prepared.
Find
out if the preparer is affiliated with a professional organization
that provides its members with continuing education and resources
and holds them to a code of ethics.
Ask
friends and family whether they know anyone who has used the tax
professional and whether they were satisfied with the service they
received.
Reputable
preparers will ask to see receipts and will ask multiple questions to
determine whether expenses, deductions and other items qualify. By
doing so, they are trying to help their clients avoid penalties,
interest or additional taxes that could result from an IRS
examination.
Tax
evasion is a risky crime, a felony, punishable by five years
imprisonment and a $250,000 fine.
Criminal and Civil Legal
Actions
Some
return preparers have been convicted of or have pleaded guilty to
felony charges. Additionally, the courts have issued more than 290
permanent injunctions against abusive tax scheme promoters and
abusive return preparers since 2001.
Houston Tax Preparer
Sentenced to Prison
On
September, 26, 2008, in Houston, Texas, Rosalind Jones was sentenced
to 21 months in prison and ordered to pay $175,206 in restitution to
the IRS for filing false income tax returns. In January 2008, Jones
pleaded guilty by admitting that she prepared false tax returns in
order to create or to increase income tax refunds for her clients.
On the count to which she pleaded guilty, Jones admitted that the
false items she placed on the tax return in question claimed a false
income tax refund of $4,195. Without the false items, the taxpayer
was entitled to a refund of only $26.
Tax
Return Preparer Sentenced to Five Years in Prison for Filing False
Claims for Tax Refunds and Identity Theft
On
August 25, 2008, in Pensacola, Florida, Deborah R. Adams, operator of
Archer Tax and Accounting Services, was sentenced to 60 months in
prison, to be followed by three years of supervised release, and
ordered to pay $62,802 in restitution to the IRS. Adams pleaded
guilty in May 2008 to 31 counts of preparing and filing false federal
income tax returns and 13 counts of identity theft. According to
court documents, she filed 31 false federal income tax returns during
tax years 2003 through 2005. Adams also prepared false returns with
the personal identity information and Social Security numbers stolen
from former clients and had the false refunds also deposited to bank
accounts she controlled. Adams filed fraudulent claims for tax
refunds totaling $102,000.
New Jersey Man Who
Prepared Hundreds of Fraudulent Tax Returns Sentenced to Six Years
On May
14, 2008, in Newark, New Jersey Romanus Okorie was sentenced to 72
months in prison for filing fraudulent tax returns on behalf of
numerous New Jersey residents resulting in a loss to the government
in excess of $2.5 million. He was also ordered to pay $100,000 fine
and was prohibited from working as a tax preparer for three years
following his release from prison. On January 22, 2008, a jury had
convicted Okorie of 10 counts of willfully preparing materially false
tax returns. Evidence presented at trial showed that more than 100
clients were audited, and the total tax loss based on the audited
returns exceeded $1 million. The government presented further
evidence that in 2003 Okorie prepared approximately 250, and in 2004
close to 300, tax returns, all but one generating a refund. The
government estimated that the actual tax loss for the returns
prepared by Okorie – more than 600 – exceeded $4 million.
North Carolina
Professional Tax Return Preparer Sentenced to 70 months
On
February 28, 2008, in Charlotte, North Carolina, Lloyd Anthony
Bastfield, a professional tax return preparer for approximately 18
years, was sentenced to 70 months in prison and ordered to pay $6
million in restitution. Bastfield pleaded guilty in April 2007 to
conspiring to defraud the United States by filing false tax returns
claiming nearly $6 million in false claims for refunds for
individuals between 2001 and 2005, and evading over $171,000 in
personal income taxes owed by him for the years 2000 through 2004.
According to a Bill of Information, Bastfield admitted that between
2001 and 2005, he prepared and electronically filed more than 10,000
fraudulent income tax returns for individual clients which claimed
false and fictitious education income tax credits.
Phony Tax Return Preparer
Posed as CPA and Prepared Fraudulent Returns
On
October 2, 2007, in Atlanta, Georgia, Larry Vonzell Black was
sentenced to 15 months in prison, to be followed by three years of
supervised release. Black pleaded guilty to charges of filing false
claims with the IRS on July 16, 2007. According to information
presented in court, he falsely told members of the public, friends
and acquaintances that he was a certified public accountant trained
to prepare tax returns. He advertised his tax preparation services
at a booth set up in a check-cashing store in metropolitan Atlanta.
Under the guise of preparing legitimate tax returns, he obtained
personal information, including Social Security numbers and W-2
forms, from taxpayers. He then submitted false claims small portion
of the fraudulent refunds to his victims. In all, Black submitted
false claims for over $46,000.
Western Tax Service
Return Preparers Sentenced for Filing False Tax Returns
On
October 15, 2007, in Santa Ana, California, Kelly Agbonmoba David,
aka David Kelly, was sentenced to 46 months in prison. David's
co-defendant, Anthony Todd Stefani, was sentenced to 27 months in
prison. Both men had been found guilty on charges of conspiracy to
defraud the United States and of aiding and assisting in the filing
of false tax returns with the IRS. According to the indictment,
David was hired in 1999 to assist in the preparation of income tax
returns for DeAngelo Tax Service and, later, Western Tax Service.
Co-defendant Stefani was employed by Western Tax Service to prepare
income tax returns in 2001. The indictment further state that the
tax preparers were trained in how to make false, misleading and
inaccurate statements on clients' tax returns, usually without the
knowledge of their clients. The preparers at DeAngelo an Western Tax
Services prepared and filed over 11,000 income tax returns for years
1998 through 2001. Other individuals sentenced for their role in the
conspiracy were Samuel DeAngelo, sentenced on September 24, 2007, to
51 months in prison; Douglas Shields, sentenced on August 6, 2007, to
15 months in prison; Jeffrey Russell Wright, sentenced on September
17, 2007, to six months in prison followed by six months home
detention; and Erin Cordes, sentenced on September 24, 2007, to one
year of probation which includes six months of home detention.
San Jose Tax Preparer
Sentenced for Preparing False Tax Returns, Banned for Life from
Working as a Tax Consultant
On
November 1, 2007, in San Jose, California, Jonathan Wendy was
sentenced to 12 months and one day in prison to be followed by one
year of supervised release. In addition, the judge imposed two
special supervised release conditions that Wendy agreed to in the
plea agreement – a lifetime ban on working as a tax consultant, and
filing complete and accurate federal tax returns for tax years 1998
through 2005. Wendy pleaded guilty on November 1, 2006, to one count
of aiding or inducing another to file a false tax return. According
to his plea agreement, Wendy, who was a tax preparer for over 20
years, admitted that on July 27, 1999, he prepared a federal income
tax return for the 1998 tax year which falsely listed taxable income
as $94,347, when he knew the correct amount was approximately
$104,929. Wendy also admitted that he intentionally reduced the tax
liability by creating numerous false or grossly inflated deductions
on the return. In addition to the specific count to which he pleaded
guilty, Wendy admitted preparing 17 other individual tax returns and
falsely listing the taxable amount claimed one each return. As a
result of his conduct, the amount of tax owing to the government by
those taxpayers was more than $70,000.
U.S. Court Permanently
Bars Washington State Woman's Bogus “Decoding” Tax Scheme
On
August 11, 2008, an Oregon federal court permanently barred John
Fitzgerald of Portland and his three daughters – Marilyn Dial,
Martha Farr Sharp and Karen Gray – from marketing a tax fraud
scheme involving sham nonprofit corporations that customers used to
evade federal taxes. The civil injunction order also barred Noreen
MsCausland, a family associate, from promoting the scheme. Judge
Michael W. Mosman of the U.S. District Court for the District of
Oregon found that the defendants, through their business American
Family Enterprise, Inc., operated “a one stop shop” for setting
up sham nonprofit corporations in Oregon. The defendants falsely
told customers they could put their income, assets and businesses
into the sham corporations and would not have to file income tax
returns or pay taxes.
Texas Man Barred from
Promoting Home-Based Business Tax Scheme
On
February 8, 2008, a federal court barred Thell G. Prueitt of
Kingsland, Texas, from promoting a home-based business tax scheme,
falsely advising customers they could claim tax deductions for
non-deductible personal expenses, and other fraudulent deductions.
The court also found that he promoted on ATM and pay phone tax scam,
falsely advising customers that they could claim tax credits and
deductions based on artificially inflated purchase prices.
California Preparer
Promised Customers She Would Represent Them at IRS Audits
On
October 2, 2008, a federal court permanently barred Bonnie Arnel, of
Newman, California, from preparing federal income tax returns.
According to the complaint, Arnel told customer she could “find the
deductions to the IRS did not want her customers to know about.
“Arnel also allegedly promised customers that, as part of her tax
preparation services, she would represent them at IRS audits, when
she had no intention of doing so and in fact never did.
Imprisoned Tax Defiers
Barred from Preparing Tax Returns and Selling Tax Fraud Materials
On
October 17, 2008, a federal court in Las Vegas permanently barred
notorious tax defiers Irwin Schiff and his former associate, Cynthia
Neun, from promoting Schiff's fraudulent “zero tax” plan. The
pair was convicted on tax charges in October 2005 and is currently
incarcerated. The permanent injunction ensures that Schiff and Neun
cannot promote tax-fraud schemes from within prison or when they are
released from prison.
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