IRS Announces Numerous Criminal Tax Charges against Accountants and Tax Preparers

criminal tax charges accoutants

The October 17, 2016, extended filing deadline for the 2015 tax year has now arrived and will soon be in the rearview mirror. For individuals who filed for an automatic extension earlier in 2016, this now means that your tax filing is officially late and penalties and interest will apply. The penalties and interest you owe may be even greater if you owed a tax liability but failed to make a sufficient payment prior to the original deadline. Thus, at least some taxpayers will need to fix unfiled taxes in the near future. But, don’t delay. The IRS can impose penalties for both a failure to file and a failure to pay taxes for each month or part of a month where the obligation remains unsatisfied. Taxpayers who failed to file their taxes should expect may receive a letter from the IRS in the upcoming months.

However, unfiled taxes isn’t the only thing taxpayers should worry about this time of year. During peak tax filing times the IRS also makes a point to publicize tax enforcement actions taken against accountants and tax preparers. The deterrence purpose of this action is, at least, two-fold. First, publicizing tax enforcement actions against preparers is likely to reduce the incidence of similar actions by others. Second, publicizing these convictions and guilty pleas places taxpayers on notice to be on the lookout for practices that produce a result that seems too good to be true. A taxpayer who has already been taken in by a preparer who promised “a larger return than any other tax preparer” or has guaranteed other results that cannot be accomplished absent extremely aggressively or fraudulent tactics will need to correct the potential mess made by the original preparer.

Tax Preparer Permanently Barred from Tax Preparation Services due to Fraudulent Claims for Business Losses

One common method of tax fraud intended to reduce a taxpayer’s adjusted gross income and thus their tax liability is by overstating business expenses and obligations. In some instances, a preparer may simply inflate or overstate the expenses. In other more egregious instances of tax fraud, the tax preparer may fabricate business losses or expenses. In a recent tax enforcement matter, filed a lawsuit against tax preparer Christopher Chamberlin alleging that he claimed fabricated business losses for clients to minimize liabilities and increase tax refunds.

In one particular instance, Chamberlain claimed farm business expenses for clients who did not own a farm or agricultural facilities. Other claims for business expenses were filed on behalf of taxpayers who did not own a business. Other government claims against Chamberlain also included that he improperly endeavored to inflate Earned Income Tax claims to increase tax refunds for clients.

Recently a court issued an order prohibiting Chamberlain from preparing taxes on the behalf of others. The tax preparer was also ordered to deliver a copy of the injunction to any and all clients Chamberlain assisted beginning in January 2014. Chamberlain was also required by the court to turn over a list of clients he assisted to the government. One can assume that the IRS will use this client list to identify and pursue taxpayers who made inflated and fictitious claims through Chamberlain.

Owner of Tax Preparation Company Convicted of Two Counts of Tax Evasion

Unfortunately, the worst consequences a tax preparer can face are not limited to a prohibition on offering tax preparation services. Rather, some tax preparers will face criminal tax charges. In one recently prosecuted case, Semere Tsehaye, 39, owner of at least 20 St. Louis-based Instant Tax Service businesses, was found guilty of two counts of tax evasion.

At trial, prosecutors presented evidence that Tsehaye owned and operated numerous tax preparation entities in the St. Louis and Kansas City areas. Prosecutors presented documents and other evidence showing that during the 2010 and 2011 tax filing years, Tsehaye underreported the gross receipts of the business. Underreporting business revenue is one means some business owners utilize to illegitimately reduce taxable income. These tax returns would understate the company’s gross receipts approximately $547,000 in 2010 and $1.03 million in 2011.

In 2013, Tsehaye was enjoined by the courts from operating a tax preparation business. Based on the evidence described above and presented at trial by federal prosecutors, Tsehaye was convicted of two counts of tax evasion. For each count of tax evasion, Tsehaye could face up to five years in prison. Tsehaye is expected to face sentencing on January 4, 2017.

Concerned about Tax Enforcement Actions against a Tax Preparer?

If you are a tax preparer and you, your firm, or a close colleague are facing an audit, investigation, or criminal tax charges it is important to protect yourself from aggressive auditors and investigators. Likewise, if you tax preparer has come under suspicion, it is prudent to seek professional review of your files to rule out errors or potential criminal tax liability. However, if criminal tax enforcement is a concern, be sure to contact a tax attorney. Only the attorney-client privilege is sufficient to protect any disclosures you may make. If you disclose to your original preparer you run the risk that he or she will be subpoenaed or decide to blame you for the alleged improprieties.

To speak to a tax attorney regarding you tax concerns call the Tax Law Office of David W. Klasing today. Mr. Klasing is a dually certified tax attorney and CPA with more than 20 years of practical experience. To schedule a reduced-rate consultation, call our tax law firm at 800-861-1295 today.