The vast majority of accountants and tax preparers are honest, hard-working individuals who strive to recommend what appears to be sound decisions for their clients. However, there are some unscrupulous tax preparers who will attempt to exploit taxpayers and the tax system despite their professional standing, the duty that is owed to their client, and the deterrent effect of an IRS investigation and potential criminal prosecution. Tax preparer schemes can take many forms. However, the civil and criminal consequences are rarely limited to tax preparers because the tax payer is ultimately responsible for the contents of his or her tax return filings. In nearly all instances of tax preparer fraud the taxpayers will, at minimum, have to correct errors. Many times this means that the defrauded taxpayer will have to pay back taxes which may include significant fines and penalties. If it is believed that the taxpayer willfully participated in the scheme, criminal prosecution of the taxpayer may also occur.
A recent Department of Justice (DOJ) tax conviction shows how tax preparers can engage in fraudulent activities, take steps to cover-up the initial fraud, and then how they may attempt to leverage their ill-gotten gains. However, the federal jury conviction also shows that the IRS and DOJ are able and willing to prosecute fraudulent tax dealings. Furthermore, federal jurors are willing to convict those that defraud taxpayers and exploit the US tax system for their own gain.
From approximately 2005 until 2010 Jacqueline and Gladstone Morrison – husband and wife – operated Jacqueline Morrison & Associates, a tax preparation business, in Fort Worth, Texas. The Morrisons were both convicted of willfully aiding and assisting the preparation and submission of false and fraudulent income tax returns. The Morrisons had fraudulently inflated client business losses on claimed Schedule C business losses when they knew that their client was not entitled to such deductions. These losses were then used to offset wage income which resulted in substantial tax savings for many businesses. For this service the Morrisons charged higher than average fees and fostered customer loyalty and referrals. Through this conspiracy the tax preparers earned more than $2 million in fees from clients. However, the preparation of fraudulent returns was only the first step in their tax scheme.
The Morrisons then attempted to leverage their client base by entering into a franchise agreement with Express Tax Services, a subsidiary of H&R Block. However, following their entrance into this agreement the Morrison had their ability to file taxes electronically terminated by the IRS due to allegations of fraud. To protect their contract, the Morrisons attempted to operate their business and file client taxes by utilizing the EFIN of a business associate. The Morrisons further protected their contract by falsely representing to Express Tax that their company was not under criminal investigation.
While providing false information regarding the nature of their business to Express Tax, Gladstone Morrison moved to sell the business to an individual identified as V.H. To facilitate the sale, Gladstone Morrison falsely represented the Express Tax franchising agreement as merely a “co-marketing agreement.” After this sale, they then attempted to sell the same assets, yet again, this time to RealTax Ventures, LLC while representing that their business was not under criminal tax investigation. In essence, the Morrisons attempted to sell the same asset multiple times while providing false representations and assurances regarding the business and its assets.
In all, the couple were convicted on multiple counts of tax crimes and other related crimes. Jacqueline and Gladstone Morrison each were conviction for conspiracy to aid and assist in the preparation and presentation of false and fraudulent tax returns. Gladstone Morrison was convicted on 12 counts of aiding and assisting in the preparation and presentation of false and fraudulent tax returns while Jacqueline was convicted on 13 counts. The couple was also convicted on multiple counts of wire fraud.
In all, they each face nearly 15 years in federal prison along with nearly $18 million in restitution. Because Gladstone Morrison is originally from Jamaica and had traveled extensively in the past seven years to China, Costa Rica, Dominican Republic, France, Germany, Israel and Mexico he was considered a flight risk and he has been held in custody since his October 2014 conviction. Jaqueline Morrison has been ordered to begin serving her sentence on March 13.
Further illustrating the Morrisons’ blatant disregard for their clients and the tax system, they also attempted to protect themselves from federal prosecution by shifting responsibility onto their clients. The Morrisons created a series of forms that they required the client to sign at the time of the return’s preparation. The forms were designed to provide legal protections for the Morrisons, albeit ineffective ones, for even implausible information contained on the return.
Unfortunately it is the honest taxpayer who must often deal with the fallout from a fraudulent tax preparation scheme. Aside from penalties and fines due to the underpayment of tax obligations, a criminal investigation may also be launched if it is believed that you participated in the scheme knowingly or willfully. Whether you are facing prosecution as a tax preparer or you are a taxpayer facing the consequences of preparer fraud, the Tax Law Offices of David W. Klasing, work with you to mitigate the potential consequences you face. To schedule a reduced rate tax consultation, contact me online or call (800) 681-1295.