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In March 2018, the United States Department of Justice (DOJ) sued Lagrange, Georgia-based tax preparer Lucrezia Finch Henderson. The lawsuit, which sought to bar Henderson from continuing to provide tax preparation services, was filed after investigators alleged various forms of return preparer fraud. According to the lawsuit, Henderson knowingly helped clients engage in tax fraud by inventing businesses and falsely claiming tax credits on their behalf. The DOJ ultimately prevailed against the defendant, announcing in June 2018 that Henderson would be permanently banned from providing return preparation services. This case should serve to remind all tax preparers of the professional dangers that lie in committing or even facilitating tax fraud – up to and including permanent disbarment from practice.
The DOJ publicly announced its lawsuit against Henderson on March 27, 2018. Less than three months later, a new press release featuring updates on the case announced that Henderson was “permanently enjoined… from preparing federal income tax returns for others” as per federal court orders.
The enjoinder against Henderson, who formerly operated a tax preparation business in western Georgia, arose from allegations of tax preparer fraud – a pervasive issue which, as noted in the DOJ’s initial press release, made the Internal Revenue Service’s most recent “Dirty Dozen,” a list highlighting the 12 worst tax scams of 2018.
According to the press releases, Henderson supplied false information on multiple tax returns she prepared for her clients. In some instances, Henderson invented fake businesses, allowing clients to deduct business expenses that were never actually incurred. (For example, the IRS permits qualified taxpayers – the key word being “qualified” – to deduct employee pay, retirement plans, and business rent.)
To quote the press release, “Henderson falsely reported on several of her customers’ returns that each had a business that earned no money and had tens of thousands of dollars in expenses.” As our criminal tax defense attorneys have discussed in the past, the IRS is all but certain to detect fraud if your tax preparer falsely claimed business expenses.
In other instances, Henderson falsely claimed education tax credits for clients who were not actually enrolled in college. For instance, the IRS allows qualified taxpayers (i.e. enrolled students) to claim the Lifetime Learning Credit (LLC), which the IRS notes may be “worth up to $2,000 per tax return.” However, once again, the operative word is “qualified” – a term which could not, in this case, be applied.
Ultimately, the IRS performed tax audits of approximately 110 returns prepared by Henderson. These IRS tax audits revealed that “Henderson understated her customers’ tax liabilities by more than $650,000” in total.
The press releases did not specify whether Henderson would be criminally charged for participating in the tax fraud schemes. However, 26 U.S. Code § 7206(2) (pertaining to fraud and false statements, aid or assistance) makes it a felony offense to “willfully” (knowingly) render aid or assistance concerning any tax return “which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present” the tax return. The penalty for making, subscribing, and filing a false return – or helping another person to do so (known as “aiding or assisting a false return”) – is a fine of up to $100,000, in addition to a potential prison sentence of up to three years. For in-depth information about this offense, we would encourage you to read our article on making or subscribing a false tax return.
Deliberately filing an inaccurate tax return, whether on your own behalf or that of another taxpayer, is a serious offense that can lead to a host of unwanted civil and/or criminal consequences. Not only may you be fined or imprisoned, but depending on your profession, could also face severe disciplinary actions, potentially resulting in permanent loss of the business or career you have spent your life building.
Regardless of whether you are a CPA who has been accused of committing tax preparer fraud, or simply a taxpayer who has questions about compliance with the California or federal tax code, it is vital to work with an effective and knowledgeable tax attorney. At the Tax Law Office of David W. Klasing, we have more than 20 years of experience providing state and federal tax preparation services, tax audit representation, and CPA license defense representation for tax professionals who are faced with criminal charges. For a reduced-rate consultation, contact us online or call the Tax Law Office of David W. Klasing at (800) 681-1295 today.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
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