It is true that few people want to pay more in taxes than they are required to pay. It is also true that some tax preparers will make big promises regarding providing “the largest refund” or the “lowest tax obligations.” While there is certainly some room for advertising language and some “puffing” regarding a tax preparer’s services, taxpayers should carefully assess the statements made to secure their business. If a tax preparer seems unconcerned with the details of your finances and taxes and simply guarantees a tax refund, red flags should be raised.
Mistakes or intentional misstatements of fact or law can create major problems for the taxpayer and for the tax preparer. At a minimum, the taxpayer will have an obligation to correct the misstatements to the IRS. He or she may face additional tax obligations with penalties and interest. If the IRS agent believes that he or she was aware of the scheme or plan to fraudulently reduce the tax obligation, additional tax charges could be advanced. The tax preparer can face an array of criminal tax charges and a prohibition on continuing to prepare federal taxes for other individuals.
Officials have accused tax preparer Joseph Gillies of preparing hundreds of fraudulent tax returns. The tax preparer is accused of reporting false information on the tax returns to reduce clients’ income tax liability or to inflate tax refunds. In particular, Gillies is accused of making claims that his clients owned or operated companies when they did not. From these factious companies, Gillies would claim often significant business losses for his clients. The business losses were used to generate significant refunds for many clients.
In at least some cases, clients told investigators that they did not report having a business or business losses when the provided their information to Gillies. In all, the tax fraud scheme appears to have resulted in a tax loss of at least $760,000. It is important for taxpayers to recognize that fraudulent or phony business deductions are an extremely common form of tax fraud. If you suspect that your tax preparer has made false claims on your taxes and you have not filed taxes, it is wise to seek a second opinion. If you have already filed your taxes and suspect that there were problems, seeking the guidance of a tax attorney is a prudent decision.
It is essential for taxpayers to remember that it isn’t quite so simple to deflect the blame to their tax preparer. In fact, if the IRS or Department of Justice detect potential fraud on your taxes it is common for the tax preparer to blame the client. After all, they are not only protecting their professional reputation but also their livelihood.
There is another reason why it isn’t quite so easy for taxpayers to blame their preparer. This is the because when completing and filing their taxes, all taxpayers agree to the following:
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
If you have not previously read this statement you may not realize that by signing your 1040 tax return you certify that you:
Thus, a taxpayer should have theoretically caught false deductions and false claims of business ownership prior to filing his or her taxes. Once again, at a minimum, the taxpayer will have a potentially significant unpaid tax obligation along with penalties and interest. At worst, the taxpayer may be swept up into the larger criminal investigation and tax enforcement action centered around the activities of the tax preparer.
If you have been contacted by the IRS for an audit or other action due to tax preparer “mistakes,” do not return to your original preparer or accountant. The information you may disclose to these individuals can be subpoenaed since, where it is recognized, the accountant-client privilege is relatively weak. If you end up facing criminal tax charges, only the attorney-client privilege is robust enough to protect your disclosures. Therefore, seek the guidance of a tax defense attorney.
To schedule a confidential, reduced-rate consultation at our Irvine or Los Angeles law offices, call The Tax Law Offices of David W. Klasing at 800-681-1295 today. If you would like more information about why you should only hire a tax attorney when facing a tax audit or other enforcement action, please see our YouTube video on the benefits of working with a tax lawyer.