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Perform Your Due Diligence Prior to Investing into Another’s Tax Scam

Disguising Personal Luxuries as Business Expenses Can Equal Tax Fraud
August 10, 2015
Tax Preparer Fraud Can Lead to Huge Fines and Criminal Penalties
August 17, 2015

Perform Your Due Diligence Prior to Investing into Another’s Tax Scam

No person likes to turn-over their hard-earned money to the government to pay taxes. Many people, regardless of their income level therefore look for ways that they can reduce or eliminate their tax burden. While having ample motivation in working to improve one’s handling of tax obligations and finances is certainly commendable, a taxpayer should be sure that he or she places trust in a reputable tax professional. Furthermore, the taxpayer should think critically about the advice and promises made by an accountant or other tax prepare. Since the taxpayer is ultimately responsible for tax penalties that can be imposed, it is also the taxpayer’s responsibility to seek a second opinion if tax advice seems overly aggressive or too good to be true.

However, the desire to pay less in taxes can overwhelm the better instincts of many taxpayers. Furthermore, tax scams and fraudulent tax plans are often slickly presented in such a way where a kernel of truth is spuriously distorted in an appealing manner. If you are accused of willfully participating in the fraudulent scam, a tax professional can work to clear your name and mitigate penalties the IRS is seeking.

Tax Scams by Tax Preparers Can Cause Big Problems for Taxpayers

If a tax prepare claims that he or she can save you more money than anyone else possibly can and charges a premium fee that could include a portion of any tax refund, the taxpayer should immediately be on guard. This, essentially, made up the sales pitch forwarded by former Missouri tax preparer Tanya Nichols. Ms. Nichol’s marketing of her refund scheme was even more brazen. She and others who were paid finders’ fees promised taxpayers that they would receive IRS tax refunds regardless of their finances. They sometimes promised potential clients that they would receive “free money” from the IRS if they worked with her.

In reality, Ms. Nichols was actually filing fraudulent tax returns to generate improper refundable tax credits including the child tax credit and earned income tax credit. By filing false returns, Ms. Nichols was able to generate tax refunds that were greater than what her clients were entitled to receive. Nichols kept some of the fraudulent proceeds and returned a portion to the taxpayer. In June 2015, Ms. Nichols was sentenced after pleading guilty to mail fraud, conspiracy to obstruct or impair the IRS in assessment and collection of taxes, and theft of U.S. government property. Ms. Nichols was ordered to repay more than $600,000 in restitution and was sentenced to 57 months in prison. Following her release, she will serve three years of supervised release. Taxpayers taken in by her scam must correct their fraudulently filed taxes or face additional consequences.

Tax Preparers Who Propose the Inclusion of Fraudulent Business Expenses Do Not Have Client Interests at Heart

For a number of years, outside appearances suggested that Paradise South Tax Services was a successful and upstanding tax preparation business in Houston.  However like Ms. Nichols, this tax preparation business was also engaging in less than accepted methods to secure large refunds for clients. In this case, rather than utilizing fraudulently claimed tax credits, former tax preparer Diane Caldwell Larry included fraudulent business expenses from non-existent side-businesses and also included overstated itemized deductions. When some of these fraudulent filings were audited, Ms. Larry doubled-down on the scam by preparing illegitimate documents to support some of the purported deductions.

For her role in the scam Ms. Larry was sentenced to one year and one day in prison and one year of supervised release. She must also repay nearly $170,000 in restitution for her 33 fraudulently prepared tax returns.

Tax problems or Tax Questions Due to a Tax Preparer?

When you decide to work with a tax preparation business, you are essentially investing in their tax practice. Like with any investment, if you make a good decision your taxes and finances will be properly handled and you will be able to avoid losses due to penalties from an audit or the consequences of serious tax charges. By contrast, a poor investment leaves one exposed to a significant amount of risk. In this case it is the legal risk of facing an embarrassing and costly tax enforcement action.

If you have questions regarding advice offered by a tax preparer or are working to clean-up difficult tax problems created by a tax preparer, the Tax Law Offices of David W. Klasing can help. To schedule a reduced-rate tax consultation, call our firm at 800-681-1295 or contact us online.