In March 2018, Missouri tax preparer Asmerom “Ace” Keleta, 33, appeared in St. Louis federal court to hear the jury’s verdict after a four-day trial over allegations the defendant prepared false income tax returns and conspired to defraud the United States. Prosecutors accused Keleta, who began operating a tax preparation service called University City Tax Service during 2012, of conspiring with several employees to prepare fraudulent tax returns for various University City customers. While many schemes of this type involve the deliberate underreporting of income, the tax preparers in this case engaged in another common tax fraud scam, falsely claiming assorted federal tax credits for which clients were, in reality, ineligible. The objective of the scam was to charge clients higher fees in exchange for illegally obtaining larger refunds; but the outcome, like that of most criminal tax cases, was a guilty verdict – which resulted in stiff penalties at Keleta’s sentencing hearing in August.
A press release issued by the United States Department of Justice (DOJ), whose Tax Division often collaborates with the Criminal Investigation Division of the Internal Revenue Service (IRS-CI), indicates that Keleta conspired with University City Tax Service employees Teklom Paulos and Miyoshi Lewis to defraud the U.S. government by engaging in tax evasion. While tax evasion, or tax fraud, can take numerous guises – some especially common examples, as profiled in our article discussing the top tax scams of 2018, include padding deductions and using abusive tax shelters – the core of this offense, defined at 26 U.S. Code § 7201, is making a deliberate (“willful”) attempt, using any scam or method, to “evade or defeat any tax imposed” by the Internal Revenue Code, whether pertaining to income taxes, employment or self-employment taxes, sales taxes, or other types of federal taxes.
In this particular case, Keleta and co-conspirators engaged in tax fraud by falsely claiming, on various clients’ tax returns, eligibility for (1) federal fuel tax credits, such as the Credit for Federal Tax Paid on Fuels, which is claimed using Form 4136, and (2) the American Opportunity tax credit (AOTC), worth up to $2,500 per qualifying student, which is claimed using Form 8863.
In addition, the conspirators also “created false Schedule C income in order to fraudulently maximize the Earned Income Credits.” The term “Schedule C income” refers to profits from sole proprietorships (and moreover, is a common trigger for IRS tax audits, as our tax audit attorneys have discussed). Perhaps the best-known example of “Earned Income Credits” is the Earned Income Tax Credit (EITC), which is available to eligible workers and business owners “with low to moderate income.” (Our criminal tax attorneys have profiled previous cases in which other defendants have also been accused of falsely claiming the EITC – another form of tax fraud singled out by the IRS in its most recent “Dirty Dozen” list of scams.)
According to the press release, “Keleta, as the owner of University City Tax Service, received a percentage of the clients’ inflated tax returns.” While the size of this percentage was not specified, the press release did note that Keleta was ordered to pay the IRS approximately $662,645 in restitution. Keleta, who was sentenced in August after a federal jury returned a guilty verdict in March, was also ordered to serve a prison sentence of 60 months, or five years.
In a public statement, U.S. Attorney Jeff Jensen said of Keleta, “This tax preparer exploited tax credits designed to assist the working poor and middle-class families who seek higher education. This stiff sentence will help protect the integrity of our voluntary tax system.”
For more information about IRS criminal investigations and the criminal penalties for tax offenses, we would encourage readers to review our articles discussing tax evasion versus tax avoidance, how income tax evasion is punished, and how civil audits can lead to criminal investigations. You can also explore our tax evasion archives, or view some of the recent tax crime statistics compiled by the United States Sentencing Commission (USSC).
All taxpayers, including professional tax preparers, risk incurring severe penalties any time they fail to comply with state or federal tax laws – especially in cases where such failure is intentional. Whether a taxpayer falsifies information to qualify for tax credits, inflates their expenses or deductions, or fails to file a return altogether, the outcome may be a criminal charge – and later, a lengthy prison sentence.
If you or your business has been selected for a tax audit or contacted by the IRS, it is in your best interests to consult with a knowledgeable tax evasion lawyer right away for legal assistance. To arrange a reduced-rate consultation with an experienced tax attorney, contact the Tax Law Office of David W. Klasing online, or call (800) 681-1295.
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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