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Tax Preparer Fraud is Corrosive to the Tax System and Can Result in a Prison Sentence

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Tax Preparer Fraud is Corrosive to the Tax System and Can Result in a Prison Sentence

Throughout cities and communities in the United States, tax preparers, and other professionals occupy a position of public trust. Taxpayers rely on and trust in these individuals to provide accurate, timely advice regarding an array of tax obligations. When tax preparers act as they should and only recommend taxpayers to take well-supported tax positions, all parties benefit and prosper. However, the nature of competition can motivate some preparers to abuse the trust their position provides. These tax preparers may make misstatements of fact such as inflating expenses or concealing income to minimize tax due and trigger a large, unjustified tax return.

Unfortunately, tax preparers who take such action open the door to a word of trouble for their clients and themselves. Clients affected by a dishonest preparer are likely to be audited and on the hook for unpaid tax liabilities plus interest and penalties. The preparer him- or herself is likely to face criminal tax charges that may include a lengthy federal prison sentence.

Courts Are Reluctant to Believe Tax Preparers Who Submit False Tax Returns While Blaming the Computer

In one recently reported tax preparer fraud case in Mississippi, Preparer Kushauntia Jones, owner of Mobile Express Tax and Accounting Service came under investigation after submitting multiple client tax returns with significant irregularities. Jones and Mobile Express Tax and Accounting Services apparently engaged in fraud by first presenting taxpayers with an accurate written copy of their tax return. After the taxpayer examined and signed the correct return, Jones would then e-file a bogus electronic return with the IRS and state of Mississippi that overstated expenses, understated income, or otherwise improperly increased the tax refund. Jones would then direct officials to deposit the additional monies to her business accounts.

When questioned about the discrepancies, Jones was unable to fully explain the conduct or the filings. She did, however, offer a partial explanation for her acts: the computer malfunctioned and may have entered erroneous data on a tax return. Likely in recognition of how her sole argument was utterly unconvincing, Jones pleaded guilty to the charges against her. For tax evasion and computer fraud convictions, Jones was sentenced to 20 years in jail. Prosecutors believe that Jones fraudulently obtained at least $300,000 in overstated tax refunds.

Preparers Who Guarantee a Large Return without Assessing Your Taxes Should Raise Red Flags

While the previous scheme was likely difficult for a taxpayer to detect, any tax preparer who immediately guarantees a minimum tax refund amount, that you will receive a refund, or the largest tax refund in town should instantly trigger concerns in the mind of the taxpayer. While everyone wants to receive a refund on Tax Day, the simple fact of the matter is no tax professional can reasonably render an opinion or tax position without first assessing the financial standing and circumstances faced by the client. When financial circumstances are unfavorable, tax preparers who guarantee a return of a certain amount may be forced to choose between disappointing the client and having them take their business elsewhere and engaging in tax fraud.

Unfortunately, some tax preparers will choose to engage in tax fraud to attract and keep clients. Consider the case of tax preparer Robert Coates of Ohio. According to prosecutors, Mr. Coates would attract clients by promising a tax refund regardless of their financial circumstances. One advertisement seemed to promise tax refunds for individuals even if they did not work or have income.

In reality, Coates filed client income taxes that contained a number of misrepresentations and misstatements. According to prosecutors Coates routinely overstated exemptions and deductions like the Earned Income Tax Credit. Coates would also fraudulently overstate educational and other expenses to generate a refund. Prosecutors claim that Coates filed at least 170 fraudulent returns for clients in the 2011 tax year causing a tax loss of $445,450. $167,422.63 was diverted into the bank and financial accounts controlled by Coates. Coates was recently sentenced to 18 months in prison followed by 3 years of supervised release. He is also required to pay restitution of nearly $450,000.

Tax Problems Due to Returner “Mistakes?”

If your tax preparer made “mistakes” or errors on your taxes, it is essential to address the issue. If the IRS and DOJ come after your preparer, it is feasible that the original preparer will attempt to throw clients under the bus to protect his or her license and professional reputation. Furthermore, anything you disclose to the original preparer is fair game to be used against you should an audit or other tax proceeding arise.

In circumstances like these, it is best to seek out a tax attorney with criminal tax defense experience as quickly as possible. Only the attorney-client privilege is sufficient to give you the peace of mind you need to make disclosures and assess the situation you face without running the risk that it will be later used against you. The tax lawyers of the Tax Law Office of David W. Klasing can provide guidance and fight for you every step of the way. To schedule a confidential and reduced rate initial consultation, call our Irvine or Los Angeles law offices at 800-681-1295 today.