Assisting client comply with their reporting obligations is rarely a simple or straightforward endeavor due to the myriad of obscure and non-intuitive informational and income, payroll, sales, excise, import, transfer (ect.) tax filing obligations that exist. It is no surprise that many people to turn to a professional and utilize a tax preparation service to handle their tax and reporting obligations for the same reason. However, taxpayers must be wary when selecting a tax preparer because some preparers may be blinded by greed and take clandestine self-serving actions that potentially opens up the public to long-term liability for fraudulent tax filings. Some preparers come to understand that if they fraudulently generate the lowest tax liabilities or the largest refunds for their clients in town that their practice will quickly grow to the point that they have clients lined up around the block to come see them via the power of word of mouth. They commit fraud, for example, by claiming personal expenses as business expenses, omitting income, claiming credits that the client is not entitled to and even occasionally have the gall to manufacture false receipts and attempt to forge bank statements to hide the fraud once one of their clients inevitably comes under audit.
Tax returns are filed under the penalties of perjury and taxpayers sign a jurat that states they have examined the return and its accompanying schedules and are representing to the government the return to be accurate. So, even if the taxpayer seemingly has nothing to do with the fraud perpetuated by the preparer that leads to tax evasion, or other fraudulent acts by the tax preparer, the taxpayer still remains ultimately liable for at best the underlying evaded tax liability, penalties and interest, to at worst, investigation and potential criminal prosecution if the taxpayer if found to have participated in a conspiracy with the preparer to commit income tax evasion and therefore a potential felony co-defendant. Problems created by a rogue tax preparer can be costly and take years to fully recover from. If a tax preparer offers a deal that appears too good to be true, at minimum, the taxpayer should seek a second opinion regarding this advice or promise or work product.
Up until roughly 2012, the David Kalai and his son Nadav Kalai served as principals of United Revenue Services, Inc. doing business in California, Maryland, and New York. However by June 2012, the Kalais and their once ostensibly legitimate and successful business were under siege facing multiple federal criminal indictments. The Kalais were indicted on charges alleging that they filed false income tax returns for clients that did not disclose the existence of foreign accounts in excess of $10,000. Furthermore the Kalais were charged with setting up accounts and entities to conceal the ownership of these foreign accounts. In one instance, the Kalais established an offshore company in Belize. In other instances they assisted clients in opening secret accounts at Israeli and Luxembourger banks.
At trial, evidence showed the Kalais were the true owner of the Belizean corporation and that both David and Navad Kalai had failed to file FBARs for 2008 and 2009 despite having more than $300,000 in foreign accounts. In December, the Kalais were both convicted of conspiracy to defraud the IRS and two counts of failing to file an FBAR (FinCen form 114). For these convictions, David Kalai was sentenced to three years in prison after which he will serve three years of supervised release while subject to home confinement. David Kalai also must pay a fine of $286,000. Navad Kalai was sentenced to serve 50 months in federal prison followed by an additional three years of supervised release. He is also subject to a $10,000 fine.
And as one more stark reminder that schemes by tax preparers can have devastating consequences for taxpayers: Three of the Kalais’ clients who testified against the Kalais have pleaded guilty to tax felonies themselves. Other clients of the Kalais,’ who were investigated but not charged with tax crimes, nevertheless, undoubtedly, were forced to correct their inaccurate tax filings including, at best a 20% negligence penalty on any underpaid tax liability, to at worst a civil 75% fraud penalty, plus interest, back to the original filing date of the return, not to mention having to deal with a tremendous amount of stress and the unavoidable representation expense (incurred by the more intelligent clients) as a result of being investigated themselves.
If a tax preparer promises a refund without even looking at your taxes or guarantees a bigger refund than anyone else, a wise taxpayer should start asking questions. In another tax scheme advanced by tax preparers running a chain of tax preparation companies known as Mo Money Taxes, three of Mo Money’s clients were indicted on criminal tax charges. The indictments claimed that Mo Money’s preparers fabricated or inflated fraudulent tax credits to decrease the amount owed in taxes by its clients. The indictment alleges the tax preparers claimed the Earned Income Tax Credit (EITC) and the American Opportunity Credit improperly. If convicted, all three individuals face a prison sentence. The founders of Mo Money face sentences ranging from 20 years or more.
Interestingly, this is not the first time the Mo Money chain has been in trouble. In 2012, franchise owner Jimi Clark was indicted for tax fraud due to improperly claiming educational tax credits. He would plead guilty in 2013 and be sentenced to 20 months in federal prison. Also in 2013, the DOJ sought to shut-down the firm.
Tax preparers and taxpayers who are charged with tax crimes face serious consequences including the possibility of a prison sentence, the cost of prosecution, a $250,000 penalty and game over amounts of restitution especially in the case of convicted preparers where they are forced to repay all of the tax liability that they deprived the government of via fraud. The experienced and dedicated tax professionals of the Tax Law Offices of David W. Klasing can fight to mitigate the consequences you face for alleged improper actions and tax crimes. To schedule a reduced-rate tax consultation call our firm at 800-681-1295 or contact us online today.