Return Preparer Fraud generally involves the preparation and filing of false
income tax returns by preparers who claim inflated personal or business
expenses, false deductions, unallowable credits or excessive exemptions on
returns prepared for their clients. Preparers may also manipulate income figures
to obtain fraudulent tax credits, such as the Earned Income Tax Credit.
In some situations, the client (taxpayer) may not have knowledge of the false
expenses, deductions, exemptions and/or credits shown on their tax returns.
However, when the IRS detects the false return, the taxpayer must pay the
additional taxes and interest and may be subject to penalties and criminal
prosecution.
The IRS Return Preparer Program focuses on enhancing compliance in the
return-preparer community by investigating and referring criminal activity by
return preparers to the Department of Justice for prosecution and/or asserting
appropriate civil penalties against unscrupulous return preparers.
While most preparers provide excellent service to their clients, the IRS
urges taxpayers to be very careful when choosing a tax preparer. You should be
as careful as you would in choosing a doctor or a lawyer. It is important to
know that even if someone else prepares your return, you are ultimately
responsible for all the information on the tax return.
Helpful Hints When Choosing a Return Preparer
Avoid tax preparers who claim they can obtain larger refunds than other
preparers
Avoid preparers who base their fee on a percentage of the amount of the
refund.
Use a reputable tax professional who signs your tax return and provides
you with a copy for your records.
Consider whether the individual or firm will be around to answer questions
about the preparation of your tax return months, or even years, after the
return has been filed.
Review your return before you sign it and ask questions on entries you
don't understand.
No matter who prepares your tax return, you (the taxpayer) are ultimately
responsible for all of the information on your tax return. Therefore, never
sign a blank tax form.
Find out the person’s credentials. Is he or she an Accredited Tax
Preparer, Enrolled Agent, Certified Public Accountant (CPA), Licensed Public
Account or Tax Attorney? Only attorneys, CPAs and enrolled agents can
represent taxpayers before the IRS in all matters including audits, collection
and appeals. Other return preparers may only represent taxpayers for audits.
Find out if the preparer is affiliated with a professional organization
that provides its members with continuing education and resources and holds
them to a code of ethics.
Ask questions. Do you know anyone who has used the tax professional? Were
they satisfied with the service they received?
IRS cautions taxpayers to be wary of claims by preparers offering larger
refunds than other preparers. Check it out with a trusted tax professional or
the IRS before getting involved.
Tax evasion is a risky crime, a felony, punishable by five years imprisonment
and a $250,000 fine.
Criminal Investigation Statistical Information
FY 2002
FY 2003
FY 2004
Investigations Initiated
254
229
206
Prosecution
Recommendations
89
169
167
Indictments/Information
61
109
121
Convictions
64
67
117
Incarceration Rate*
86.8%
83.7%
84.4%
Avg. Months to Serve
23
19
19
*Incarceration may include prison time, home confinement, electronic
monitoring, or a combination.
Criminal and Civil Legal Actions The following case summaries are excerpts from public record documents on
file in the court records in the judicial district in which the legal actions
were filed.
Tax Preparer Sentenced to 33 Months On Dec. 16, 2004, in Hartford, Conn., Patrick A. Triumph, a self-employed
tax return preparer, was sentenced to 33 months in prison to be followed by
three years supervised release. In July 2004, Triumph was indicted on 38 counts
of aiding and abetting in the preparation of false tax returns, one count of
interfering with the administration of IRS laws and one count of knowingly and
willfully failing to appear in court when required. Triumph was found guilty by
jury on Sept. 20, 2004, on 10 counts of aiding and abetting in the preparation
of false tax returns.
Court Bars South Florida Man From Selling Bogus Trusts and Preparing
Federal Tax Returns for Others
On Dec. 3, 2004, in Ft. Lauderdale, Fla., Louis Ratfield of Lake Worth, Fla.,
was permanently barred by a federal court from preparing federal income tax
returns for others and from representing customers before the IRS. Ratfield
also was barred from selling a fraudulent tax scheme involving sham trusts.
According to papers filed in the case, Ratfield told customers they could use
his trusts to get “tax deductions for the expenses incurred in being alive.”
Court Bars Ohio Men’s Fraudulent Tax Schemes
On Nov. 8, 2004, in Akron, Ohio, James L. Binge and Terrence A. Bentivegna were
permanently barred by a federal court from preparing income tax returns for
customers and from representing customers before the IRS. The court found that
the two Canton-area men prepared income tax returns that hid customers’ income
and claimed improper deductions. They also sold sham trusts and falsely advised
customers that they need not report income earned within the United States.
Binge and Bentivegna were also barred from selling or promoting tax fraud
schemes.
Sacramento Tax Preparer Sentenced to 21 Months in Prison for False Tax
Return Scheme On Nov. 4, 2004, in Sacramento, Calif., Brent Daniel Shaw was sentenced to
21 months in prison in connection with his participation in a scheme involving
the filing of false returns with both the California Franchise Tax Board (FTB)
and the Internal Revenue Service (IRS). Shaw pleaded guilty to mail fraud,
aiding and assisting in the preparation of a false income tax return and forging
endorsements on treasury checks. Shaw admitted that he would provide his tax
return clients with a correct copy of their state and federal income tax
returns, and then would alter the returns prior to actually sending them in to
the FTB and the IRS. The returns Shaw submitted without the knowledge and
consent of his clients included bogus deductions to reduce the taxpayers’ state
and federal tax liability, which in turn caused the issuance of larger refunds
than were actually due. Upon receipt of falsely inflated refund checks, which
Shaw directed the IRS and FTB to mail directly back to him, Shaw would forge his
clients’ signatures and personally deposit or cash the refund checks. Shaw then
issued new checks to his clients for the amount of the refund they were led to
believe they were getting. Shaw improperly kept the difference between the
correct refund amount and the fraudulent and inflated refund amount.
Irving, Texas, Tax Preparer Sentenced On Oct. 21, 2004 in Irving, Texas, Leanne Denice Shrout was sentenced to 36
months in prison following her guilty plea in May 2004. Shrout, who operated
Executive Financial Consultants, pleaded guilty to three counts of aiding and
assisting in the preparation and presentation of a false and fraudulent tax
return.
Shrout was a trained tax return preparer however, she would inaccurately and
falsely advise and counsel her clients that the following things were deductible
on the Schedule A form: personal clothing worn to work; personal hygiene items;
vitamins; gym fees; haircuts; manicures and pedicures; mileage to and from work;
and money spent at restaurants. Shrout also admitted she prepared amended tax
returns for clients using basically the same methodology and claiming the
taxpayer was owed more. She admitted to preparing at least 788 false tax returns
or false amended tax returns approximately beginning in 1999 and continuing
through June 2002.
Court Stops Fraudulent Tax-Return Preparer
On Oct. 19, 2004, in Norfolk, Va., Ronald M. Green was permanently barred by a
federal court from preparing federal income tax returns for others and
representing people before the IRS. The court found that Green had prepared
fraudulent tax returns for customers in Virginia, Maryland, Pennsylvania, New
York, South Carolina, Alabama, Texas, Arizona and California.
Hamden Tax Preparer Sentenced to Four-Year Federal Prison Term On Oct. 13, 2004, in New Haven, Conn., John K. Cannon was sentenced to 48
months in prison followed by one year of supervised release for assisting
clients of his tax preparation business with filing materially false federal
income tax returns and for failing to file his own federal income tax return for
the 2001 calendar year. Cannon was also ordered to pay all back taxes with any
penalties and interest and accepted a permanent injunction that will bar him
from engaging in the business of preparing income tax returns or from further
acting as an income tax preparer in the future. Cannon, who had been
self-employed as a tax preparer for approximately 40 years, admitted that
between 1999 and 2001, he willfully prepared hundreds of federal income tax
returns in which he falsely represented that his clients were lawfully entitled
to claim itemized deductions, business expenses, rental expenses and other
deductions to which they were not entitled. Cannon also acknowledged that he
intentionally sought to interfere with the Internal Revenue Service's ability to
investigate and audit his preparation of those returns and that as a result of
his actions he deprived the IRS of nearly $1 million in tax revenue. Cannon
further admitted that he willfully failed to file his own income tax return for
the calendar year 2001, as required by law, despite earning more than $250,000
from his tax preparation business that year.
Where Do You Report Suspected Tax Fraud Activity?
If you suspect tax fraud or know of an abusive return preparer, you should
report this activity to your nearest IRS office. This information can be
communicated in writing or by phone. You can contact the IRS by phone at
1-800-829-0433.
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