Man Allegedly Falsified Returns to Maximize EITC | AccountingWEB

Man Allegedly Falsified Returns to Maximize EITC

The Justice Department announced that it has asked a federal court in Chicago to bar Bruce E. Grant and his business, Quick Check Limited, from preparing tax returns. The civil injunction suit alleges that Grant falsifies customers' income on their tax returns, frequently by fabricating business income and expenses, in order to claim the maximum earned income tax credit (EITC) for them.

The EITC is a refundable credit available to certain low-income people. The maximum credit in 2010 was $5,666. Due to the method used to calculate the EITC, individuals with higher annual incomes may be entitled to a larger credit. Some tax preparers refer to the range of earned income generating a maximum EITC as the "sweet spot." According to the complaint, Grant fabricated businesses and reported fake business income and expenses on his customers' tax returns to achieve reported income in the EITC sweet spot.

Preventing EITC Errors

Clients who claim income from self-employment without a Form 1099 should be asked if they have records to support the computation of their income. This may require the preparer to ask probing questions, particularly if clients claims they have no records to support the numbers they give you.

For example, if a client tells you:  
  • She has no Form 1099.
  • She was self-employed cleaning houses.
  • She earned $12,000.
  • She had no expenses related to the cleaning business.
Probing questions you might ask include:
  • Do you have records of the amount of money you received from house cleaning?
  • How much did you charge to clean a house?
  • How many houses did you clean?
  • Who provided the cleaning supplies?
  • If you provided the cleaning supplies, how much did you spend weekly?
  • Did you provide your own transportation to the houses you cleaned?
The complaint alleges that Grant pleaded guilty in 2006 to one count of conspiracy to defraud the United States, based on allegations that Grant charged customers a fee for listing a false dependent on the customers' tax returns. The government now seeks to bar Grant permanently from preparing federal tax returns altogether. According to the complaint, Grant's Social Security number identified him as the paid preparer on 2,555 individual income tax returns prepared in 2011. Of these returns, 2,543 request a refund, an extraordinarily high refund rate of 99.5 percent.
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Source: US Department of Justice
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