A rash of press releases from the Department of Justice (DOJ) during the past week shows the Department is teaming up with the Internal Revenue Service (IRS) and going after the tax practices of accounting firms. Reasons range from fraudulent tax returns to bogus tax advice. Below are a few examples of tax preparers and advisors who found themselves in the hot seat recently, along with the reasons for DOJ's enforcement actions.
- The DOJ filed a lawsuit seeking to stop a Nashville tax preparer from preparing income tax returns. The lawsuit alleges the tax preparer was soliciting clients by claiming he would obtain tax refunds for them, which he referred to as "found money." He also falsely represented he was a former IRS employee, reported fictitious expenses and claimed invalid tax deductions. For example, one of his clients said he prepared a tax return for her saying she paid alimony, when in fact she had received alimony.
- Two Washington tax preparers were convicted on charges of conspiring to defraud the IRS. Their firm is accused of obtaining approximately $28 million in illegal tax refunds for more than 1,500 clients from 1998 to 2001. In some cases, the firm claimed large tax deductions for fraudulent "net operating losses" and "consulting expenses." In reality, DOJ explains, the funds were not spent as claimed but were instead wired to Costa Rica so the clients could later withdraw them with a debit card.
- A Connecticut tax preparer was sentenced to 42 months in prison because he created fraudulent business expenses to offset reported income for his clients. He also created fictitious dependents and inflated expenses, including gifts to charity.
- A Montana tax consultant, who held seminars and assisted taxpayers in setting up abusive trust arrangements, was sentenced to 78 months in prison and ordered to pay restitution of $10,000 and a fine of $100,000. He pled guilty to conspiracy to prepare false tax returns and commit mail fraud, after falsely claiming that the trusts would permit taxpayers to deduct personal expenses.
Additionally, the Justice Department is actively working to obtain court orders for the IRS to obtain records of offshore credit cards used by the people who transfer assets overseas to evade their tax obligations. It is also cracking down on promoters of tax fraud schemes by obtaining federal injunctions to stop them from selling bogus tax advice. The DOJ joins the IRS in encouraging people who have information about tax fraud to report it to the IRS tip line at 1-800-829-0433.