Hard working CPAs and tax preparers all over the country anticipate April 16th with all the excitement of a child headed for Disneyland. But now that tax season is finally over, certain tax preparers will not be celebrating their freedom with tropical drinks on sandy beaches.
Instead, some will be viewing life from behind bars because of a recent sting known as Operation Brass Tax, which netted 26 tax preparers.
In a joint investigation by the Internal Revenue Service Criminal Investigation Division and the U.S. Attorney's Office for the Southern District of New York, agents posed as customers seeking tax help. Unfortunately at certain tax prep shops in the Bronx, Manhattan, and New Jersey, they got more "help" than they were looking for.
Twenty-six tax preparers filed returns that included more than $95 million in deductions, most of which were fraudulent, according to the charges. Customers were attracted to their offices because the unscrupulous practitioners were known to deliver high tax refunds. To accomplish this, the tax preparers are accused of using a variety of schemes and scams, such as:
- Creating fake dependents for a fee of $400 to $500 per dependent
- Stealing the identities of children and of people on public assistance
- Using Social Security numbers of people who are dead, and stealing the identities of residents of Puerto Rico, who are issued SSNs but are not required to file federal income tax returns
- Creating fictitious businesses with fictitious losses
- Falsely inflating legitimate losses, often without the knowledge of the customers
What's more, many of the preparers also dealt in refund anticipation loans (RALs) and allegedly inflated the related commissions and fees. In some cases, supplemental fees based on the size of the refund also were collected from customers either upfront or through the RAL.
In addition to using stolen or fake information to beef up tax refunds for customers, in many cases the accused tax preparers allegedly used the information to get fraudulent refunds that they kept for themselves.
While the tax preparers caught in this scam were from the Northeast, the problem is not limited geographically.
"It's a nationwide problem," said Patricia Haynes, special agent-in-charge of the New York office of the IRS. "Some of these same schemes and methods are utilized across the country."
Haynes worked with U.S. Attorney Preet Bharara to bring Operation Brass Tax to a successful completion.
"Professional tax preparers are supposed to be gatekeepers, not facilitators of fraud," Bharara said in a statement. "In a criminal twist on the old proverb about death and taxes, some of the defendants charged today allegedly even filed for tax refunds using the identities of dead people."
Of the 26 tax preparers who were ensnared by the investigation, 16 are in custody, four are facing new charges, and six are still at large, according to the latest reports.