In separate cases, tax preparers have been found guilty of promoting fraudulent tax schemes and filing fraudulent tax returns in an attempt to defraud the U.S. government of tax revenues legally owed to them. Some of the tax preparers will serve prison terms, while others will be barred from various activities related to the fraud they are accused or convicted of.
“Dishonest tax professionals harm the good reputation of honest ones and cheat all honest taxpayers,” Eileen J. O’Connor, Assistant Attorney General for the Department of Justice’s Tax Division, said in a prepared statement.
3 Receive Prison Sentences in California
Earlier this month, Judge M. James Lorenz, a federal judge in San Diego, Calif., sentenced Susan E. O’Brien, a professional tax preparer who operated the O’Brien Group, to 10 years and five months in prison and to pay restitution in the amount of $113,179. Her co-defendants, Robert Richard Evans and William Dean Cook, were sentenced to 78 and 24 months in prison, respectively. All three will also serve a three-year term of supervised release.
The trio was convicted in May of attempting to evade the taxes of a Dr. Kevin Marie Scoggin, owner and operator of Grand Animal Hospital, a veterinary clinic in the San Diego area. O’Brien and Evans were also convicted of conspiracy to defraud the United States and aiding and assisting in the filing of fraudulent tax returns. O’Brien was also convicted of evading paying her own income tax. In addition, three employees and four clients of the O’Brien Group pled guilty to felony tax fraud charges prior to trial and cooperated in the prosecution of O’Brien, Evans and Cook. Judge Lorenz found that the tax evasion scheme resulted in a tax loss of more than $1 million.
“Honest return preparers and tax professionals assist taxpayers in filing their corret tax information with the government. Blatant disregard for the law, as well as for the standards of this profession, must be addressed and halted,” Nancy Jardini, Internal Revenue Service (IRS) Chief, Criminal Investigation, said in a prepared statement regarding the convictions. “These sentences clearly demonstrate the IRS and Department of Justice efforts to ensure tax professionals are abiding by the law.”
Shanahan Sentenced to Prison Term in Washington
Judge Ronald B. Leighton sentenced tax fraud promoter Michael Joseph Shanahan of Everett, Washington, to 36 months in prison, earlier this month. Shanahan was also ordered to pay restitution equal to the $8.5 million tax loss sustained by the U.S. Treasury. In April of this year, Shanahan also consented to a permanent injunction forbidding him from promoting the scheme.
According to the indictment and evidence introduced at trial, for six years, between 1994 and 2000, Shanahan and co-conspirator David Carroll Stephenson assisted hundreds of taxpayers in the formation and operation of “pure equity trusts”. Shanahan falsely advised clients that they could avoid paying income taxes by placing their income and assets into trusts, even though they continued to control the use of the income and assets placed in trusts. Through the sale of more than 400 trust packages, Stephenson and Shanahan received more than $2 million in revenue, according to evidence introduced at trial.
“People who promote and facilitate tax evasion can expect to be prosecuted, convicted and sentenced to substantial time in federal prison,” Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division, said in a prepared statement regarding the sentencing. “The Department of justice is working diligently with the Internal Revenue Service to shut down tax fraud that cheat all honest taxpayers.”
Barred from Tax Scheme Activities
Rodney G. Bourg and Cynthia M. Bourg of Houma, Louisiana, have been barred from preparing federal income tax returns claiming inflated deductions or asserting unrealistic positions in the sixth injunction obtained against tax preparers claiming the so-called mariner’s deduction. The Bourgs consented to the injunction, which also requires them to notify their customers of the injunction and provide the Justice Department with a list of names, mailing and email addresses, social security numbers and telephone numbers of customers for whom they prepared returns with improper deductions.
The government’s complaint alleges the Bourgs prepared federal income tax returns with improper deductions for customers working as mariners, fishermen, merchant seamen and ferry workers. The returns allegedly claimed improper per diem expense deduction for meals and incidental expenses, even though the customers’ employers provided meals and any necessary lodging free of charge.
In a separate action, the Justice Department also brought suit against Lowell Baisden, a CPA from Bakersfield, Calif., alleging he sold a tax fraud scheme to customers in Nebraska and California. The suit seeks to bar Baisden from preparing federal tax returns for others, as well as from promoting the two alleged tax fraud schemes.
The civil complaint, filed in U.S. District Court for the Eastern District of California, alleges that for tax years 2001 to 2003, Baisden prepared more than 130 tax returns and that the tax understatements for 12 of those returns which have been audited by the IRS has totaled more than $3 million. According to the suit, Baisden helped customers form sham corporations in Nevada and use them to claim improper tax deductions for customers’ non-deductible personal expenses, such as utilities, medical bills, vacations and personal vehicles. Baisden also allegedly prepared tax returns that falsely reported employment income as royalties or rent in order to evade Social Security and self employment taxes. Additionally, he is alleged to have promoted a second tax scam in which customers diverted income into a corporation operated by Basiden.