Civil cases: 6 tax preparers responsible for 54,230 returns

[Demosthenes]

_______________________________________________________________________________
FOR IMMEDIATE RELEASE TAX
THURSDAY, JANUARY 7, 2010 (202) 514-2007
http://WWW.JUSTICE.GOV TDD (202) 514-1888
JUSTICE DEPARTMENT FILES SIX LAWSUITS TO ENJOIN PREPARATION
OF FRAUDULENT FEDERAL INCOME TAX RETURNS
Return Preparers Allegedly Prepared Thousands of Federal Income Tax Returns
with Fraudulent Deductions & Credits Resulting in Millions in Lost Revenue to the U.S. Treasury
WASHINGTON - The United States this week filed five civil injunction lawsuits in Detroit, Cincinnati and Chicago against several individuals and their tax preparation services, the Justice Department announced today. In December 2009, the government also filed a civil injunction suit against 12 individuals and entities in Providence, R.I. These lawsuits seek to enjoin individuals and entities from:
• Preparing federal income tax returns and amended returns, and other related documents and forms for others;
• Filing federal income tax returns for others;
• Representing customers before the Internal Revenue Service (IRS);
• Advising, assisting, counseling or instructing anyone about the preparation of a federal tax return; or
• Promoting tax-fraud schemes or other plans or arrangements that advise or encourage taxpayers to attempt to evade the assessment or collection of federal income taxes.

These defendants engage in a variety of schemes, all of which involve false deduction and credit claims, to fraudulently reduce their customers’ federal income tax liabilities. For example, court filings in Rhode Island against Michael Brier, operating through Refunds Now Inc. and Refunds Now Tax Service Inc., allege that he prepared, or directed the preparation of over 24,000 customer tax returns containing fabricated charitable contributions and employee business expense deductions, inflated dependent exemptions, fraudulent earned income tax credit claims and false income and expense reporting relating to rental real estate. Court papers filed in Chicago against Sidney Dove, of Sid’s Tax, allege that Dove tells customers that they are entitled to a charitable contribution deduction equal to 10 percent of their wages, regardless of whether they can substantiate their claim. Court papers filed in Chicago against Natalie Bradford and Kristine Burkland-Valdez, of K & N Tax Pros Inc., allege that defendants prepared and directed preparation of over 23,800 customer tax returns containing fabricated or falsified deductions such as employee business expenses, mileage, cash contributions, rental losses and medical expenses. All of these defendants’ actions cause substantial revenue loss to the United States Treasury, much of which may be unrecoverable. In addition, their actions harm their customers because the customers pay the defendants to prepare their tax returns, and, after the fraud is detected, customers are responsible for paying all taxes, interest and penalties.
“The too-good-to-be-true results some return preparers tout are just that,” said John A. DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division. “The IRS and Justice Department are working together closely to ensure that unscrupulous return preparers are shut down and their customers pay their correct federal tax liabilities. Taxpayers using these types of preparers, at best, are stuck with paying additional taxes and interest, and at worst, depending on culpability, may be subject to penalties and possibly even criminal prosecution.”

“Filing a tax return is one of the biggest financial transactions an average American taxpayer makes each year,” said IRS Commissioner Doug Shulman. “This week, the IRS announced a set of comprehensive recommendations to ensure people receive ethical, competent and professional advice when they use a tax return preparer. We want to make sure taxpayers don't pay good money for bad advice. That's why we're taking extra steps this tax season, and planning more actions in future years, to help make sure people can count on their tax return preparer.”
Listed below are details of the six lawsuits, filed in the United States District Courts in the cities indicated:
Case Summary of Scheme Returns Prepared and Harm to the Government
United States v. Michael Brier, Jeffrey Sroufe, Esther Santiago, Maria Caroline Halog, Criselyn Rivera, Nitza Benitez, Carmen Miranda, Refunds Now, Inc., RNTS (a/k/a Refunds Now Tax Service, Inc.), FTIRS, Inc., POTIRS, Inc. and IHIRS, Inc.
District of Rhode Island Improper filing status claims;
• Inflated dependent exemptions;
• Fraudulent earned income tax credit claims;
• False or inflated charitable contributions and business expense deductions;
• False or fraudulent income and expense reporting related to rental real estate Over 24,000 returns prepared for tax years 2003 through 2007. Tax loss to date from 313 examined returns exceeds $1.1 million.
United States v. Harold K. Solomon, individually and d/b/a Solomon Service
Eastern District of Michigan Inflated earned income tax credit claims;
• False business expense claims;
• False or fabricated itemized deductions Over 1,900 returns prepared for tax years 2005 through 2007.
United States v. Erin Pryor, individually and d/b/a EP Express Tax Service
Southern District of Ohio Fraudulent disabled access and earned income tax credit claims;
• False telephone excise tax refund claims Over 230 tax returns prepared during 2007 and 2008.
United States v. Matoi Rimes, individually, and d/b/a Rimes Accounting Service
Northern District of Illinois Inflated or fabricated itemized deductions;
• Inflated or fabricated rental property and business expense deductions;
• False tuition and rental expense deductions;
• Misuse of Refund Anticipation Loan Program Over 3,100 tax returns prepared since 2006. Tax loss from 48 examined returns is $230,677.
United States v. Sidney Dove, individually and d/b/a Sid’s Tax
Northern District of Illinois Inflated or fabricated charitable contribution deductions;
• Inflated or fabricated business expense deductions;
• False deductions for tuition and rental expenses Over 1,200 tax returns prepared since January 1, 2006. Tax loss from 79 examined returns is $460,910.
United States v. Natalie Bradford, individually and d/b/a K & N Tax Pros, Inc., and Kristine Burkland-Valdez (a/k/a Kristine Valdez), individually and d/b/a K & N Tax Pros, Inc. and Tax Pros, Inc.
Northern District of Illinois Fabricated or falsified employee business expense, mileage, cash contributions, rental losses and medical expense deductions Over 23,800 tax returns prepared from 2005 through 2009. Tax loss for 100 examined returns is $830,147
Taxpayers and tax professionals who submit fraudulent tax returns to the IRS face substantial civil monetary penalties, as well as possible criminal prosecution. In the past decade the Justice Department has obtained injunctions against more than 435 tax-scheme promoters and tax preparers. Information about those cases is available on the Justice Department Web site, at http://www.justice.gov/tax/taxpress2010.htm.

[Judge Roy Bean]

I wonder how much of this is driven by the opportunity to generate high-interest refund anticipation loans.

[Quixote]

I wonder how much of this is driven by the opportunity to generate high-interest refund anticipation loans.

I suspect that quite a lot of it is. Preparers are not allowed to set their tax preparation fees based on the size of a client's refund, but can charge refund anticipation loan (RAL) fees as a percentage of the refund or on a sliding scale tied to the size of the refund. The IRS does such a poor job of regulating RALs that even many otherwise honest preparers charge RAL fees even when no RAL is made.

Crooked preparers don't care if their marks are audited, as long as that's done after they've been paid. By the time IRS comes knocking, the preparer is long gone.

[Arthur Rubin]

I wonder how much of this is driven by the opportunity to generate high-interest refund anticipation loans.

I suspect that quite a lot of it is. Preparers are not allowed to set their tax preparation fees based on the size of a client's refund, but can charge refund anticipation loan (RAL) fees as a percentage of the refund or on a sliding scale tied to the size of the refund.

Are you sure? I was told I wasn't allowed to do that as a tax preparer, but only as an agent of the "bank" issuing the loan.

[Quixote]

I wonder how much of this is driven by the opportunity to generate high-interest refund anticipation loans.

I suspect that quite a lot of it is. Preparers are not allowed to set their tax preparation fees based on the size of a client's refund, but can charge refund anticipation loan (RAL) fees as a percentage of the refund or on a sliding scale tied to the size of the refund.

Are you sure? I was told I wasn't allowed to do that as a tax preparer, but only as an agent of the "bank" issuing the loan.

That is probably correct. However, it is not uncommon to see a taxpayer charged a RAL fee even when no loan was made. I assume the preparers are not passing those along to the banks. IRS oversight of RALs is notoriously lax.