The Internal Revenue Service and the Department of Justice have made it clear that they are turning up the heat on tax return preparers who submit fraudulent or false tax returns. Tax return preparer fraud has consistently been listed on the IRS' list of "Dirty Dozen Tax Scams." The IRS states that "tax return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. This includes inflated requests for the special one-time refund of the long-distance telephone tax. Preparers may also manipulate income figures to obtain tax credits, such as the Earned Income Tax Credit, fraudulently."
The Government can typically pursue civil penalties and injunctions against such tax preparers, such as the recent case of Chicago tax return preparer Rita Augustus, who was permanently banned yesterday from preparing tax returns for others. According to a Dept. of Justice press release, Augustus included fabricated charitable donations, employee business expenses and other deductions on tax returns that she prepared. The press release further claims that for tax years 2005 through 2009, Augustus prepared more than 4,000 federal income tax returns for customers with an unusually high refund rate. The Internal Revenue Service estimates that her return preparation for those years could have resulted in as much as $20 million or more in lost tax revenue.
The Government can also pursue criminal penalties, including incarceration and fines for those who prepare fraudulent tax returns, such as the case of Arkansas couple James Bruce Morris and Karen Sue Morris, were convicted yesterday of 44 counts related to tax evasion and theft of Social Security funds in U.S. District Court in Little Rock. After a two-week trial, the jury found the couple guilty on all counts. The couple were accused of defrauding the Social Security Administration out of disability benefits, underreporting their own taxable income and then using false documents to apply for Pell grants, and filing false tax returns to allow clients to claim the Earned Income Tax Credit.
If you are a tax return preparer and have concerns about returns that you have prepared, you should immediately contact an attorney who is capable of handling both the civil and criminal aspects of a tax return preparer fraud case.