As is now an annual tradition occurring during the first few months of the year, the Internal Revenue Service (“the IRS”), Department of Justice, and Comptroller of Maryland recently publicized a number of enforcement actions taken against tax return preparers. These enforcement actions serve as a reminder to both tax preparers and taxpayers alike that significant consequences can result if tax laws are intentionally skirted or abused.
For example, in United States v. Lozano, C.D. Cal, No. 2:13-cr-00675 (2017), a tax return preparer was sentenced to 10 years in federal prison. The case resulted from his preparation of about 13,000 fraudulent tax returns claiming more than $56 million in refunds. Mr. Lozano was also ordered to pay back more than $23 million to the Internal Revenue Service.
In January, Cheryl Singleton of Atlanta was sentenced to 150 months in prison and ordered to pay restitution of nearly $5 million for filing fraudulent returns. Through her tax preparation business, Advanced Tax Services, Ms. Singleton hired and trained employees to prepare fraudulent returns and encouraged workers to intentionally overstate clients’ refunds.
And, in December, 2016, a New Jersey woman, Doreen Gentile, was sentenced to 37 months in prison for engaging in a scheme that essentially stole clients’ tax refunds. According to the IRS, Ms. Gentile submitted returns to her clients for signature that showed little or no refund due. Once signed, Ms. Gentile would doctor the returns to create a refund and would direct the deposit of the refund to her own account. Aside from jail time, Ms. Gentile faces an order of restitution of over $1.8 million.
These are but a few examples of tax preparers who have been caught preparing false returns, stealing taxpayer identities, stealing refunds, and committing other tax-related offenses. Other cases publicized by the IRS can be found here.
Aside from criminal penalties, the federal government is increasingly seeking civil penalties or injunctions against those not fulfilling their duties as tax preparers. For example, the government recently sought an injunction against Tiga Bryant and Denson’s Fast Tax Services to prevent the business from preparing tax returns. In its complaint, the Department of Justice alleged that Ms. Bryant claimed false employee business expense deductions and fuel tax credits, among other things. The total damage found in some 197 returns audited by the IRS exceeds $800,000.
In Illinois, the Department of Justice recently sought an injunction against Gregory Goss and G & V Tax and Insurance to prevent further preparation of tax returns. According to the Department of Justice, Mr. Goss submitted fraudulent returns that falsified itemized deductions and self-reported income. The returns were aimed at maximizing the Earned Income Tax Credit and other credits, which are refundable. The investigation involved an audit of 237 returns prepared by Mr. Goss, of which 147 returns were allegedly false and underreported tax to the extent of nearly $324,000.
The IRS and Department of Justice are increasingly ramping up enforcement efforts in cases where preparers are filing a large volume of returns, refundable credits are being claimed, and the preparers’ clients are of limited means. Other examples of the Department of Justice’s recent efforts can be found here.
Much like the IRS and Department of Justice, the Comptroller of Maryland continues to ramp up its efforts to prevent the preparation of false and fraudulent tax returns as well. While Maryland historically has not sought criminal penalties against tax fraudsters, this may change with the creation of a new taskforce focused almost exclusively on criminal tax enforcement. The enforcement policy of this new taskforce is yet to be seen.
Relatedly, the Comptroller has continued its efforts to suspend the filing of electronic tax returns by a number of tax preparers. See, e.g., “Comptroller Franchot Halts Processing Returns from 15 More Private Tax Preparers.” Efforts have been taken in conjunction with the Comptroller’s increasing use of analytics, which aim to identify patterns of fraud and abuse without necessitating a formalized audit beforehand. While these efforts have likely caught some who actually abused their duties and trust as tax preparers, the system is not refined and is likely to have caught other tax preparers who did not necessarily do anything wrong, but simply relied on information from their clients. Even for those who did not try to game the system and complied with the law, these suspension actions have been swift and strong – even putting some out of business. In light of the increased enforcement, it is imperative that tax preparers remain alert and perform necessary due diligence in order to curtail the effect of these actions. (More information on the scope and effects of these enforcement actions is described in a related article, “Recent Suspensions of Maryland Tax Preparers: Good Press for the Comptroller of Violations of Confidentiality Laws?”)
If you are a tax preparer and have been contacted by the Department of Justice, Internal Revenue Service, Comptroller of Maryland, or the Department of Labor, Licensing, and Regulation regarding your tax preparation services, you should seek competent counsel to discuss the matter. These are frequently significant cases that can result in major civil penalties, suspension or revocation of licenses, forced closure of businesses, and, in some cases, criminal penalties. For a consultation, please contact Brandon N. Mourges at firstname.lastname@example.org or 410.951.1149.