As 2013 is about to come to a close, we thought it was important to point out that the Justice Department chose to make December 2013 a busy month for enforcement activity against tax preparers. With the current state of our federal budget, it is perhaps not surprising that the Justice Department is targeting tax preparers in an effort to thwart the loss of revenue from false and fraudulent tax returns. The activity described below that occurred in December demonstrates the many tools the government can use against tax preparers as well as the potential and extreme consequences of these actions.
First, a 63-count superseding indictment was unsealed that charged four individuals in a conspiracy to allegedly prepare false tax returns for a business that operated three storefronts in the Minneapolis area. The individuals allegedly prepared federal and Minnesota state tax returns that contained false claims for dependents, including using false names and social security numbers for the claimed dependents; false deductions; false Schedule C business losses; and false wage income. This case is United States v. Saygbay, et. al, No. 13-cr-57, in the United States District Court for the District of Minnesota [press release found here].
Second, a tax preparer who operated two tax return preparation businesses from various locations in Washington, D.C. and Fairfax, Virginia, allegedly prepared false and fraudulent tax returns from 2004 to 2006 utilizing fictitious business income and expenses, and also failed file his own personal and business federal income tax returns during the same period. In 2008, the tax preparer was barred from preparing federal tax returns, and he pleaded guilty in July 2013. This month, he was sentenced to 48 months of imprisonment, 24 months of supervised release, and 240 hours of community service, and was ordered to pay over $330,000 in restitution. The case is United States v. John T. Hoang, No 11-cr-103, in the United States District Court for the District of Columbia [press release regarding sentencing found here].
Third, three tax preparers were ordered barred from the tax return preparation business, permanently. In these cases, the tax preparers must provide the government with copies of all returns or claims for refunds were filed as of January 1, 2008, and notify all relevant customers of the permanent injunction and fraudulent activity of the tax preparer. The permanent bans were based upon the following conduct:
- Tax preparer allegedly overstated tax refunds by reporting fictitious household help income in order to increase tax credits, including the Earned Income Tax Credit, the Child Tax Credit, and the Making Work Pay Credit. This case is United States v. Jessica Geddis, No. 13-cv-2332, in the United States District Court for the District of South Carolina [press release regarding permanent injunction found here].
- Tax preparer allegedly understated tax liabilities by falsely claiming First Time Home Buyer Credits, deducting fictitious business expenses, and inflating business deductions or losses. This case is United States v. Matthew Adegbite, No. 13-cv-1799, in the United States District Court for the Northern District of Georgia [press release regarding permanent injunction found here].
- Tax preparer allegedly understated individuals’ tax liabilities by falsely claiming or inflating tax credits or fabricating deductions. This case is United States v. Kenya Hendrix Adams, No. 13-cv-161, in the United States District Court for the Middle District of Alabama [press release regarding the permanent injunction found here].
Finally, three new civil suits were filed by the DOJ seeking permanent injunctions against tax preparers (and their related tax return businesses) from, among other things, preparing tax returns for others:
- Tax preparer allegedly created fake businesses for customers and then fabricated expenses for the fake businesses on tax returns. The tax preparer also allegedly improperly claimed the Earned Income Tax Credit on her customers’ returns. This conduct resulted in excess of $9.7 million in lost income tax revenue. This case is United States v. Stephanie Edmond, No. 13-cv-2938, in the United States District Court for the Western District of Tennessee [press release found here].
- Tax preparer allegedly prepared and filed tax returns containing false or inflated medical and dental expenses, gifts, business expenses, and charitable contributions, resulting in fraudulent tax refunds and an estimated loss to the government of as much as $3 million. This tax preparer had previously pleaded guilty to obstructing tax laws, for which he had been sentenced to 30 months of imprisonment and 1 year of supervised release, and was subjected to a restitution order in excess of $120,000. The civil case is United States v. Eric Majette, No. 13-cv-07238, in the United States District Court for the District of New Jersey [press release found here].
- Tax preparer allegedly prepared false tax returns by reporting false or inflated business expenses and educational expenses, or improperly claiming the Earned Income Tax Credit. Tax preparer also allegedly used fictitious taxpayer identification numbers in order to obscure his identity as the tax preparer and failed to maintain copies of the tax returns he prepared. According to the government, this conduct may have resulted in over $800,000 in lost revenue. The case is United States v. Grady Smith, No. 13-02949, in the United States District Court for the Western District of Tennessee [press release found here].