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Alice, Texas, Tax Preparer Pleads Guilty to Tax Fraud

August 23, 2017


Here at Brown, PC, we regularly represent tax preparers facing IRS civil audits or criminal investigations for their tax return preparation work. The IRS actively reviews returns filed by preparers in an effort to uncover noncompliance with preparer due-diligence requirements or behavior that may amount to criminal violation of federal tax laws.

Civil penalties

For example, we have blogged here about the significant due diligence responsibilities the IRS places on tax preparers who claim the Earned Income Tax Credit, called the EITC, on customer returns. The EITC is a tax credit that can reduce tax owed for certain moderate- or lower-income taxpayers. To prevent tax preparers from mistakenly or improperly using the EITC, which reduces tax money flowing into the IRS by lowering taxes owed by preparer clients, the IRS puts significant responsibility on preparers to conduct vigorous investigation into the circumstances of each taxpayer related to EITC eligibility.

That due-diligence inquiry includes conducting client interviews into the specific bases for taxpayer EITC eligibility and keeping robust records supporting the inquiries. If a preparer does not comply, the IRS may impose a $510 (in 2017) penalty per credit on the preparer.

Preparer tax fraud

A recent article in the Alice Echo told of a local tax preparer recently pleading guilty to willful aiding and assisting in false federal tax return preparation. Specifically, she admitted fraud by not reporting income she had personally earned in her tax business as well as by the preparation of fraudulent returns for clients.

The Alice preparer reportedly claimed the maximum EITC on almost 60 percent of the returns she filed for clients, which may have been the pattern that brought her to the attention of the IRS.

The article cites an IRS agent from Criminal Investigation or CI as saying that the agency will continue to track preparers suspected of similar behavior. The IRS-CI is serious about this work and any tax preparer facing civil audit or criminal investigation should immediately talk to a tax attorney about preparing a vigorous defense. The lawyer can also communicate with the authorities on the preparer’s behalf and review the range of potential responses with the preparer.

The penalties of criminal conviction can be severe. In the Alice case, for example, the preparer faces up to five years in prison for the personal evasion and another three for the false tax returns she allegedly prepared for others. Each of these convictions could result in a fine of up to $250,000.

The earlier experienced legal counsel is involved in an investigation or audit, the better, as an attorney may be able to intervene in a way that makes a positive difference in early stages.

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