Tax preparation services frequently become the targets of federal criminal investigations of federal tax crimes. The charges that federal prosecutors use to formally charge tax preparation business owners and managers usually are Filing False Tax Returns, Conspiracy to File Fraudulent Tax Returns, and Aggravated Identity Theft.
These cases are prosecuted in federal court as felony offenses, and the investigations often focus on: 1) the use of bogus deductions on a widespread basis; and/or 2) the use of falsely created businesses that purposely show losses. These manipulations of tax returns are made to purposely result in a refund due. Sometimes the prosecution relies on testimony of ex-employees or clients that the owners or managers promised a refund.
Another area of prosecution in fraudulent tax cases is the misuse of Social Security numbers. This is using non-existent Social Security numbers other persons’ numbers without their knowledge, to create refunds in false tax returns. The U.S. Treasury would then issue the refund checks. Refunds would go to persons who filed false tax returns using a fictitious Social Security number or a stolen number.
What Triggers Investigations
The IRS looks at tax preparation services for fraudulent fax returns when IRS revenue agents notice a pattern of: 1) the same deduction for many taxpayers/clients, regardless of their employment or situation; 2) business losses for many or most of the tax preparer’s clients; and 3) a large percentage of clients who show a refund due, or large refund due.
If a tax preparation service files false tax returns using non-existent Social Security numbers, or Social Security numbers that they are not authorized to use, then the employee and/or the tax preparation service owner can be charged with Aggravated Identity Theft.
The U.S. Sentencing Guidelines is a point system in federal court that advises the judge on the issues of sentencing. It recommends prison time for a conviction of Aggravated Identity Theft. Charges for identity theft in federal prosecutions are usually additional charges. That is, they are added to a conspiracy charge or a charge of filing a false tax return.
Tax preparation service investigations often begin with IRS revenue agents providing data on the preparation service to the Criminal Investigation Division (CID) within the IRS. The CID agents will interview taxpayers who show strange deductions, or “business losses.” Then, the agents interview ex-employees and current employees of the tax preparation service.
After obtaining statements from these people, the investigating agents will eventually approach the tax preparation service owners and managers in attempts to obtain statements from them.
Tax Preparer Steps to Take if Under Investigation
Tax preparation service owners can gather tax clients’ records, including notes or messages to/from clients showing that the clients agreed to list the deduction or the business loss. The owners should also be sure to keep verification that the clients brought their own records. This includes their business information and revenue and losses.
Owners should also obtain statements of support from clients who can certify that the owners have always been straight with them, and that they were never asked to do anything illegal.
Tax preparation service owners should contact an experienced federal attorney when there is an investigation into their tax preparation service.
Contact Attorney John Teakell
If you learn that you are under investigation for tax preparation service issues, contact former federal prosecutor John Teakell. Mr. Teakell will lead you through the decisions about whether to speak to investigators or prosecutors, which steps to take to gather information to show investigators and prosecutors, and how to strategize for your defense.