I’m Shocked to Find Another Enrolled Preparer Committed Tax Fraud

Not really.

The IRS would like the public and Congress to believe that if every preparer were regulated by the IRS that preparer tax fraud would magically vanish. The reality is that as long as money is involved in an industry–and there’s always money involved with tax preparation–some preparers will be tempted to commit tax crimes. The fact that they are an attorney, CPA, EA, or RTRP won’t change the reality that money always tempts criminal activity.

Take William Zweifel. Mr. Zweifel was doubly an enrolled preparer: He was both an attorney and a CPA. That didn’t stop him from preparing false tax returns. He’s heading to ClubFed for 37 months and is voluntarily giving up his law and CPA licenses. (Had he not given them up voluntarily, he would likely have been disbarred.)

What did Mr. Zweifel do? From the DOJ release:

The method he used to create a false income tax refund was to offset a taxpayer’s income with an alleged loss from either a partnership in which the taxpayer had no partnership interest or from an S corporation which reported no loss for the taxpayer to claim. Zweifel stipulated in the plea agreement that the tax losses to the United States from the false claims on the two income tax returns listed in the criminal information were approximately $61,000 and approximately $42,000, respectively. Zweifel further admitted that for purposes of determining relevant conduct under the U.S. Sentencing Guidelines, the tax loss to the United States in this case is approximately $2.2 million.

Of course, most tax professionals (both enrolled and unenrolled) are ethical and would never consider behavior like Mr. Zweifel’s. Yet money is always a temptation; the IRS is burying its head in the sand if they think that by taking an open book exam an unethical tax preparer will magically become ethical. Indeed, that would make the situation worse: An unethical preparer would have an IRS stamp of approval.

The reality is that 100 years from now there will be tax professionals who commit crime. They’ll dream up schemes that, in their view, couldn’t be caught…and they’ll be caught.

The IRS has methods today to stop unethical preparers. The IRS can impose fines, seek injunctions to prohibit a preparer from practicing, and in especially egregious cases (such as Mr. Zweifel’s), seek criminal charges. The IRS’s policy reminds me of Captain Louis Renault:

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