One Down, One to Go: DOJ Gets an Injunction, Asks for Another

One of the more humorous (to me) aspects of the Loving case was hearing the IRS argue that it has no means of disciplining rogue tax preparers. That’s just not true. If I deliberately prepare a bad return, I can be sanctioned and penalized. If I prepare a series of bad returns, the Department of Justice can attempt to have me barred from preparing federal tax returns. As noted at the end of one of the two press releases I’m linking to in this article, “In the past decade, the Justice Department’s Tax Division has obtained more than 500 injunctions to stop tax fraud promoters and tax return preparers.”

Anyway, Tobias Elsass had two businesses that prepared tax returns: Fraud Recovery Group Inc. and Sensible Tax Services Inc. As the DOJ noted, “The Court found that Elsass and Fraud Recovery Group have continually and repeatedly promoted a nationwide scheme falsely informing their customers that they were entitled to claim large theft loss tax deductions, and then preparing the tax returns that improperly claimed such deductions.” If you have a casualty loss you are absolutely allowed to claim a deduction for it (subject to income restrictions)…but you must actually suffer a loss. It appears that Mr. Elsass skipped that minor detail in preparing clients’ returns. I’ll let the DOJ take it from there:

The opinion notes that hundreds of theft loss deductions claimed on tax returns prepared by Elsass and his companies were improper, because the financial losses they sought to deduct were merely the result of company mismanagement instead of criminal conduct – as Elsass knew. Elsass and his companies were also aware that the Internal Revenue Service (IRS) was disallowing such claims, but filed similar claims for other investor customers in any event, in the hope that the later filings would escape IRS scrutiny…

The court also determined that Elsass had intentionally engaged in “incompetent or disreputable” behavior not becoming a tax professional. Based on the record before it, the court found that Elsass seemed “perfectly willing to lie and deceive, even to the extent of possibly committing perjury, in order to advance his own interests.” Accordingly, the “sheer magnitude and variety of the Defendants’ transgressions” made permanent injunctive relief appropriate.

Meanwhile, the DOJ asked that another preparer in Mississippi be barred from preparing tax returns. Danee Aikens’ Comprotax Service is accused of falsely increasing household help income so that the Earned Income Credit could be taken and that phony education credits were included on clients’ returns. The DOJ believes the loss to the government could exceed $7 million from this case.

I’m all for the IRS and DOJ going after the dirty underbelly of my profession. They have tools to do so…as they themselves pointed out at the end of both of these press releases.

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2 Responses to “One Down, One to Go: DOJ Gets an Injunction, Asks for Another”

  1. Les Book says:

    IRS did not argue that it has no way of disciplining preparers in Loving. The focus of the registration plan is to influence compliance before the action; injunctions are after the fact, and very resource-intensive to obtain. Reasonable people can disagree as to whether the IRS efforts are good policy. And I am all for going after the bad guys after the fact. The question is whether increased costs and training and more importantly accountability and visibility will have a material impact on preparer conduct. I believe yes. Others no. But the ex post and ex ante approaches are meant to support each other.

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