The Liberty to Commit Tax Fraud

There are thousands of tax professionals. These range from the huge firms such as H&R Block to mom and pop outfits. The professionals range from Enrolled Agents, CPAs, and tax attorneys to those who have just put up a sign saying that they’re “professionals.”

Liberty Tax Service is one of the huge chains. They have employees dressed up like the Statue of Liberty outside of their locations. According to the IRS and Department of Justice, a Liberty Tax franchisee in metro Detroit took quite a few liberties with tax law.

Craig Comer operates five Liberty Tax Service locations near Detroit. If the complaint lodged by the US Department of Justice is correct, the five franchise locations did the usual illegal things to increase refunds:

According to the complaint, the defendants prepare income tax returns for customers that fraudulently overstate refunds and claim refundable credits by, among other things, claiming false or inflated Schedule C income and expenses, bogus dependents, false filing statuses, improper education credits and false itemized deductions. Based on audit adjustments the IRS has made to tax returns prepared and filed by the defendants for 2008 to 2013, the defendants’ conduct has cost the U.S. Treasury approximately $4.5 million for those years alone, according to the suit.

There are also allegations of forging customer signatures, changing returns that customers have already signed, committed fraud with the Earned Income Credit, and violated IRS PTIN (Practitioner Tax Identification Number) requirements. All tax professionals who prepare tax returns for money are required to put their PTIN on every tax return they file. The government is alleging that this wasn’t done by this franchisee.

This story does show two things. First, requiring every tax professional to obtain a license won’t stop tax fraud. The alleged fraud here was started by an individual with a PTIN, someone who assuredly could obtain the former RTRP designation or the current AFSP “seal of approval.” Second, the Department of Justice news release notes, “In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.” This is absolutely true, and the DOJ should be commended for their work. It also shows that licensing every tax professional isn’t needed to get rid of unscrupulous ones.

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