Posts Tagged ‘BozoTaxPreparer’

From Owning a Party Mansion to Partying at ClubFed

Sunday, September 14th, 2014

Claude Verbal II wasn’t the most well liked owner of a home in North Raleigh, North Carolina. It seems that the 15,000 square foot mansion wasn’t used as a home; rather, it was a place to PARTY! To be fair, the parties appear to have been operated by Mr. Verbal’s ex-wife, Pamela Verbal. The local HOA probably has nothing to worry about as far as any additional parties. Besides an injunction issued by a local court, Mr. Verbal will need to sell the mansion (if it hasn’t already been sold).

You see, Mr. Verbal pleaded guilty earlier this year to a $6,460,962 tax and health care fraud scheme. He was sentenced last week to 135 months (11 years and 3 months) at ClubFed along with full restitution for one count of conspiracy to defraud the United States, one count of aiding and assisting the preparation of false tax returns, one count of healthcare fraud, and one count of money laundering.

In the tax fraud scheme, Mr. Verbal owned a tax preparation franchise with ten locations in North Carolina. Mr. Verbal and his employees offered customers a unique bonus system: If the return was falsified and the client paid cash, he would get a much larger refund. Mr. Verbal and his employees utilized familiar methods: fake dependents and phony credits. Mr. Verbal bought stolen identities so his scheme could continue.

It’s how the scheme was uncovered that makes this quite interesting. From the DOJ press release:

In November 2010, one of Verbal’s employees informed a U.S. probation officer of the fraudulent practices at NBT’s location on Fayetteville Street. The probation officer informed Verbal of this fraud and he falsely denied knowledge of it. Afterward, Verbal took steps to keep the profitable Fayetteville Street location open and to continue operating as usual, but to also further distance himself from the fraudulent practices. In order to do this, Verbal transferred the electronic filing privileges for that NBT branch to a nominee. Verbal and others jointly persuaded a relative of Verbal who allowed Verbal to use their name to apply for new electronic filing privileges for the Fayetteville Street location. In exchange, Verbal and his wife paid the relative $10,000, and the relative had no role in operating NBT, no professional tax experience and no knowledge of the fraud that was occurring at NBT.

But that’s not all. Besides owning a tax preparation firm, Mr. Verbal owned a Medicaid health provider in North Carolina. Mr. Verbal engaged in healthcare fraud, including changing diagnosis codes, inflating the number of clients treated, billing for services not rendered, and faking assessments.

From both schemes, Mr. Verbal used the proceeds to buy luxury goods and possessions, such as his party house in North Raleigh. Many of the items acquired by Mr. Verbal were seized during the investigation, including nearly $766,000 in cash and a 7-carat diamond ring.

As a reminder to anyone who is offered the chance to get a larger refund by paying in cash and having phony items added to his or her tax return: Don’t do it! If it sounds too good to be true it probably is. Not only is knowingly participating in such activities a crime, sooner or later you could get a “Dear Soon to be Audited Taxpayer” letter from the IRS.

Tax Preparers Behaving Badly

Sunday, August 24th, 2014

There’s a common thread among these tax professionals: You’ll be getting a refund. That sounds good until you realize that you really shouldn’t have, and that you will likely get in trouble later.

Our first preparer might be saying, “Well, I did get two returns correct.” Unfortunately, the IRS and the US Department of Justice allege he get 74 others wrong. The DOJ asked a federal court to bar Ernice Joseph and his Miami tax preparation firms, Ebenezer Tax Services Inc and Primo Tax Service Inc, from preparing federal returns for others. Why? Here’s what the DOJ states:

The complaint alleges that Joseph and his businesses prepared returns that unlawfully claim the Earned Income Tax Credit by reporting fictitious businesses or business income on clients’ Schedule C – Profit or Loss From Business. Joseph and his businesses prepare returns that claim education and other credits to which the taxpayers are not entitled in order to overstate their refunds. According to the complaint, the Internal Revenue Service (IRS) examined 76 returns prepared by Joseph and/or Ebenezer Tax Services and found that 74 contained a deficiency. The complaint alleges that, altogether, Joseph and Ebenezer Tax Service’s activities may have caused more than $20 million in loss to the U.S. Treasury. In addition, the complaint alleges that the revenue lost from Primo Tax Service’s activities could exceed $25 million.

Our next preparer is one step further along than Mr. Joseph. William Naes of St. Charles, Missouri, was permanently barred from preparing returns for others. Why? Well, things were too good to be true:

The government alleged that Naes prepared returns that fraudulently claimed tax deductions for his customers, including bogus deductions for charitable contributions and unreimbursed employee business expenses. According to the complaint, Naes also fabricated business expenses on Schedules C-Profit or Loss From Business, concocted a fake business for at least one customer and failed to properly identify himself as the paid preparer on many of the returns he prepared.

Neither Mr. Joseph nor Mr. Naes appear to be under criminal indictment; our other two preparers weren’t so lucky. Julius Williams owned and ran his tax preparation business in College Park, Maryland. He catered to temporary workers from Jamaica. His clients got a great deal: Phony Schedule C businesses, phony deductions, phony Earned Income tax credits, and phony education credits led to real refunds. Mr. Williams did one nasty thing to those clients: He stole those ex-clients’ identities to help his current clients. After all, they were back in Jamaica, unlikely to file another US tax return, so why waste a good identity? Finally, Mr. Williams cheated on his own taxes. He pleaded guilty and must make restitution of $1 million; he’s also looking at a term at ClubFed.

Our final Bozo preparer is Daniel Jones of Fredericksburg, Virginia. Mr. Jones operated a business called Tax Doctor Plus. I use the past tense because Mr. Jones will be heading to ClubFed for the next 37 months. He did have a lot of satisfied clients: he used phony tax credits, phony Schedule C’s, phony Schedule A expenses, and phony W-2s to increase his clients’ refunds. He also falsely claimed to be a CPA.

Some common sense applies when you’re reviewing your tax return. First, always review it–don’t just sign it. And if it shows you worked at a business you didn’t or you have a credit for college education expenses when you attended college twenty years ago, there’s a problem. Remember, if it sounds too good to be true it probably is.

Another Example of a Regulated Preparer Committing Tax Crimes

Monday, June 9th, 2014

Yet another example of a regulated preparer committing tax crimes emerged this past week out of Ohio. Larry Couchot is a CPA in Ohio. He’s president and an owner of an accounting firm. Mr. Couchot also may be heading to ClubFed. Here’s what the Department of Justice noted:

According to documents filed with the court, during the period 2006 through 2010, Couchot was aware that these individuals used a substantial amount of company funds to pay for personal expenses, including payments for their personal cars, car insurance, country club dues, personal credit card charges and their individual income tax liabilities. Couchot also admitted that he was aware that one individual used company funds to pay for other personal expenses, including lawn services, repairs and maintenance to personal residences, granite counter tops and TV and audio systems.

One of the rules in tax is that if a preparer has personal knowledge of something, it must go on a tax return. We, too, sign the return under penalty of perjury. For example, if I know that you included $5,000 of granite countertops for your residence in “supplies,” it must be removed as a business expense. That’s what Mr. Couchot didn’t do. He’ll face sentencing later this year.

Regulating Tax Preparers Always Prevents Tax Preparer Fraud (Not True, of Course)

Sunday, March 9th, 2014

I’m generally a supporter of the National Association of Enrolled Agents and its policies. However, I disagree with the idea that both the NAEA and the IRS have that regulating tax preparers will magically make preparer fraud go away. It’s just not true.

Yet another case in point comes out of the San Joaquin Valley in California. From the DOJ press release:

The United States filed a civil complaint asking a federal court in Fresno, Calif., to enjoin Ken Mendoza and Alice Mendoza from preparing federal tax returns for others, the Justice Department announced today. The complaint alleges that the Mendozas frequently prepare tax returns for individuals claiming refunds from the federal government that are not deserved. According to the complaint, since 2010, the Mendozas have prepared over 600 tax returns for individuals in the Fresno area.

According to the complaint, the Mendozas improperly understate their customers’ federal tax liabilities by fabricating business expenses, claiming false or inflated credits, particularly educational credits, and deducting customers’ personal expenses that are not legally deductible. In total, the complaint alleges that the loss to the U.S. Treasury from the Mendozas’ activities could be as much as $2.8 million for tax years 2010 through 2011.

California requires all tax professionals who are not EAs, CPAs, or attorneys to register with CTEC. If the IRS is right that regulating tax professionals stops tax preparer fraud, Mr. Mendoza wouldn’t be registered. The IRS’s view is just another fairy tale.

Mr. Mendoza is registered with CTEC (I checked). That means he went to some continuing education and regurgitated some basic information on taxes. Taking continuing education courses does not turn a good person into a bad person (or vice versa).

I’m hoping that cases such as these–and mind you, I do want the Bozo side of my profession to be gone–will put a stop to the idea that regulating tax professionals will magically make all tax professionals angels. Let me be blunt: Wherever there is money around, there will be bad people around. There will always be people going after the dishonest buck and nothing anyone says or does will ever change that.

I do want to point out the other point of this post for taxpayers who read this: You are responsible for your tax return. Read it. Ask questions if you don’t understand something. The Tax Code is complex, and there are things that seem obvious that aren’t on a tax return. If you have a good tax professional, he or she will want to answer your questions.

100 Months of Boredom

Tuesday, February 4th, 2014

The cliche, “He who lives in a glass house shouldn’t throw stones,” is the theme of this post. Let’s take Larry Hill of Rocky Mount, North Carolina. Mr. Hill had a tax preparation business. He made this YouTube video asking young people to think before they act:

Unfortunately, Mr. Hill had his own issues. From the DOJ press release when he pleaded guilty to conspiracy:

Between 2010 and 2012, HILL and his co-conspirators filed well over 2,000 federal income tax returns for HTS customers that claimed, collectively, over $14 million in tax refunds. Most of the HTS returns reported materially false information – including false dependents, income, and withholdings – in order to maximize the earned income tax credit and otherwise cause the issuance of inflated refunds. HILL and his co-conspirators pocketed a portion of every fraudulent tax refund that was issued. According to the criminal information, HILL personally collected, on average, $1,000 or more from each such refund.

Today, he found out how long he would face at ClubFed: 100 months (a little over 8 years). While Mr. Hill could have received 125 months, prosecutors asked for the bottom end of the range because he cooperated with authorities. But as WRAL reported,

The judge agreed to the lower sentence of 100 months but said Hill deserved the “most severe punishment to reflect the seriousness of the offense,” pointing out that Hill used much of the money to buy himself expensive jewelry and cars, including a Maserati. The judge also noted that Hill was on supervised release from an insurance fraud prison term when he committed the tax fraud.

Mr. Hill had emailed WRAL when his legal troubles emerged, and stated,

“He without sin cast the first stone,” Hill wrote, adding that “life would be boring” if everyone was like actor Bill Cosby.

That might be boring, but I’m betting that Bill Cosby lives an exciting life compared with the 100 months that Mr. Hill will spend at ClubFed.

Tax “Professionals” Behaving Badly

Sunday, February 2nd, 2014

A couple of news pieces out of the Department of Justice this week highlighted two tax “professionals” who apparently behaved badly. Let’s start with an alleged violator out of Plantation, Florida. Keisha Stewart owns Professional Tax Services Inc., but her methods allegedly were anything but professional. Her customers were satisfied, and why not: They apparently received $1.6 million in tax refunds they weren’t entitled to.

Ms. Stewart wanted her clients to get tax credits. There’s nothing wrong with that, but there is a mandatory factor: You have to be eligible for the credits. The American Opportunity Credit (a refundable education credit) requires that you (or a dependent) be an undergraduate at a college or university; residential energy credits (another refundable credit) require that you make energy upgrades to your residence. That minor detail apparently escaped Ms. Stewart according to the DOJ. The DOJ asked for a permanent injunction against Ms. Stewart to bar her from preparing federal tax returns for others.

Meanwhile, a Natchitoches, Louisiana tax preparer will enjoy ClubFed for 18 months. In what will sound familiar, Lashanda Harris used a similar strategy to that Ms. Stewart allegedly did: Phony W-2s, withholdings, and credits. “As part of the scheme, Harris received ‘kickbacks’ from the customers.” Ms. Harris pleaded guilty last October.

I do agree completely with a suggestion made by the DOJ in the press release on Ms. Harris:

Keep your personal information safe by:

  • shredding personal information before trashing it;
  • being aware of imposters who send phony emails that look like they’re from the IRS asking for personal information; and
  • limiting the personal information given to the public and businesses.

That’s excellent advice.

No Instant Replay Here

Sunday, November 10th, 2013

There’s an etiquette involved in sending emails: You don’t use all capital letters in most cases. The same is true when you write; it’s poor form. Yet when Judge Timothy Black wrote about ITS Financial, LLC (aka Instant Tax Service) he began his decision to permanently enjoin ITS from operating or being involved in tax preparation in any way with a paragraph in all caps…and in bold. Less you think he didn’t have reason to do so, well:

The evidence at trial established that Ogbazion and his Defendant companies:

Clandestinely trained and encouraged ITS franchisees to prepare and file tax returns prematurely with paycheck stubs that omitted and understated income, and inevitably resulted in the submission of false federal tax returns;

Defrauded ITS customers, who are largely low-income, by marketing false and fraudulent loan products to lure customers into franchisees’ tax preparation offices;

Defrauded ITS customers by requiring franchisees to charge phony fees, as well as exorbitant fees, of which Defendants kept an average of 18%;

Forged customers’ signatures on loan checks and used those forged checks to operate Defendants’ businesses;

Willfully failed to pay their own employment taxes, and then lied about assets in connection with the collection of those taxes, hiding money in a secret bank account, defrauding the United States and third party creditors;

Lied on government forms, and encouraged franchisees to lie on government forms, including lying on IRS applications for EFINs and on IRS Forms 8879;

Obstructed government agents and materially assisted franchisees in circumventing IRS law enforcement efforts involving the suspension of EFINs;

Told franchisees to lie to government agents in connection with IRS compliance visits; and

Violated the terms of the Order of Preliminary Injunction issued by this Court.

Joe Kristan has more on why we’ve likely seen the end of Instant Tax Service.

The Wrong Kind of Education Leads to ClubFed

Monday, November 4th, 2013

A California tax preparer decided he wanted to increase refunds for his clients. There’s absolutely nothing wrong with that–I want my clients to get the maximum possible refund allowed under the law. It appears that Kenyon Williams forgot those last three words; he was found guilty of two counts of wire fraud and two counts of aggravated identity theft earlier today.

Mr. Williams prepared tax returns in San Diego and opened his own practice in 2011. In early 2012 he called a friend in Tampa, Alesia Spivey. Here’s what the Department of Justice press release says:

Williams called his friend and fellow tax return preparer, Alesia Spivey, who lived in Tampa, Florida, and discussed the 2012 tax season and Williams’ desire to maximize refund amounts for his clients. During this conversation, Williams solicited information from Spivey regarding methods used, in Tampa, to increase tax refunds.

There’s nothing wrong with this at all–in fact, it’s a good idea to learn from others. However, there was an issue. Continuing with the DOJ press release:

Spivey and Carlista Hawls explained to Williams that individuals in Tampa were using a particular interest income scheme to file bogus tax returns with the IRS. Spivey instructed Williams on how to fill out the tax returns by employing this interest income scheme.

This is where Mr. Williams should have said ‘Thanks, but no thanks,’ and hung up the phone. Because I’m writing this I’m sure you’re several steps ahead of me: Mr. Williams implemented the interest income scheme, and filed 168 fraudulent returns. This resulted in $517,744 of bogus refunds being issued.

But it didn’t end here:

In addition, on March 2, 2012, Spivey and Hawls flew to San Diego, California to meet with Williams. During that trip, Williams provided Spivey and Hawls with a list of names, dates of birth, and social security numbers, including a stack of Navy blood donor records, to be used in preparing fraudulent tax returns in Tampa.

Thus, the identity theft charges. Mr. Williams is looking at up to 49 years at ClubFed. Both Spivey and Hawls pleaded guilty earlier this year.

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

Sunday, October 20th, 2013

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.

Two Cases of Tax Return Preparers Committing Identity Theft

Sunday, September 15th, 2013

From the Bozo tax preparation front come two stories of preparers committing identity theft and preparing false tax returns. First, from Durham, North Carolina comes the case of Leslie Brewster. She’ll get to spend 70 months (nearly six years) at ClubFed for her part in a tax fraud scheme that occurred in the Tar Heel State.

Ms. Brewster did want to have her clients pay the least amount of tax possible. She just left out a couple of words that I use, “the least amount of tax legally possible.” She bought names and social security numbers to use on returns, and falsified hundreds of returns to get larger returns. It was the usual suspects in these cases: phony dependents, fake businesses, and incorrect education credits. She pleaded guilty to three felonies; besides the jail time, she must make restitution of $92,910.

From Atlantic City, New Jersey comes the story of Nicolas Gomez-Rua. He’ll get to spend 36 months at ClubFed for his part in a very similar scheme (to that of Ms. Brewster). Over a three-year periodf he ran a tax preparation business in Ventnor City, New Jersey. He, toom, included phony dependents, child tax and other credits to get his clients larger refunds.

But there’s more. from the DOJ press release:

Gomez-Rua admitted that he maintained a file of Social Security cards and birth certificates for individuals born in Puerto Rico that was used to add fraudulent dependents on the 1040 forms that were filed with the IRS. Clients paid Gomez-Rua on average $300 to $500 for the use of fraudulent dependents. Gomez-Rua admitted that after preparing the fraudulent returns, he filed the false returns electronically and by U.S. Mail with the IRS.

Not only did he admit that he filed 729 returns containing such fraudulent items, he also purchased another’s identity to use when he applied for U.S. citizenship. That’s another crime: Unlawfully obtaining United States’ citizenship.

Mr. Gomez-Rua’s wages while at ClubFed will go towards the $170,211 in restitution he was ordered to pay.

A reminder to everyone: If it sounds too good to be true, it probably is.