Taxable Talk

Lester Morrison had a great business going. His “Tax Prep” (also called “24 Hour Income Tax Refund Service”) was doing a bang-up business in the Bronx and across the river in New Jersey. Their clients were quite pleased with their refunds. Sure, much of the refunds went to the preparers but what’s not to like when you get money you don’t expect.

Mr. Morrison’s clients had children. Sometimes these were children who weren’t clients’ children and who had already died. Yes, Mr. Morrison and his co-conspirators took deceased children of others and put them on tax returns. And that was one of the more mundane things he did.

Some of the other practices detailed in the announcement of his guilty plea (last August) include phony business losses from fictitious businesses, non-existent charitable donations, false education credits, and phony child care tax credits.

We’re not talking peanuts here, either. The scheme netted $28 million from over 7,500 refunds…until it was caught. At his plea last August Mr. Morrison agreed to make restitution. Last week he was sentenced to six years at ClubFed; the restitution totals $17.3 million.

If your tax preparer puts a child you don’t know of on your return, that’s a big hint that something is wrong.

There’s a debate over whether licensing tax professionals will do any good. California requires all tax professionals to have licenses, and we have plenty of Bozo tax preparers.

In any case, out of Edgewood, Maryland comes word that there is one less bozo professional out there. Arnold Wood prepared returns, but he liked to give his clients bonuses. Like Western Tax Service, Mr. Wood didn’t see a deduction or credit that he couldn’t take for his clients. Who needs to actually make charitable contributions to take a deduction for charitable contributions? Certainly not Mr. Wood’s clients!

Though the story doesn’t mention how the IRS discovered the secret of Arnold’s Tax Service, they did. They weren’t as pleased as Mr. Wood’s customers. Well, Mr. Wood’s customers weren’t pleased either when they discovered that they actually had to make charitable contributions to take a deduction for them.

Mr. Wood didn’t stop with others; his own tax returns featured the same combination of phony credits and deductions. While Mr. Wood’s own return featured only $45,000 of phony deductions, the overall scope of the fraud was significant. The phony refunds were between $1.5 million and $1.8 million for 2006 -2008.

Like all good things–and all bad things–Mr. Wood’s business went through a change. Those business cards that said he’d get more for yourself and had pictures of money are now a thing of the past. Mr. Wood pleaded guilty and will serve two years at ClubFed and must make restitution of $45,000. Mr. Wood’s customers are receiving “Dear Soon to be Audited Taxpayer” letters and will, if they haven’t already, be paying the true amount they owe.

As usual, the moral of the story is that if someone tells you that he can always get you a refund run, don’t walk, in the other direction.

With the 2008 Tax Season finally having drawn to a close, here’s a primer on what not to do. Just claim business losses for all of your clients, even those without businesses. Your clients will be happy and you’ll get lots of referral business…until the IRS finds out.

That’s what Donald Bushnell of Kansas City did. And he was successful until the IRS discovered what he did. Mr. Bushnell had pleaded guilty to causing the $1.1 million tax loss through his scheme, and he was sentenced last week to three years at ClubFed and a $250,000 fine.

Bozo tax preparer schemes work great…until you’re caught.