Taxable Talk

Every so often I think that the saga of Western Tax Service has come to an end. Western, as you may remember, was the Anaheim-based tax preparation firm that thought that no deduction was too trivial to take for its clients, even if they didn’t qualify for them. They charged a lot, mind you, but the refunds they got for their clients were very good. And very illegal; the proprietors are now at ClubFed and the unlucky customers had to give back the refunds and pay what they really owed.

A class action suit was filed, and it was settled for $500,000. Clients of Western can apply for a piece of the settlement and receive up to $5000 per year they were a client of Western. The Irvine law firm of Lanza & Goolsby represented the plaintiffs; their website has links to the trial documentation (including the settlement) and to the claim form.

The settlement money comes from $596,010 that the government seized at Western’s offices. So at least some good has come from Western Tax Service. This should remind everyone that if your tax advisor tells you that you can get, for example, a $10,000 charitable deduction without any receipts, make sure to go elsewhere…fast.

Every time I think I can finally put to bed Western Tax Service I see yet another story on them. Yesterday, the only two individuals who went to trial as part of the Western Tax Service saga found out their fate. Kelly Agbonmoba David (aka David Kelly) and Anthony Stefani each received terms at ClubFed. Mr. David will spend 46 months while Mr. Stefani received 27 months.

Both individuals were tax preparers at Western Tax Service. Western, as I’ve written about before, was very successful. Indeed, they prepared 1146 returns in 1998 and 8645 returns in 2001. Of course, their methods—phony and false deductions—weren’t legal. And their fee structure was unique, too. The larger your refund, the larger their fee. Preparers at Western shared in the bounty; they received 15% commission on each return.

No matter who prepares your tax returns, remember that you are responsible for them. Always review your returns in case you find yourself in front of a bozo tax preparer. Luckily, these bozos won’t be preparing returns any time soon.

Press Release Here

Samuel Joseph DeAngelo headed Western Tax Service. It attracted tax clients quickly as it averaged $2,500 refunds for each customer.

It’s techniques were certainly interesting, and come from the Richard Hatch School of Tax Preparers:

– Making up false deductions for employee business expenses;
– Making up false charitable deductions (typically 10% of AGI);
– Phony depreciation deductions;
– Phony tax payment deductions; etc.

The IRS audited a taxpayer who used Western Tax Service and discovered the fraud. Most of the tax clients had no idea that Western was doing anything wrong. The IRS expanded their review of returns prepared by Western (Western prepared about 8,000 returns in 2001). Yes, Western charged large fees but they got large refunds; what could be the problem? (Hint: If it sounds too good to be true…)

The axe fell in 2004. Now, the story reaches its conclusion. Last Friday DeAngelo pled guilty to defrauding the IRS and helping people file false tax returns. He also pled guilty to using others to engage in currency transactions to avoid the $10,000 reporting requirement: he sent employees to the bank to make multiple $9,990 deposits (don’t try this at home!). DeAngelo faces a maximum of 24 years in jail.

I had a couple Western refugees come in to my office for help. They were rudely surprised that you do have to pay tax on your income….

Press Release: US Dept. of Justice
News Story: Orange County Register