Tax Season & Frauds: Return Preparer Scams
By a Biometrica staffer
Every year, as the tax season begins, so does an uptick in tax related frauds and scams. The season began on Feb. 12 this year, when the window for taxpayers to start filing their returns to the Internal Revenue Service (IRS) opened. Scams are also exacerbated during times of crisis, as with the Covid-19 pandemic. In July 2020, the IRS issued a statement listing out the “Dirty Dozen” scams for the year and urged Americans to be vigilant of those scams during the pandemic and its aftermath. Today, on Tax Day, we focus on one of those Dirty Dozen scams from the 2020 list: Unscrupulous tax preparers.
Since February, several fraudulent tax return preparers have been shutdown, or sued by the Department of Justice (DOJ) to shut down. Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers, or talking taxpayers into doing illegal things they regret later. And it has never been more important to take care in selecting a credible tax preparer than now, when the country and the world is still coping with an ongoing pandemic. These unscrupulous tax preparers have pulled off, and some have been shut down for, various scams.
We take you through the gamut of tax preparer frauds in the country so far in 2021 below, based on statements made by the DOJ since the tax season began in February. The complaint seeks to bar these tax preparers from preparing tax returns for others in every single one of these cases.
On Feb. 23, the DOJ said the United States had filed a complaint seeking to bar three Miami Gardens-area tax return preparers and their businesses and franchises, from owning or operating a tax return preparation business and preparing tax returns for others. John L. Gay Jr., Tammi King, and Norman G. Williams Jr. manipulated Florida-area taxpayers’ returns — often without taxpayers’ knowledge — to significantly understate their tax liabilities or falsely render them eligible for tax credits. The complaint alleges they fabricated charitable contributions, unreimbursed employee expenses, residential energy credits, and head-of-household filing status, as well as business income or expenses in order to overstate claims for earned income tax credits. Their consistent understatement of liabilities and overstatement of refunds has resulted in millions of dollars of lost tax revenue to the United States, the statement says. For example, Williams claimed more than $1.3 million in false or inflated charitable contributions for 96 of his fellow firefighters in 2020 alone. These individuals, and many other of defendants’ customers, are now liable for repayment of income tax refunds wrongly claimed in their names, plus penalties and interest.
Read more here.
On March 17, the DOJ said a complaint was filed against Gretchen Alvarez, aka Gretchen Trejo, and Sick Credit Repair Tax and Legal Services, the name under which Alvarez sometimes does business. Alvarez prepares federal income tax returns for Rockford, Illinois-area taxpayers that significantly understate her customers’ tax liabilities by fabricating business losses. The suit also alleges that Alvarez fraudulently claimed that some customers attended higher education institutions, when they did not, to fraudulently claim education credits on the returns she prepared. In particular, she fabricated money-losing “side businesses” to fraudulently reduce her customers’ legitimate taxable income, the suit alleges.
Read more here.
On March 18, the DOJ said a complaint was filed against Leannette Scott alleging that she prepares federal income tax returns, on which she reports false sole-proprietorship business expenses and education credits. The IRS interviewed 21 of Scott’s customers, 17 of whom allegedly stated that Scott included incorrect and false information on their 2018 income tax returns. Just the returns of those 17 customers reflect an actual tax loss to the United States of $39,287, the IRS determined. Scott prepared at least 562 income tax returns from 2016 to 2020, for tax years 2015 through 2019, the complaint adds, the DOJ said.
Read more here.
On March 19, the DOJ announced that a complaint was filed against Kathy R. Moton and alleges that she owns and operates defendant K&M Tax Essentials LLC. Moton and K&M Tax Essentials prepared and filed hundreds of tax returns from 2018 through 2020. The complaint alleges that Moton and the company prepared returns that claimed false American Opportunity Tax Credits, which provide a tax credit for tuition and expenses for an undergraduate or other recognized education credential. The complaint further alleges that defendants submitted forms to the IRS falsely, attesting that they confirmed the taxpayer’s eligibility for the credits, but concealed the fraudulent claims from their customers by omitting forms from the copies of returns provided to those customers. The defendants’ practices resulted in a loss to the IRS of over $1 million, the complaint says according to the DOJ. On May 14, the DOJ said that a federal court has permanently enjoined Kathy R. Moton and K&M Tax Essentials LLC from preparing returns for others and from owning, operating, or franchising any tax return preparation business in the future.
On March 19, the DOJ said that a complaint had been filed seeking to bar a Visalia, California tax return preparer from owning or operating a tax return preparation business and preparing federal income tax returns for others. It was filed against Esther Oregon both individually and doing business as “Mex Tax Service,” which the complaint alleges is a sole proprietorship. Oregon and Mex Tax Service allegedly prepared federal income tax returns for taxpayers that underreported their customers’ federal tax liabilities for the 2017 and 2018 tax years by including, among other things, inflated or false claims for tax credits, itemized deductions, and income or business expense deductions. defendants prepared over 3,600 tax returns in aggregate for tax years 2017 and 2018.
Read more here.
On March 29, the DOJ said a complaint had been filed against Gerald Vito, James Eleby, and Gerald Vito LLC dba Income Tax Services and alleges that defendants prepared federal income tax returns for numerous Miami-area taxpayers that significantly understated their customers’ tax liabilities. In reporting their customers’ itemized deductions, defendants fabricated or inflated charitable deductions, medical expenses, and employee business expenses, the complaint alleges. The defendants prepared over 1,900 tax returns during the 2018 and 2019 calendar years, and each such return, on average, understates the tax the customer owes by thousands of dollars. As a result, the defendants have likely cost the United States millions of dollars in lost tax revenue, according to the complaint says the DOJ.
Read more here.
On March 31, the DOJ announced that a complaint was filed against Alicia Coarsey, aka Meredith Coarsey, and Tax Xpress of Tifton LLC, alleging that Coarsey owns Tax Xpress and prepares federal individual income tax returns claiming fabricated medical expenses and charitable contributions. Coarsey fabricates claimed business losses, in some cases for non-existent businesses, in order to claim improper earned income tax credits, the complaint added. For example, she claimed over $19,000 in medical deductions for tax year 2019 for one customer, who has since stated that he did not have significant medical expenses in that year. The United States has likely lost millions of dollars in tax revenue as a result of her activities, the complaint says according to the DOJ statement.
Read more here.
On April 1, the DOJ said a federal court had permanently enjoined a Dallas-area tax return preparer from preparing federal income tax returns for others pursuant to a stipulated permanent injunction. Keysha Briseño continually and repeatedly included false business losses and fabricated business expenses on some of her clients’ returns, according to the complaint. Briseño and her spouse allegedly own and operate a tax preparation business known under the names Tax Genius LLC; Tax Genie; and K&J Tax Service. She controls Tax Genius and has prepared over 4,200 tax returns between 2017 through 2019, more than 25% of which contained fabricated business losses. Even after after the IRS revoked her federal return preparer identification in 2012, Briseño continued to prepare tax returns using her sister’s preparer identification. Her fraudulent return preparation activities have caused significant harm to her customers and resulted in millions of dollars in tax losses to the United States, the DOJ statement said.
Read more here.
On April 23, a federal court permanently enjoined the owner of tax preparation businesses in Suwanee, Georgia, from preparing federal tax returns for others. Tiffany Nakia Expose of Buford owned and operated Expose Tax & Financial Services Inc, and prepared tax returns that understated tax liabilities and/or overstated refunds, the complaint alleged. Her alleged schemes included understating business income by fabricating or inflating reported business losses, fabricating or overstating itemized deductions, and claiming unsupported education credits. For example, on over 100 returns, Expose falsely claimed that taxpayers attended school at a particular institution despite knowing that they had not done so. She knowingly prepared and filed hundreds of false returns, and did so despite two separate attempts by the IRS to bring her into compliance, both of which resulted in penalties assessed against her.
Read more here.
On April 30, the DOJ said that a federal court had permanently barred a Florida tax return preparer from preparing federal tax returns for others. Brandhi Shaw prepared tax returns in Belle Glade, Florida, at Premier Financial Services and Premium Financial Solutions. Shaw prepared tax returns that purposefully understated the tax her customers owed or overstated the refunds they were entitled to claim, the complaint alleges. For example, Shaw allegedly prepared tax returns for customers that fabricated business expenses of over $40,000 in one case and over $20,000 in expenses plus over $22,000 in costs of goods sold in another.
Read more here.
On May 13, the DOJ announced that a complaint had been filed against Archibald W. Smith Jr., also known as Archie Smith, and alleges that he operated a tax preparation business in San Diego, California, under his own name and the names “Ablizzia Bookkeeping and Production” and “ABPC Inc.” He allegedly prepared and filed tax returns that falsely understated his customers’ federal income tax liabilities by fabricating businesses and related business expenses, fabricating deductions for unreimbursed employee business expenses and charitable contributions, and overstating tax credits for solar-panel installation. The defendant prepared over 3,500 tax returns in aggregate for tax years 2013 through 2020, the complaint adds.
Read more here.
In its 2020 Dirty Dozen list, IRS Commissioner Chuck Rettig said: “Tax scams tend to rise during tax season or during times of crisis, and scam artists are using pandemic to try stealing money and information from honest taxpayers. The IRS provides the Dirty Dozen list to help raise awareness about common scams that fraudsters use to target people. We urge people to watch out for these scams.”
If you are a taxpayer, here are a few things you can do to avoid ending up choosing an unscrupulous tax preparer, according to the IRS:
- Definitely avoid the “ghost” preparer. Ghost preparers don’t sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare but not digitally sign as the paid preparer.
- Check a preparer’s ID for authenticity. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns.
- Avoid preparers who ask you to sign a blank return, promise a big refund before looking at your records, or charge fees based on a percentage of the refund.
- Check the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to find preparers in your area who currently hold professional credentials recognized by the IRS, or who hold an Annual Filing Season Program Record of Completion.
You can find more tips from the IRS on choosing a reputable tax preparer here. Remember, taxpayers are ultimately responsible for the accuracy of their tax return, regardless of who prepares it.