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Lawyer admits to fraudulent letters used to lower clients' taxes

Reducing one's tax liability is a goal anyone in Southern California can warm up to, and given the Tax Code's notorious complexity, there are many ways one can use its multitude of provisions to lower one's tax bill. Creative attorneys and tax professionals have been finding ways to draw up innovative tax strategies for many years.

There are perfectly legal ways to do this, but sometimes tax plans cross the line into criminally proscribed territory. Take the case of a former high-powered attorney. She was convicted last year of criminal tax fraud for drafting false opinion letters to support her clients' tax positions. With the aid of those letters, the clients accumulated in excess of $400 million in spurious tax losses.

But her conviction, along with those of two other defendants, was overturned when it came to light that a member of the jury concealed her criminal record from the court during jury selection. Although the woman was granted the right to a new trial on the charges, she decided to enter a guilty plea yesterday. She will return for sentencing in early January, where a judge will decide whether to impose the five-year maximum term on each of the charges against her.

It is unknown whether the clients were aware of the fraudulent activity. Even if they did not know of the attorney's actions, their ignorance does not shield them from potential liability with the Internal Revenue Service. Individual taxpayers can be held responsible for errors and frauds committed by professionals who prepare their taxes. For those who do not do their own taxes, it is therefore of the utmost importance to retain someone trustworthy to prepare their returns.

Source: The Wall Street Journal, "Lawyer Pleads Guilty After Winning New Trial in Tax-Shelter Fraud Case," Chad Bray, Sept. 13, 2012

• If something goes wrong, however, it is also important to look for someone with experience dealing with the IRS. If you would like to learn more, please visit my Irvine IRS tax audit page.

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