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Tax fraud and professional preparers: a cautionary tale

In the medical profession, the phrase is "physician, heal thyself." But a doctor is not always a good patient. And, in the field of tax law, a professional tax preparer is not immune from compliance problems with his or her own taxes.

In a recent case in the Washington, D.C. area, a former certified public accountant who prepared taxes for others has pleaded guilty to tax fraud. The former CPA was also an attorney. And his two businesses reportedly earned seven-figure annual revenues preparing and filing hundreds of income tax returns for others.

But federal prosecutors say that the man failed to file federal income taxes over a three-year period from 2004 to 2006. According to the charges, the man did not file taxes either for himself or his businesses during those years.

Last week, the former CPA pleaded guilty to preparing fraudulent tax returns for others and failure to file taxes for himself and his businesses. The man has not yet been sentenced. But he faces up to six years in federal prison, as well as a $500,000 fine.

The fraudulent returns involved the reporting of unjustified tax losses. The former CPA admitted to authorities that there were at least two dozen returns among the thousands he filed where this occurred.

It is of course ironic that someone who is paid to file taxes for others should be found to have failed to file his own taxes. It is does underscore, however, that a taxpayer's choice of which professional preparer to use is a very important one. After all, worries about tax fraud charges against a preparer are hardly welcome news for the taxpayer who hired that preparer.

Source: The Progressive Accountant, "Former D.C. CPA Guilty of Fraud," August 5, 2013