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Many false returns: tax preparer convicted of inflating refunds

Many taxpayers rely heavily on professional tax preparers. Roughly half of all taxpayers use them.

To be sure, this division of labor is not always ideal. Working with a paid preparer can pave the way to smooth and (relatively) simple tax compliance. But it can also get you in trouble if the preparer you choose betrays your trust.

In this post, we will take note of a recent conviction of a professional tax return preparer for preparing false returns.

The important role of paid tax preparers is one of the recurring threads in this blog. We discussed it late last year, on the eve of filing season, in a post on factors to consider in choosing a tax preparer.

In that post, we took note of things like qualifications, having a Preparer Tax Identification Number (PTIN), and whether there is any known history of complaints or other concerns.

Based on a recent case in New York state, we could also add another factor: the fact that the preparer seems overly aggressive in promising that you will get a large federal tax refund.

The case involved a woman who ran a tax preparation business in the New York City area. Between 2007 and 2010, the woman prepared numerous tax returns that generated large refunds for her clients.

Eventually the Criminal Investigation division of the IRS looked into the returns and referred the case to the Justice Department's Tax Division for prosecution.

Prosecutors alleged that the returns claimed false losses and inflated or even entirely fabricated deductions. These falsities led to larger tax refunds than were supported by the facts, according to the charges.

The tax preparer fought the charges and went to trial. But a federal jury found her guilty on 21 counts of preparing false returns. She has not yet been sentenced, but faces many years in prison and substantial fines.

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