WASHINGTON - The United States has asked a federal court to permanently bar a Birmingham, Ala., man from preparing federal tax returns for customers, the Justice Department announced [August 30]. The suit, filed in U.S. District Court in Birmingham, alleges that Douglas E. Dent fabricates large tax withholdings that result in large bogus refund claims on customers' tax returns.
According to the complaint, each of the 47 federal tax returns prepared by Dent since 2008 has requested a fraudulent refund, often in amounts exceeding $100,000. The total amount of bogus refunds Dent has sought for customers exceeds $14 million. The government alleges that Dent often uses false Internal Revenue Service (IRS) Forms 1099-OID to report both fictitious interest income and tax withholdings.
The extreme chutzpah aspect is not just the alleged bogus refunds, it is the instructions Mr. Dent allegedly gave his clients when they were asked by the IRS for more information to support their very large and suspicious-looking refund claims:
Quoting from the Justice Department complaint[emphasis added to indicate the most outrageous alleged chutzpah]:
When challenged by the IRS to support the positions on the returns he prepares, Davis often submits a Form 56, "Notice concerning a Fiduciary Relationship," falsely identifying the Secretary of the Treasury or the IRS Commissioner as the customer's fiduciary with respect to the tax matter.
In July of 2008, Dent prepared a 2005 amended federal income tax return for Jack and Darlene Davis, who are employed as nurses and reside in Hayden Alabama. The return requested a fraudulent refund of $454,436, falsely claiming income tax withholding of $637,616. In response to the IRS's request for information supporting the income and withholdings reported on the return, the Davises provided a copy of Form 1040, Schedule B, prepared by Dent, which falsely reported interest income of $654,403 from various creditors of the Davises. At the same time, pursuant to Dent's instruction, Jack Davis sent a document to the IRS (Form 56), which purported to name Acting IRS Commissioner Linda Stiff and Treasury Secretary Henry Paulson as fiduciaries for his 2005 federal tax forms.
In order to substantiate the Millers' amended tax returns, copies of false Forms 1096 and 1099-OID were mailed to the IRS. In an interview with IRS agents in November 2009, Dent admitted that he created the returns, forms and IRS correspondence the Millers used, including a Form 56 sent to the IRS that purported to name Treasury Secretary Paulson as [his clients'] fiduciary.
The Justice Department complaint also alleges that Mr. Dent prepared bogus tax returns claiming large refunds on behalf of other family members including his late mother, Ann Dent.
Ann Dent died in January 2008, yet in April 2008 Dent prepared and amended 2005 and 2007 income tax returns for her. The returns falsely reported withholdings of $338,000 (for tax year 2005) and $161,193 (2007) and fraudulently sought refunds of $341,704 (2005) and $124,372 (2007). Dent prepared and signed false Form 1096 and 1099-OID to substantiate the amounts shown on the returns. When questioned about the accuracy of the returns by the IRS, Dent requested in correspondence that the returns be processed "without further delay."
The amazing thing is that, under current law, Mr. Dent still has the unquestioned right to continue to operate as a paid professional tax preparer until such time as a federal court sees fit to issue an injunction.
All that will change when the new preparer regulations go into effect next year.
Of course, neither a federal court injunction nor new rules requiring that he be licensed and regulating may necessarily stop preparers who are determined to "do their own thing" in flaunting the law, as the Justice Department asserts Mr. Dent has been doing.
The question on my mind: why is the Justice Department making such a big deal about getting an injunction against this preparer making it illegal for him to prepare more returns. Given the facts they assert in their complaint, it seems to me that the DoJ should be pursuing criminal sanctions, not just injunctions.