Saturday, July 25, 2009

What does a preparer have to do to face jail time?

Earlier I explained that it's hard for the DOJ and IRS to shut down egregiously fraudulent tax preparers who operate large-scale operations filing hundreds and thousands of bogus tax returns over many years.

It can take years just to get an injunction. It takes vast quantities of professional staff hours for the IRS and the DOJ to build a case for that injunction, so understandably they focus their limited enforcement resources on the very worst of the worst preparers.

And, at the end of all that work, what happens to the preparers the DOJ goes after for large-scale fraudulent preparation of bogus returns with fabricated deductions?

More often than not, it seems to be just an injunction.

Injunctions are civil actions. No jail time. No fine. Just a court order telling you that you must stay out of the tax prep business.

The cases against the preparers that resulted in injunctions were so outrageous that I wondered why the DOJ had only requested an injunction, rather than taken them to criminal court to face jail and large fines.

The apparent answer is that criminal cases are even more time-consuming to build than civil cases.

I started to wonder: What does a preparer have to do to get sent to jail?

Based on the pattern of DOJ results, the answer seems to be: a preparer has to do a LOT more than just fabricate deductions to go to jail.

Here's the story about one preparer who was recently convicted by a jury of and faces sentencing

WASHINGTON, June 12 /PRNewswire-USNewswire/ -- Following a four-day trial and less than an hour of deliberations, a federal jury today convicted tax return preparer, Marcel J. Toto-Ngosso, of Silver Spring, Md., of 17 counts of preparing false tax returns in connection with a scheme to generate fraudulent tax refunds for client-taxpayers, the Justice Department and Internal Revenue Service (IRS) announced.

According to the indictment and evidence introduced during trial, Toto-Ngosso ran a tax preparation business out of his home, located on East Shaw Avenue in Silver Spring. Toto-Ngosso prepared false tax returns for clients for tax years 2001 through 2006 which claimed numerous fraudulent deductions including false dependents, inflated charitable contributions, fraudulent un-reimbursed employee expenses and other false and fraudulent deductions to which Toto-Ngosso knew his clients were not entitled.

Evidence was also introduced that Toto-Ngosso purchased the names and Social Security numbers of individuals, which he later sold to his clients for $500 to $800 per dependent. Toto-Ngosso used these names and Social Security numbers on the false tax returns in order to secure larger refunds for his clients.

At trial, the government introduced evidence that after Toto-Ngosso learned he was under investigation by the IRS, he instructed his clients to lie about the information that he reported on their tax returns.

U.S. District Judge Roger W. Titus scheduled sentencing for Sept. 21, 2009. Toto-Ngosso was detained pending sentencing. He faces a maximum of three years in prison and a $250,000 fine for each count of conviction.

So, apparently, the DOJ threw the book at this preparer for not only preparing fraudulent returns but also for systematically involving other people in active fraud, by buying and selling SSNs and by instructing his clients to lie to the IRS.

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