Tax Blotter - August 2017

To err is human, but tax mistakes can often lead to confusion, penalties and even prison time for outright fraud. And no one is immune.

Here comes the judge. In a new case, a former Tax Court judge of 11 years flaunted a disregard for the tax laws by fraudulently deducting personal expenses and obstructing two IRS audits. Her expenses included rent, utilities and upkeep for her homes, Pilates classes, spa and massage fees; jewelry and personal clothing; wine club fees; Chinese language tutoring; music lessons; personal computers; and vacation expenses to far-flung locations. She has been sentenced to a prison term of 34 months, plus three years of supervised release, and owes $457,000 in restitution.

Liar liar, pants on fire. According to court documents, employees of two Virginia tax preparation firms routinely lied on the tax returns of clients so they could receive inflated refunds. The clients did not know about any of the discrepancies. Investigators claim that the firms operating out of storefronts were responsible for more than $250,000 in falsely claimed tax credits and deductions, including inflated write-offs for charitable contributions and education credits that weren’t legitimate.

Feds seek justice. The Department of Justice (DOJ) is sitting up and taking notice of tax return preparer fraud. It is teaming up with the IRS to shut down dishonest preparers who engage in fraudulent activities such as fake returns and other scams. In the last year, the DOJ’s Tax Division has filed dozens of civil actions against unscrupulous professionals. Plus, it is pursuing criminal prosecutions in some of the most egregious cases.