Some of our favorite recent tax fraud cases.
Olympia, Wash.: Preparer Kyle Baxter, 31, has pleaded guilty following his arraignment for a three-year fraud scheme in which he falsely claimed refunds while victimizing clients. He was charged with one count of filing a false, fictitious or fraudulent claim and admitted his role in orchestrating the fraud.
In his plea agreement, he admitted that from 2010 through 2013 he represented himself to be a provider of tax prep services under the name Baxtax, maintaining a Web site for the service and promoting it through ads in local media, without ever obtaining a PTIN. During those three years, Baxter, a firefighter, filed returns for at least 280 clients, many of whom were fellow firefighters, as well as emergency medical technicians and paramedics.
In many filings, he inflated refunds by claiming deductions and credits for which his clients were plainly ineligible, such as child tax credits for clients without children. Baxter also provided clients paper copies of returns purportedly reflecting their filings. Without clients’ knowledge he filed returns with distorted numbers that yielded even larger refunds and secretly diverted significant portions of these refunds to himself, eventually stealing at least $250,000.
Sentencing is October 3. Making false and fictitious claims is punishable by up to five years in prison.
Irvington, N.J.: Preparer Kellar Covington Jr., 62, owner of KCJ Financial Corp., has been sentenced to 18 months in prison for preparing false returns for clients. Covington, of Hillside, N.J., was also ordered to serve one year of supervised release and refrain from employment in tax prep for 10 years.
On Feb. 27, 2014, Covington pleaded guilty to one count of aiding and assisting in the preparation of false returns. According to court documents and statements in court, Covington owned and operated KCJ and assisted in the operation of DFC Tax Pros Inc., both tax prep businesses. He met with clients of both companies and obtained information for preparing their individual income tax returns.
Covington admitted that he fabricated and inflated Schedule A deductions, Schedule C expenses and Schedule E losses such as those for gifts to charity, job expenses and real estate losses. Covington thus obtained falsely inflated refunds for clients.
The tax loss is approximately $140,259.
Waco, Texas: The federal government has asked a court to permanently bar several tax preparers individually and through the business Accounting System Services, doing business as A Kind Bookkeeping and Tax Service, from preparing federal returns for others.
The defendants are Patricia Foley (a.k.a. Sissy Foley), Amanda Smith, April Leann Morgan (a.k.a April Leann Ercanbrack), Cassandra Egbert and Joshua Stifle. The complaint alleges that the defendants prepared income tax returns for clients that contained false, improper or inflated business expense deductions on Schedule Fs. The government contends that the defendants’ clients repeatedly reported and paid less tax than owed. The complaint alleges that the understatements cost as much as $500,000.
Washington, D.C.: Preparer Sherri Davis and her son Andre Davis have been charged with conspiring to defraud the IRS and with aiding and assisting in the preparation of false individual income tax returns. Sherri Davis was also charged with filing her own false individual income tax returns for two tax years.
According to the indictment, Sherri Davis previously owned and operated 2FT Fast Facts Tax Service and Andre Davis currently owns and operates Davis Financial Services. From January 2006 through April 15, 2013, the pair conspired with others to prepare and file returns that contained fraudulent deductions, expenses, losses and credits to which clients were not entitled, generating fake refunds.
The superseding indictment also alleges that from 2007 through 2009 Sherri Davis filed her own false individual income tax returns that underreported 2FT’s gross receipts and falsely claimed business losses for 2FT.
East St. Louis, Ill.: A federal court permanently barred CPA Ronald Manis of Carbondale, Ill., from engaging in certain conduct that includes preparing or filing federal returns by improperly claiming deductions for commuting to and from work, unsubstantiated meals and entertainment expenses or other non-deductible personal expenses.
The injunction order also bars Manis from misrepresenting his ability to practice before the IRS and requires him to hire and pay for a third party to review a sample of returns he prepared each year for five years.
Manis agreed to the injunction without admitting the allegations in the complaint.
Chicago: The United States has filed to bar Victor M. Crown, individually and through his businesses Crown and Franklin Accounting and Refunds, Crown-Franklin Accounting Inc., Accurate Accounting PV and Lourdes Theodossis Estate, from promoting two alleged fraud schemes and from preparing federal returns.
The complaint alleges that Crown’s schemes and the returns and other tax documents he prepares are based, at least in part, on his clients’ employment with the city of Chicago or on his clients’ discrimination awards in the class-action case Shakman, et al., v. Democratic Organization of Cook County, et al. (Shakman).
Shakman is a discrimination class-action lawsuit against the city of Chicago that alleged political patronage in the hiring and promotion of public officials. As part of the settlement, the city of Chicago agreed to set up a $12 million fund to compensate class members for injuries that allegedly arose from violations of court orders.
According to the complaint, Crown prepares federal returns and other documents that claim false amounts of tax withheld from clients’ earnings. The government contends that Crown asserts that his clients can claim credit for false amounts of tax withheld based on the city of Chicago incorrectly calculating income taxes it withheld from employees’ wages. The complaint maintains that Crown’s claims lack merit because an employee is not entitled to claim an income tax withholding credit for more than the amount of income taxes actually withheld from their wages.
The complaint also alleges that Crown prepares clients’ returns and other documents that claim bogus net operating losses. According to the complaint, Crown asserts that clients can claim these losses because the clients sought – but did not receive – an award amount for their Shakman class-action claim. For example, he allegedly prepared a return for a Shakman claimant who sought a $100,000 award but who received only $12,500. According to the complaint, Crown falsely claimed the client was entitled to an $87,500 net operating loss on the customer’s amended tax returns.
The complaint alleges that Crown’s scheme lacks merit because nothing in the Internal Revenue Code permits a taxpayer to deduct the amount of a denied discrimination claim as a net operating loss. According to the complaint, Crown’s frivolous claims resulted in fraudulently understated tax liabilities on his clients’ federal income tax returns.