$24,000 in EITC due diligence fines and other highlights from our favorite recent tax fraud cases.

Kansas City, Mo.: Preparer Virginia Marie Hayes, 32, has been indicted for making false claims for refunds.

The indictment alleges that Hayes, owner of KC Tax Professionals, filed fraudulent returns that claimed refunds to which the taxpayers were not entitled.

She is charged with 25 counts of making false claims to a government agency for returns filed in 2012 and 2013.

Fort Lauderdale, Fla.: The Justice Department has filed to permanently bar preparer Billy Philippe from preparing federal tax returns for others.

The suit alleges that he unlawfully understates clients’ income tax liabilities and overstates refunds with deliberate misstatements on the returns. The suit also asks the court to order Philippe to turn over a list of all returns he prepared since Jan. 1, 2012.

The complaint alleges that Philippe, the majority owner of Advantage Tax Center Plus, prepares federal income tax returns for clients that fraudulently overstate the amount of the refunds due by falsely claiming refundable credits, including the EITC, and credits for education expenses. The complaint further alleges that he frequently claims fraudulently inflated wages or self-employment income to maximize EITCs.

The IRS previously penalized Philippe more than $24,000 for failure to exercise the due diligence required to claim the EITC for clients and the failure to properly identify himself as the paid preparer, according to the complaint.

From 2011 to 2015, Philippe prepared at least 899 returns, according to the complaint, which also alleges that audits of 44 returns prepared by Philippe in 2014 and 2015 revealed that he claimed credits clients were not entitled to take or understated their correct tax liability by more than $300,000 in the aggregate, or both.

Lawton, Okla.: Preparer Laquinta Q. Fisher has been sentenced to 18 months in prison and three years of supervised release and been ordered to pay $133,955 in restitution to the IRS for an EITC fraud involving false reporting of income and dependents.

According to an indictment on Aug. 17, Fisher was a self-taught preparer who prepared federal returns for individuals for tax years 2010 through 2014. She recruited clients by word of mouth and by distribution of flyers, and advised her clients that all they needed was a dependent child to receive a refund from the government. She then falsified returns for clients by adding fictitious income to increase the EITC and by adding false dependents.

She pleaded guilty on Oct 5.

Sterling, Ill.: A federal court has permanently enjoined preparer Daria Emma Valdivia, individually and d.b.a. Emma’s Agency, from preparing federal returns for others.

According to the government’s complaint, Valdivia routinely prepared federal returns for clients that falsely claimed unqualified individuals as dependents, such as persons who did not live in the U.S. or in a contiguous country. The complaint alleges that Valdivia also improperly reported clients’ filing status as head of household when the clients were ineligible for that status. The complaint further alleges this allowed Valdivia to understate clients’ tax liabilities and claim undeserved refunds.

According to the complaint, she continued to engage in this conduct despite the IRS assessing her $132,000 in penalties for similar violations. IRS audits of 65 returns prepared by Valdivia allegedly show that she underreported clients’ tax liabilities on 89 percent of the returns by a total of more than $285,000.

Valdivia agreed to the order, which requires her to turn over to the U.S. a list of all persons for whom she prepared federal returns since 2012.

St. Louis, Mo.: Semere Tsehaye, 39, owner and operator of at least 20 Instant Tax Service franchise locations in Illinois, Kansas and Missouri from 2005 to 2011, has been sentenced to 27 months in prison and three years of supervised release and been ordered to pay $$298,178 in restitution to the IRS for two counts of tax evasion.

According to court records, Tsehaye, who was convicted on Oct. 4, owned and operated his locations using two entities: A&S Tax Service and ERI Enterprises. ITS was a brand name of ITS Financial LLC, a nationwide prep business headquartered in Dayton, Ohio.

Court records show that during the years 2010 and 2011, Tsehaye generated fraudulent financial summaries that understated the gross receipts generated by A&S and ERI and provided them to his return preparer to prepare Tsehaye’s individual income tax returns, which Tsehaye then filed with the IRS. These returns underreported A&S and ERI’s gross receipts by some $547,895 in 2010 and $1.03 million in 2011, resulting in Tsehaye evading approximately $581,264 in tax.

Oklahoma City, Okla.: Janis Ann Edwards, 67, sole owner of Corporate Resource Management and a number of related companies that operated as professional employer organizations, has pleaded guilty to tax evasion.

According to an indictment from June 22, Edwards and her companies served small businesses by, among other tasks, taking on responsibilities for paying employees’ payroll and collecting and paying payroll taxes to the IRS. The 23-count indictment alleges that Edwards failed to pay substantial amounts of payroll taxes collected from small businesses that had contracted with one of the CRM-related entities.

The indictment alleges that Edwards regularly and intentionally directed her employees to alter these quarterly returns to reflect less payroll tax liability than what was owed. For the 23 quarters identified in the indictment, Edwards is alleged to be responsible for $6,387,399.09 in unreported payroll taxes.

Edwards pled guilty to evading approximately $1 million in taxes and faces a maximum five years in prison, three years of supervised release and a fine of $250,000 plus costs of prosecution. In a plea agreement, she has agreed to pay restitution to the IRS for related tax losses, which she agrees are between $3.5 and $25 million.

New York: Preparer Vanya Thompson, 39, has pleaded guilty to aiding and assisting in the preparation of false income tax returns.

According to court documents, from about 2004 through 2014 Thompson ran a tax prep business under a number of names, including Lyn Services, Ricardo Multi-Service and Katie’s Multi-Service. To generate larger refunds for her clients, Thompson falsified such items on returns as charitable deductions and business income, expenses and losses, causing a tax loss of more than $250,000.

Sentencing is June 2, when she faces a maximum of three years in prison, a period of supervised release, restitution and monetary penalties. Thompson also agreed to an order prohibiting her from preparing returns for others.

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Jeff Stimpson

Jeff Stimpson

Jeff Stimpson is a veteran freelance journalist who previously served as editor of The Practical Accountant.