Fraudulent Tax Returns Caused $17 Million in Losses to the IRS
An Arizona tax preparer pleaded guilty to preparing fraudulent tax returns as part of a nationwide abusive-trust tax shelter scheme. The scheme concealed more than $60 million in income, causing a $17 million loss to the IRS.
The Scheme Explained
Between 2017 and 2023, the tax preparer operated a business specializing in tax return preparation. During this time, he played a key role in a complex scheme that promoted, sold, and implemented fraudulent tax shelters.
This abusive-trust tax shelter directed participants to assign or “donate” their income to sham trusts and so-called “private family foundations.” These entities, however, were merely bank accounts holding funds the clients continued to control. The scheme aimed to create the illusion that income belonged to the trusts and foundations, not the individuals.
The tax preparer filed more than 500 fraudulent returns for around 60 clients nationwide, most of whom were successful business owners. By claiming illegitimate deductions and misreporting income, he shielded millions of dollars from taxation.
How the Fraud Worked
The tax preparer was trained to use the fraudulent methods of the scheme. On the tax returns, he reported income as belonging to sham trusts, offset it with fake expenses, and included personal living costs disguised as legitimate deductions.
For his services, the tax preparer received fees from clients participating in the shelter. These actions directly supported the broader tax fraud orchestrated by the scheme’s promoters.
Consequences for Fraud
The fraudulent tax filings resulted in more than $60 million in income being unlawfully concealed and caused approximately $17 million in tax losses to the IRS. Now, the tax preparer faces severe penalties, including:
- Prison Time: Up to three years for each count of preparing false tax returns.
- Fines: Up to $250,000 per count, along with prosecution costs.
- Additional Penalties: Supervised release and restitution to the IRS.
Sentencing is scheduled for August 14, and a federal judge will determine the final penalties after considering the U.S. Sentencing Guidelines.
IRS and DOJ on High Alert
This case highlights the vigilance of the IRS and the Department of Justice in combating tax fraud schemes. The IRS Criminal Investigation unit uncovered the fraud, while attorneys from the Tax Division are prosecuting the case.
Acting Deputy Assistant Attorney General Stuart M. Goldberg emphasized the DOJ’s commitment to holding accountable those who abuse the tax system.
Lessons from the Case
This case serves as a stark reminder for taxpayers and tax professionals alike. Participating in or facilitating tax fraud schemes carries steep consequences, including hefty fines, prison time, and damage to one’s professional reputation.
Business owners should exercise caution and consult trusted tax professionals to ensure their tax filings comply with federal laws. Professionals, meanwhile, must prioritize ethics and compliance to avoid becoming complicit in fraudulent activities.
Protecting the Tax System
The IRS continues to crack down on abusive tax shelters and fraudulent return preparation. Their actions safeguard the integrity of the tax system, ensuring that everyone pays their fair share.
As a professional – Revolutionize your tax workflow with our complete suite of tools: onboarding links, initial interviews, compliance planning, calendars, messaging, task management, and TaxMan for advanced tax research. Please sign up. Our resource directory also offers valuable links to assist in managing various financial and legal aspects of a business or individual.
