False Deductions Cost IRS Over $10 Million in Taxes
LAWFUEL – The Law News Network – A Pacoima tax preparer was sentenced late today in Los Angeles to 11 years in federal prison. James Earl Wynn, 66, who has been in custody since April 2002, was convicted on April 22, 2005 of 24 counts of aiding and advising in the preparation of false income tax returns. Wynn was sentenced today to 11 years in prison by U.S District Judge J. Spencer Letts.
During a 10-day trial before Judge Letts, federal prosecutors presented evidence that Wynn solicited his clients by telling them that he operated a number of businesses in which they could invest. Wynn told his clients that if the businesses turned a loss, the clients could claim the loss on their tax return. As part of this arrangement, Wynn offered to prepare the clients’ tax returns. Wynn charged his clients a percentage of their tax refunds in addition to a return preparation fee.
Wynn did not tell his clients that many of the businesses listed on their tax returns did not exist at all. None of the businesses listed on their tax returns as part of the tax fraud scheme ever existed as a partnership, ever filed a partnership tax return or ever sustained the losses claimed on the taxpayers’ returns. Wynn caused more than 2,000 tax returns to be filed with the IRS claiming more than $75 million in false partnership losses. The tax loss to the government exceeded $10 million.
The government also presented evidence that Wynn continued to engage in this scheme even after he was indicted on August 31, 2000, and while he was free on bond pending trial. In April 2002, after IRS agents learned that additional tax returns with the same false partnership losses were being prepared at Wynn’s tax preparer business at 12967 Van Nuys Boulevard in Pacoima, they executed a search warrant at Wynn’s business for the second time (the first search warrant was executed at this same location in September 1998). IRS agents also took Wynn into custody after the court revoked his bond. Based on this evidence, Wynn was convicted of 10 counts of committing an offense while on release pending trial.
On July 18, 2005, Linda M. Hall, 59, who once worked for Wynn was sentenced to 70 months imprisonment and was ordered to pay restitution of $6,339,023.
This case is a result of an investigation by the Los Angeles Field Office of IRS-Criminal Investigation Division.
CONTACT: Assistant U.S. Attorney Dennis Mitchell
(213) 894-2484
Release No. LA-2006-16, February 15, 2006, Los Angeles, CA
Contact: Victor Omelczenko, Media Relations, 213.576.3010
Frank Fotinatos, Criminal Investigation Information, 213.576.3235
IRS TACKLES TAX RETURN PREPARER FRAUD
LOS ANGELES — While most tax return preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. “Taxpayers should be as careful as they would be in choosing a doctor or a lawyer,” says Victor Omelczenko, IRS spokesman in Los Angeles. “It is important to know that even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the tax return.”
Return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain tax credits fraudulently.
“The IRS Return Preparer Program investigates and refers criminal activity by return preparers to the Department of Justice for prosecution and/or asserting appropriate civil penalties against unscrupulous return preparers,” explains Frank Fotinatos, IRS Criminal Investigation Information Officer in Los Angeles.
Some return preparers have been convicted of, or have pleaded guilty to, felony charges. Additionally, the courts have issued 132 permanent injunctions against abusive tax scheme promoters and abusive return preparers since 2003.
IRS Criminal Investigation Statistical Information on Return Preparer Fraud,
National Figures
FY 2005
FY 2004
FY 2003
Investigations Initiated
248
206
229
Prosecution Recommendations
140
167
169
Indictments/Informations
119
121
109
Sentenced
118
90
49
Incarceration Rate*
85.6%
84.4%
83.7%
Avg. Months to Serve
18
19
19
*Incarceration may include prison time, home confinement, electronic monitoring or a combination.
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The following case summaries from the greater Los Angeles area come from public record documents on file in the court records in the judicial district in which the legal actions were filed.
Inglewood Tax Preparer Sentenced for Preparing False Income Tax Returns
On January 30, 2006, in Los Angeles, California, Catherine Simpson Dade was sentenced to 18 months in prison. Simpson Dade admitted in her plea agreement that for the 1998 through 2001 tax years, she prepared at least 268 fraudulent federal income tax returns for clients of Catherine Dade’s Electronic Tax Service, in Inglewood, California, which caused the IRS to incur a tax loss of $877,907. Simpson Dade admitted that in preparing the fraudulent returns, she knowingly and intentionally included fabricated business and personal expenses and deductions that she knew the clients were not entitled to claim and had not, in fact, incurred – – including fabricated deductions for charitable contributions, tax payments, and medical expenses.
Pacoima Man Sentenced for Preparing False Income Tax Returns
On September 6, 2005, in Los Angeles, California, Salvador Wenseslao Aguilar, of Pacoima was sentenced to 14 months imprisonment and ordered to pay $86,041 in restitution. Aguilar admitted in his plea agreement to causing over 70 fraudulent tax returns to be filed with the IRS, falsely claiming more than $200,000 but less than $350,000 from the United States government. According to the plea agreement, Aguilar used false forms W-2, false employers and false dependants for the individuals in whose names and social security numbers Aguilar prepared 1997 through 2002 tax returns, which were filed with the IRS.
Pacoima Woman Sentenced for Preparing False Income Tax Returns
On July 18, 2005, in Los Angeles, California, Linda M. Hall, of Pacoima, was sentenced to 70 months imprisonment and was also ordered to pay $6,339,023 in restitution. Hall admitted in her plea agreement that she prepared returns that listed false partnership losses which resulted in a loss of $6,121,919 to the IRS. Hall admitted that she willfully assisted in procuring, counseling and advising the preparation of the fraudulent tax returns that were filed with the IRS.
Arroyo Grande Woman Sentenced for Preparing False Tax Returns
On July 11, 2005, in Los Angeles, California, Carol Lynn Leekins, of Arroyo Grande, who also uses the name Carol Ford-Gridiron, was sentenced to 12 months and one day imprisonment. Leekins was also ordered to pay a $10,000 fine and $13,608 in restitution. Leekins admitted in her plea agreement that she prepared returns that listed false dependents and false amounts of income and expenses on Schedule Cs, forms filed by self-employed individuals that list income and expenses from their business. Leekins admitted that she knew the information was false and that the individuals named on the returns were not entitled to the refunds. The false returns claimed refunds of approximately $13,608.
Van Nuys Tax Preparer Sentenced for Preparing False Income Tax Returns
On April 18, 2005, in Los Angeles, California, Luis Olguin was sentenced to 18 months in prison to be followed by six months of home detention and was ordered to pay $140,067 in a fine to the
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IRS. In addition, Olguin is barred from the preparation of tax returns during the three year period of supervised release. Olguin, who operated L&L Professional Services, a tax preparation business, admitted in his plea agreement that he prepared 234 false tax returns for the tax years 2000 through 2002, which claimed false and fraudulent Schedule A deductions.
Helpful Hints When Choosing a Return Preparer
*Be careful with tax preparers who claim they can obtain larger refunds than other preparers.
*Avoid preparers who base their fee on a percentage of the amount of the refund.
*Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
*Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
*Review your return before you sign it and ask questions on entries you don’t understand.
*No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
*Find out the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
*Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
*Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?
Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.
Where Do You Report Suspected Tax Fraud Activity?
If you suspect tax fraud or know of an abusive return preparer, report this activity using IRS Form 3949-A, Information Referral. You can download Form 3949-A from the IRS Web site at IRS.gov or call 1-800-829-3676 to order by mail. Send the completed form, or a letter detailing the alleged fraudulent activity, to Internal Revenue Service, Fresno, CA 93888. Please include specific information about who you are reporting, the activity you are reporting and how you became aware of it, when the alleged violation took place, the amount of money involved and any other information that might be helpful to an investigation. Although you are not required to identify yourself, it is helpful to do so. Your identity can be kept confidential. You may also be entitled to a reward.
