Tax Preparer Criminal Investigations Are Increasing

During tax season, the IRS and Department of Justice are eager to make an example of those who file false returns. An especially effective way for them to prevent false returns is by bringing large criminal cases against accountants and other financial professionals. In fact, just yesterday a Montgomery, Alabama business owner and five tax preparers were indicted on similar tax fraud, wire fraud, and identity theft charges. In this case, the defendants are charged with falsely inflating clients’ tax returns, in some cases using names and social security numbers of individuals to fraudulently list them on others’ returns as dependents. The wire fraud counts in this case carry a maximum penalty of twenty years each, though in substance their acts do not seem to differ significantly from those of Grant, who was not charged with wire fraud.

In another federal tax prosecution, Willie C. Grant, a tax preparer in Macon, Georgia, was indicted by a federal grand jury on twenty-three counts of making false statements, four counts of theft from the U.S. government, and four counts of aggravated identity theft. The government alleges that Grant presented false claims to the U.S. government in the form of fraudulent tax returns for twenty-three individuals, presumably his clients at Grant Income Tax Bookkeeping and Check Cash. The four theft and four identity theft claims arise from four of the returns for “R.H.” in 2007 and 2008, and for “G.S.” in 2008 and 2009. Grant allegedly received the illegal returns and used identifying information for the two individuals to have the money placed into a bank account. He has pleaded not guilty.

Prosecutors are permitted to charge an individual with as many crimes as they believe describe a defendant’s actions. This is true even when multiple charges seem to relate to the same behavior. In this case we see twenty-three false returns that Grant is alleged to have prepared. He allegedly used client’s information to have those funds deposited into a bank account. It is not clear from the indictment that he was stealing money from his clients, however. If that is the case then he has received eight additional criminal counts against him for actions most would consider to be part of the same crime: filing false returns. But because the elements of each of the crimes charged differ slightly, courts will permit prosecutors to charge as many as they can reasonably fit to the facts of a case.

Grant has not been charged under the specifically tax-related false statements law, which would seem to be a more natural choice than the general “false claims” law he has been charged with violating. The tax-specific crime would more specifically describe his actions and probably hew closer to Congress’ intent when they passed it. But because the tax-related false statements law provides a punishment of only three years per count, and the general false claims law provides up to five, prosecutors have chosen the broader law, likely in order to use the threat of extra incarceration to try to coerce Grant into pleading guilty.

There are a number of other charges that could have been brought against Grant based on the little we know about the facts of this case. Most significantly, there is the so-called crime of “preparer’s fraud,” which is committed by willfully causing or aiding preparation or presentment of materially false tax return. It is essentially an aiding and abetting charge related to the tax-related false statements crime described above. It provides for a similar punishment upon conviction. Interestingly, a defendant can be convicted of the preparer’s fraud without the client or taxpayer who files the return even being aware that the return is false. In this respect it differs dramatically from aiding and abetting generally.

Preparer’s fraud can involve any number of acts including inflating appraisals and backdating documents to increase a taxpayer’s tax return. Even more ambiguous conduct can potentially be prosecuted as preparer’s fraud. In certain circumstances encouraging a taxpayer to file a false return or lying to a taxpayer so that he files a false return will be sufficient for a conviction under this statute. While the government will have to show that a preparer willfully caused or aided in making a false return, they may prove a defendant’s state of mind by circumstantial evidence.

If you have been charged with violating a criminal tax law, if you are under civil or criminal investigation, or if you have concerns that you may have criminal liability for tax-related actions, it is essential to retain a federal criminal attorney with experience in tax crimes. Our firm has successfully represented numerous individuals accused of criminal tax law violations in addition to fraud and other white collar offenses.