Claiming bogus tax refunds can be easy. After all, nobody’s looking, right?
Wrong.
The IRS is cracking down on tax evasion by targeting unscrupulous tax preparers. And they might be headed for your town – they’re already making waves in mine. Last week, the United States asked a federal court to bar three Philadelphia-area tax preparers from preparing federal tax returns for others. Those preparers are Deron Joe, Edmund Dassin, and James Tokpawhiea, who prepared tax returns from their business, Urban Tax Professionals.
According to the complaint, the defendants prepared a number of federal income tax returns that intentionally understate their customers’ tax liabilities. They did this by encouraging clients to claim deductions and credits that they were not entitled to, including the first-time homebuyer credit, the earned-income tax credit, false dependents, and bogus deductions for employee business expenses.
It’s easy to get caught up in thinking, “What’s the harm in one little fib?” But patterns add up. In total, the IRS has disallowed at least $1.4 million in tax credits claimed by the defendants on customer returns. And remember that these are just three defendants in one city. You can imagine what that looks likes on a national scale.
So why did they do it? Money, of course. It’s alleged each defendant set his own fee schedule, depending on the size of the refund, with a larger refund generating a higher fee. The three defendants were paid in cash, by check, or by deducting money from their customers’ refund.
Claiming bogus tax refunds is just one of the IRS’s Dirty Dozen tax scams for 2012. And you don’t get a pass for buying into this one, even if it wasn’t your idea: clients who are drawn into the scheme are still responsible for the back taxes, interest, and penalties. I’ve already seen clients this season who are affected by these schemes and it’s not pretty: the cost to fix these mistakes is much greater than any ill-gotten gains (which have to be returned anyway).
Best practice? Find a reputable preparer. Keep excellent records. Claim what you’re allowed but don’t be tempted – or badgered – into claiming more credits or deductions than you’re entitled to. Remember: pigs get fat, hogs get slaughtered.
