Posts Tagged ‘Preparers’

Tax Roundup, 8/6/2013: Iowa preparer gets prison for reporting too much income. And an ID theft nightmare ends.

Tuesday, August 6th, 2013 by Joe Kristan

bureauofprisonsSometimes a big refund isn’t a good thing.  A Shellsburg, Iowa man went too far to get his clients big refunds.  The AP reports that Keith Rath was sentenced last week to 21 months after pleading guilty one count of an 8-count indictment.  He was charged with fabricating business income on 1040s.

While it may seem odd that the IRS would have a problem with taxpayers reporting too much income, the Earned Income Tax Credit is the motivation.  If you have around $10,000 of businss or wage income, you can maximize this refundable credit, generating a nice check from the IRS.

The report says the clients were anaware of the fraud.  It seems like you would notice a business on your return that doesn’t exist, but many taxpayers don’t even look, especially if they like the refund being reported.  The taxpayer problably isn’t pleased to have to give that money back.

It is estimated that about 25% of earned income tax credit claims are improper.  That apparently is just fine with the Governor and the Iowa General Assembly, who doubled Iowa’s EITC last year — with a predictible effect of sending around $8 million to Iowa thieves annually, with and without the aid of shady preparers.

 

TaxProf, The IRS Scandal, Day 89.

 

Jason Dinesen, Taxpayer Identity Theft — Part 18:

I’ve been telling the story of Wendy Boka and the identity theft nightmare she’s going through with the IRS. Her husband Brian died at age 31 in 2010. Someone stole his identity and filed a fraudulent tax return in his name.

On August 1, 2013, the refund check from the IRS for that 2010 tax return finally arrived in Wendy’s mailbox.

Jason’s series on his client’s identity theft nightmare shows the huge cost of this out-of-control scam.  While the $5 billion mailed annually to thieves is bad enough, it pales compared to the human cost to the taxpayers whose IDs are stolen — the months of frustration, the near-useless bureaucracy, and the financial losses.  The IRS failure to address this, while spending resources on a useless preparer regulation scheme, are what made Douglas Shulman the Worst Commissioner Ever.

Kay Bell, Tax-related identity theft: Its growth and IRS efforts to stop it

 

Me, When you buy business assets, no do-overs. (IowaBiz.com):

The Moral?  No do-overs. You only get one shot at the purchase price allocation when you buy a business. The purchase price allocation needs to be addressed early in your negotiations. If you want to have experts come in for a cost segregation study, you should do it as part of your due diligence before the deal closes, or under agreement after the close with the seller. You can’t unilaterally change the allocation. 

 

Russ Fox, Kansas Joins Bad States for Gamblers in 2014

Robert D. Flach has his Buzz on!

TaxGrrrl profiles fellow tax blogger Peter J. Reilly.

Peter Reilly, Rhode Island Not Giving Historic Credit For Journal Entries.   But journal entries are history, right?

Jack Townsend, IRS Has No Authority To Settle Cases Referred to DOJ Tax Even After They Are Returned

William Perez, IRS Update for August 2, 2013

 

Yes.  Is the Exclusion for Employer-Provided Healthcare Outdated? (Jeremy Scott, Tax Analysts Blog)

Martin Sullivan, Tax Reform: Will the Chairmen Offer Real Plans or Gimmicks?  (Tax Analysts Blog) Bet on gimmicks.

Kyle Pomerleau, More Trouble for Small Businesses in Tax Reform Talks (Tax Policy Blog)

Today, it seems like there is more trouble for pass-through businesses coming from the Democratic Party.

According to Tax Analysts (subscription required), Charles Schumer (D-NY) is quoted as saying “I don’t think we should lower individual tax rates. I think the overwhelming majority of our caucus agrees. We think 39.6 percent is about the right rate.”

Any “reform” that doesn’t lower rates is no reform at all.

 

Tax Justice Blog, Sales Tax Holidays Are Silly Policy:

While one commonly cited rationale for such holidays is that they increase local consumer spending, boosting sales for local businesses, available research concludes this “boost” in sales is primarily the result of consumers shifting the timing of their already planned purchases.

Jana Luttenegger, Sales Tax Holidays in Iowa and around the US

Howard Gleckman, We Make More Than We Think (TaxVox)

Boulevard of Broken Dreams. The AICPA Has Created A Place For Young CPAs To Share Their Woes (and Dreams) (Going Concern)

Answering The Critical Question: Why we all need Dolce & Gabbana to survive the tax evasion drama (Handbag.com)

 

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Tax Roundup, 7/25/2013: Mo’ refundable credits, mo’ fraud. Plus cigarettes and preschoolers!

Thursday, July 25th, 2013 by Joe Kristan

momoneyRefundable tax credits are a magnet fo’ mo’ fraud.  Five from Mo’ Money tax prep office in St. Louis arrested in scheme (St. Louis Post-Dispatch):

Mo’ Money franchise owner Jimi Clark, 57, of Memphis, Tenn., abused the American Opportunity Credit to attract and keep clients, prosecutors said. They filed for the credit on at least 47 returns where the taxpayer had not incurred any educational expenses, and unwisely, claimed the same amount of educational expenses, $3,765, on the “vast majority” of the returns, their indictment says.

In all, the 47 returns claimed more than $50,000 in educational credits.

Maybe 25% of the rundable Earned Income Tax Credit is paid improperly.  Yet legislators ignore how the credits actually work because they like them in theory.

 

Bankrupt state pays people to be friends. Illlinois governor to sign deal to lure fertilizer plant (Sioux City Journal)

Speaking of Bankrupt… Detroit Taxes and the Laffer Curve (Alex Tabarrok):

  • [The] per capita tax burden on City residents is the highest in Michigan. This tax burden is particularly severe because it is imposed on a population that has relatively low levels of per capita income.
  • The City’s income tax… is the highest in Michigan.
  • Detroit residents pay the highest total property tax rates (inclusive of property taxes paid to all overlapping jurisdictions; e.g., the City, the State, Wayne County) of those paid by residents of Michigan cities having a population over 50,000.
  • Detroit is the only city in Michigan that levies an excise tax on utility users (at a rate of 5%).

Sometimes you can’t solve the problem with more taxes.

 

Robert D. Flach, DEDUCTING CAPITAL LOSSES

Tony Nitti, Q&A: How Can An Accrual Basis Business Defer Revenue When It Receives Cash In Advance?

Phil Hodgen, Nonfilers–voluntary disclosure is not your only choice:

But my opinion is that the official program is fabulous for someone who is in deep trouble and might otherwise face a spot of prison time.  For that person, the “Your money or your life!” demand from the IRS is easy to answer.  Give ‘em your money. 

For almost everyone else, the voluntary disclosure program is stupidly expensive–in tax cost, penalties, interest, and professional fees to give the government all of the paperwork they want.

You gotta shoot the jaywalkers so you can slap the real crooks on the wrist.

Peter Reilly, Not Good For Real Estate Loss When Tax Court Judge Says Purports

Fiduciary Income Tax Blog, Trials and Tribulations of Nongrantor Trusts

 

 

Cara Griffith, Improving Transparency in Pennsylvania (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 77

Howard Gleckman, The OECD’s International Tax Plan: The First Step on a Long Road (TaxVox)

Tax Justice Blog, CTJ Presents the Nuts & Bolts of Corporate Tax Reform

Linda Beale, Senators promised 50 years of secrecy on their tax reform proposals

Daniel Shaviro, What is a “tax expenditure” and when does this matter?

 

TaxGrrrl,  Louisiana To Offer ‘Fresh Start’ Tax Amnesty Program.  I’m sure this time they really mean this is the last one.

Missouri Tax Guy, The Enrolled Agent, EA

Jack Townsend, Fourth Circuit Holds Defendant to His Tax Loss Stipulated in the Plea Agreement

Kay Bell, Summer 2013 sales tax holidays begin this weekend

William Perez, Sales Tax Holidays in 2013

                                                              

Quotable: (my emphasis)

The manufacturing innovation institute, meanwhile, is just another iteration of an idea that’s been around for longer than Barack Obama has. Go to any Rust Belt city and you’ll find research campuses, innovation institutes and similar institutions named after hopeful politicians who promised that a new manufacturing base would coalesce around this exciting agglomeration of creative minds. Unfortunately, in most instances it has turned out that manufacturing bases would rather coalesce around cheap land, low taxes and acres of uncongested freeway.

-Megan McArdle, “Obama’s Speech Is a Confession of Impotence

 

I think one judge will think otherwise. Three South Dakota men say income taxes don’t apply to them (Argus-Leader.com)

Tax Court Judge Holmes has a new opinion out.  Always entertaining and enlightening.

News you can use:  No Such Thing as Free Swag (Austin John, Elizabeth Malm, Tax Policy Blog).  Sorry, ESPY winners.

More harebrained than what they do anyway? U.S. Senators with Harebrained Tax Reform Ideas Offered an Opportunity (Going Concern)

Maybe not where you grew up. Cigarettes and Preschoolers Don’t Go Together (Scott Drenkard, Noah Glyn, Tax Policy Blog)

 

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Tax Roundup, 7/5/2013: Iowa preparer meets her Waterloo. And a sixty-nine year anniversary.

Friday, July 5th, 2013 by Joe Kristan

20130705-3Waterloo preparer to plead to preparing return with bad deductions.  From the Waterloo-Cedar Falls Courier:

The U.S. Attorney’s Office for the Northern District of Iowa filed a criminal complaint against Victoria A. Jones, age unavailable, in U.S. District Court in Cedar Rapids on Tuesday.

She is charged with one count of aiding in the preparation of a fraudulent return. An arraignment has been scheduled for July 9 in Cedar Rapids.

Authorities allege Jones helped a couple identified only by the initials R.D. and L.D. submit a false tax return to the IRS for 2008. The return claimed the filers had $67,211 in itemized deductions when they had significantly less.

Court document says that she intends to plead guilty, but provides no additional information as to the nature of the false deductions.

 

Iowans Can Now Pay Taxes With Their Phones, Online (The Dwolla Blog).  Only property taxes for now, and only in some counties.  It would be nice if they added income taxes.

 

He shall take Care that the Laws be faithfully executed.  Executive Nullification, Once Again (Arnold Kling)

 

Make everyone poorer, to put the 1% in their place.   From a paper by Karel Mertens (via Tyler Cowen):

A hypothetical tax reform cutting marginal rates only for the top 1% leads to sizeable increases in top 1\% incomes and has a positive effect on real GDP. There are also spillover effects to incomes outside of the top 1%, but top marginal rate cuts lead to greater inequality in pre-tax incomes. 

So cutting top tax rates makes everyone better off.  Yet because it helps the “top 1%” the most, politicians like the President will tell us it’s a bad idea.

 

Ex-Bear Zorich way behind.  The Chicago Tribune reports that former football player Chris Zorich is financially underwater as he faces a July 12 sentencing date on tax charges.

TaxProf, The IRS Scandal, Day 57

Because it would never pass?  Why is the Carbon Tax Missing from the Climate Change Debate? (Tax Justice Blog)

Gene Steuerle, The Baucus-Hatch “Blank Slate” Approach to Tax Reform Could Be Revolutionary:

 

Kay Bell has posted Tax Carnival #118: July 4th Tax Fireworks!

Christopher Bergin, Gratitude on the Fourth of July (Tax Analysts Blog)

TaxGrrrl, Taxes & Independence: Happy Fourth Of July.   Kelly freely quotes the Declaration of Independence, including this:

 He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.

Good thing that couldn’t happen today…

 

Why Exactly Do You  Want An Offshore Account?

Jack Townsend, Information on Filing Delinquent FBARs

 

Economic development for Iowa!  Minnesota: Higher Income and Cigarette Tax Making It the Land of 10,000 Taxes? Philip Hammersley, Tax Policy Blog:

Minnesota Governor Mark Dayton (DFL) recently signed  legislation increasing income and cigarette taxes in the Gopher State. The legislature hopes to raise nearly $2.1 billion in revenue from the tax hikes in order to close the budget deficits and fund new spending projects. The average Minnesota taxpayer currently pays 10.79 percent of his income in state and local taxes. This tax burden makes Minnesota the 7th highest taxed state in the nation.

Iowa’s tax system has more than its share of flaws, but it sure could be worse.

 

Cara Griffith, Taxes and Whistleblower Suits (Tax Analysts Blog).  Should whistleblowers be able to file tax suits against corporations?

Holiday or no, Robert D. Flach has fresh Buzz!  He reminds us that the IRS is closed today.

 

Peter Reilly, Gettysburg Interlude – Understanding Historiography

 

Sixty-nine years ago today, my Dad’s participation in the war ended.  The third stage of the Tour de France went by the place where it happened earlier this week.

The final mission of B-24 42-78127, over the target in Toulon, France.  John Kristan was top turret gunner in one of the planes - likely the one at the bottom of the picture.

The final mission of B-24 42-78127, over the target in Toulon, France. John Kristan was top turret gunner in one of the planes – likely the one at the bottom of the picture.

So my job doesn’t seem so hard today.

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Tax Roundup, 1/21/2013: Preparer regs struck down. What’s next?

Monday, January 21st, 2013 by Joe Kristan

20130121-2After most of us stopped paying attention Friday afternoon, a federal judge in Washington D.C. stunned the tax world by striking down the IRS effort to regulate tax preparers.  U.S. District Court Judge James Boasburg ruled that the IRS lacks the legal authority to impose the RTRP program.

So now what?

I expect the IRS to appeal the ruling to the D.C. Circuit Court of Appeals, but that would take months.  It seems unlikely that Judge Boasburg would stay his own ruling in the meantime, and I doubt that an appeals court will either.

Dan Alban of the Institute for Justice, the legal team behind the suit, told Accounting Today:

“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”

So no PTIN refunds, but no testing or CPE requirements, and, presumably, no more RTRP designation.  This would seem to end the need to get IRS approval for CPE programs, a requirement that has shut down many local CPE programs, like those offered by the organization of Iowa Enrolled Agents.

As of this writing, the IRS has yet to comment.

So who wins?  Small unenrolled preparers are big winners.  They are now free of the brain-dead RTRP bureaucracy.  Enrolled Agents are also big winners.  The RTRP designation threatened to kill the EA brand by confusing taxpayers about the difference between enrolled agents, with their much stricter testing and CPE requirements, and Registered Tax Return Preparers.  But the biggest winners are taxpayers, who will not have their costs increased by an IRS-imposed guild system that would reduce the availability of tax preparers while doing nothing to increase their quality.

The losers?  The IRS, which loses its ability to bully preparers with the extrajudicial discipline system of the new regulations.  The big national preparers, who were instrumental in drafting the rules because they promised to weaken their competitors.  And, retrospectively, Doug Shulman, the former IRS commissioner who masterminded the requirements.

 

When at first you get enjoined, try, try again.  In 2010 a Kansas City-area man was enjoined from setting up a bunch of tax shelter plans, finding that the man “Deliberately Advised His Clients to Break the Law, and Helped Them Go About Doing so.”  Apparently he dusted himself off and went right back to work.  From a Department of Justice Press release:

The Justice Department announced today that a federal court has permanently barred Cash Management Systems, a Virginia corporation, from promoting two tax schemes that allegedly involve disguising wages as tool-reimbursement or tool-rental payments. Also subject to the civil injunction order were Cash Mangement’s marketing arm, Xell Enterprises, incorporated in Kansas; its principals, Bruce Lemay and Richard Herson Mills; and Allen Davison, of Overland Park, Kan. According to the government complaint, Davison provided legal opinion letters regarding the schemes and served on Cash Management’s board of directors.

 Judge Eric F. Melgren of the U.S. District Court for the District of Kansas entered the permanent injunction, which the defendants consented to without admitting to the allegations against them. Davison was enjoined from promoting other tax schemes in 2010.

No, you can’t give a tax free “tool allowance” to employees.  And just because somebody was enjoined from promoting other tax schemes doesn’t mean this one works.

 

In case you were wondering: Iowa explains sales tax treatment of Groupons.

Gongol, The people who pay a tax aren’t always the people who give the money to the government:

Companies that make medical devices are paying a 2.3%  excise tax to help fund the Federal health-care program. A lot of people undoubtedly think that means the 2.3% will come straight out of the company’s profits (and this in turn can lead to strongly populist instincts about sticking it to the people making a profit in health care). But the people who pay for a tax aren’t always the ones who cut the checks to the IRS.

So true.

Paul Neiffer, IRS Announces April 15 Farmer Deadline

Russ Fox, Farmers & Fishermen Get Relief From Catch-22 Situation

Jack Townsend,  Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence.  A discussion of the Fiore case, which I discussed last week.

TaxGrrrl, Why Justice Matters, Revisited

Richard Morrison,  Louisiana Tax Reform: Sizing up the Jindal Plan (Tax Po0licy Blog)

Roberton Williams,  How the New Tax Act Affects the Alternative Minimum Tax (TaxVox): “One curiosity that won’t please high-income taxpayers: the new Obamacare taxes on investment income don’t count in determining whether you owe  AMT.”

Robert D. Flach,  RULES FOR DEDUCTING NON-CASH CONTRIBUTIONS

Jana Luttenegger, IRS Offers Options if You Can’t Pay Your Taxes (Davis Brown Tax Law Blog)

Kay Bell, Tax filing preparation checklist

Brian Strahle,  Is Your Company Paying Too Much Virginia BPOL?

Dan Meyer, Identity Theft: When a Rogue Tax Preparer Could Cost You More than a Filing Fee

 

OK, taking bribes is bad, but not putting them on your 1040 is really beyond the pale.  C. Ray Nagin, Former New Orleans Mayor, Indicted on Federal Bribery, Honest Services Wire Fraud, Money Laundering, Conspiracy, and Tax Charges.  

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Court throws out IRS preparer regulation scheme!

Friday, January 18th, 2013 by Joe Kristan
Soon-to-be-former-IRS Commissioner Douglas Shulman

Doug Shulman shows what’s left of his signature achievement, the preparer regulation scheme.

So passes Doug Shulman’s legacy:

For the reasons set forth in the accompanying Memorandum Opinion, the Court ORDERS that:

1. Plaintiffs’ Motion for Summary Judgment is GRANTED;

2. Defendants’ Motion for Summary Judgment is DENIED;

3. Defendants lack statutory authority to promulgate or enforce the new regulatory scheme for “registered tax return preparers” created by 76 Fed. Reg. 32,286;

4. Defendants are permanently enjoined from enforcing such scheme; and

5. Judgment is ENTERED in favor of Plaintiffs.

The IRS can, and almost certainly will, file an appeal to preserve its preparer regulation power grab, but losing on summary judgment and being enjoined from enforcing the new rules is a complete shutout for them in District Court.

I am glad that the IRS lost in court.  I have hoped the regulations would be overturned, and I thought they should be illegal, but I am not a master of the law covering IRS regulatory problems.  Regardless of whether they are legal, I have always thought the regulations unwise.

The regulations have been sold as a way to assure taxpayers of quality preparation by making them pass a test and take CPE.  Yet the test is a joke, an open-book review of Publication 17.  The IRS has already waived the CPE requirement for 2013.  The IRS has already undermined their own arguments.

To me, the real purposes of the regulations have been:

  • to expand the power of the IRS by increasing their grip on preparers, while
  • helping the well-connected national tax franchise outfits by eliminating many of the small independent preparers who compete with them.

Too cynical?  Seeing that the IRS has abandoned its stated goals, the unstated goals are all that are left.  Considering that the former CEO of H&R Block wrote the rules for the IRS, it’s hard to make the case that this was done with the taxpayer in mind.

What does it mean?  It looks to me that the IRS has to stop its RTRP regime in its tracks, absent a stay on the ruling from the District Court or the D.C. Circuit Court of Appeals.  No more rulemaking, no more RTRP open book tests, and no more approval of tax CPE by the IRS.  No more cashing the $63 RTRP checks.  Refunds?  It would serve them right, but I don’t know.

Meanwhile, it’s back to the Wild West days of two years ago, when taxpayers had to rely on the reputations and credentials of individual preparers, rather than on a worthless pretend certification from the IRS.  Oh, the humanity!  Congratulations for the Institute for Justice, the legal team behind the suit.

UPDATE, 1/21: more here.

Other coverage:

Katherine Mangu-Ward, Mom-and-Pop Tax Prep Firms Defeat IRS! (Reason.com)

AP, IRS loses lawsuit in fight against tax Preparers.

Related: David Brunori, Government Power, Cronyism, and the IRS Running Amok

UPDATE, 1/19. 

TaxProf, Court Says IRS Lacks Authority to Regulate Tax Preparers

Russ Fox, Institute for Justice 2, IRS 0

Joseph Henchman, Court Strikes Down IRS’s Arbitrary Tax Preparer Licensing Requirements  (Tax Policy Blog)

Kay Bell, IRS loses lawsuit challenging tax preparer registration, testing

Robert D. Flach, YOU COULD HAVE KNOCKED ME OVER WITH A FEATHER!, MORE ON THE TAX PREPARER REGULATION COURT CASE, AND THE BEAT GOES ON . . .  I like this: “Joe Kristan is as expected, a pig in reality tv over the court decision.”  If he calls me “Snooki,” I’ll know he’s really upset.

Trish McIntire, “Licensing Pity Party

Janet Novack, Federal Judge Shoots Down IRS Attempt To Regulate All Paid Tax Preparers

Some practitioners are upset about the ruling (see Trish McIntire).  None of us should have the right have the government  lock potential competitors out of the market — even if we don’t think the competitor is adequately trained.  It’s the customers’ money, and it’s up to them to make the choice.

 

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Tax Roundup, 11/30/2012: IRS makes life difficult for ID-theft victims and Americans abroad, but they make compliance hard for foreigners too!

Friday, November 30th, 2012 by Joe Kristan

When your identity is stolen, the IRS will be happy to bounce you around the bureacracy.  The Taxpayer Advocate testified yesterday at a House hearing on identity theft.  The IRS, which does a bang-up job of rapidly mailing fraudulent refunds, is less streamlined when it comes to helping taxpayers whose identities are stolen:

“Yet today the IRS is moving backward toward a decentralized approach, creating specialized identity theft units within 21 separate functional areas,” Olson told the House Oversight and Government Reform Subcommittee on Government Organization, Efficiency and Financial Management. “If, as seems likely, the IRS reduces the role of the IPSU and directs taxpayers to deal directly with the 21 specialized units, I am deeply concerned that we will revert to back where we were in 2008, with large numbers of taxpayers that have cross-functional issues unable to get their problems resolved without multiple contacts with multiple functions, and that would in my opinion be a disaster for the victims.”

She says that the IRS will have to choose between fast refunds and stopping fraud:

Specifically, we may need to ask all taxpayers to wait longer to receive their tax refunds, or we may need to increase IRS staffing significantly. Under current circumstances, I have come to the conclusion that it is simply not possible for the IRS both to process legitimate returns rapidly and to combat refund fraud effectively at the same time.

So it’s too much to ask for the IRS to make better use of existing resources by not wasting them on the futile and expensive return preparer registration program — a program unwisely supported by the Taxpayer Advocate.


IRS makes doing business in the U.S. even more of a hassle for foreigners.  The IRS and Congress are doing their best to make it impossible for Americans to do business abroad with FATCA and the offshore compliance jihad.  Now they are doing a bit of the same for foreigners trying to do business here with new rules for International Tax Identifiction Numbers (ITINs).

ITINs are needed when foreigners invest in US real property or other assets where a US tax identification number is needed.  U.S. taxpayers just use their Social Security numbers.  The process is a hassle, with exacting documentation requirements that often require applicants to send passports to the IRS for extended periods while the IRS processes the paperwork.

While the new rules provide more options for applying for the paperwork, they now make the ITINs expire after five years, requiring taxpayers to repeat the whole process to stay in tax compliance.  This hassle isn’t just an issue for offshore taxpayers; it also makes compliance more difficult for U.S. taxpayers with offshore investors.  Just another little effort by the IRS does to make staying legal as difficult as possible.

Related: Trish McIntire,  Finalized ITIN Rules

 

The injunction didn’t go through, so on to the indictment.  A few years ago the IRS tried to close down the practice of a St. Louis-area tax preparer after making spectacular allegations of malfeasance.  The effort ended in a settlement that looked much like a victory for the preparer.  The IRS apparently didn’t take that well.  Stltoday.com reports:

Frank L. “Tiger” Zerjav, Jr., 39, of Wildwood, has been indicted for allegedly submitting four years of false tax returns and trying to dodge $182,000 in taxes, the U.S. Attorney’s office said Thursday.

Zerjav was indicted on four charges of federal income tax evasion for the returns covering 2001-2004. He also faces an obstruction of justice charge for allegedly producing altered computerized accounting records after receiving a grand jury subpoena.

They couldn’t put Mr. Zerjav out of business through civil procedures.  A tax fraud conviction would do the trick.  They’ll need to make a much more convincing showing than they apparently were able to do on the injuction effort.   This does remind us that if you get on the bad side of the IRS, your own filings had better be squeaky clean.

 

Better this fiscal cliff than the next, bigger one?  Bring On the Fiscal Cliff! (Megan McArdle):

Unless something changes, we’re headed toward one of two uncomfortable places. Either we veer over the fiscal cliff and the economy crashes—or we keep going down the road we’ve been taking for more than a decade, delaying hard choices while assuring voters that no really hard choices need to be made. That road probably ends in an even nastier smashup.

So how are Iowa’s congresscritters dealing with this nasty reality?  “Senator Harkin says the “fiscal cliff” doesn’t exist.” (Radio Iowa)

Howard Gleckman,   What to Read While Hanging Out at the Fiscal Cliff (TaxVox)

Richard Morrison,   The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)

Martin Sullivan,  How To Limit the Deduction for State and Local Taxes (Tax.com)

Jim Maule, Tax Rates and Deduction Caps

 

Jack Townsend,   Major CA2 Decision on E&Y Tax Shelter Convictions.  Two E&Y guys go free.

Jana LutteneggerTax Implications of Holiday Bonuses (Davis Brown Tax Law Blog)  Don’t think that Wal-mart gift card for the employees is tax-free.

Kay Bell,  Lottery dreams and tax realities

The Critical Question:   How Much Tax Would You Owe On A $550 Million Powerball Jackpot? (Janet Novack)

Brian Strahle,   DC Combined Reporting and the Real Estate Investment Industry:  Unintended Consequences?

Tax Trials,  Michigan Court of Appeals Rejects IBM’s MTC Election

 

Robert D. Flach, at his “The Tax Professional” blog, is not thrilled with the “due dilegence” requirements for returns with the Earned Income Tax Credit:

I just posted about the fact “that the IRS is getting more out of hand with its ‘due diligence’ requirements for tax preparers who are claiming the Earned Income Tax Credit for clients” here in “WE ARE NOW NOT ONLY TAX PREPARERS, BUT SOCIAL WORKERS AS WELL!”, which was a response to Trish McIntire’s post “EITC Checklist Expanded” at OUR TAXING TIMES.

At the seminar we reviewed in detail the new Part IV “Due Dilligence Requirements” on Pages 3 and 4 of the form.  In my opinion the new hoops that we are required to jump through are TOTALLY RIDICULOUS!

Like with the preparer regulations, honest preparers are saddled with rules they don’t need in response to tax cheaters who will ignore the rules anyway.

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Tax Roundup, 11/5/2012: Last week for the commissioner!

Monday, November 5th, 2012 by Joe Kristan

Soon-to-be-former-IRS Commissioner Douglas Shulman

Little disasters every day, courtesy Doug Shulman’s IRS.  We shouldn’t be surprised that the federal government is once again making a hash out of disaster relief.  They can’t even handle one-victim disasters at the IRS.  Jason Dinesen has posted two more installments (9, 10) of the infuriating saga of a client’s struggle with identity theft after her husband died.  From the latest installment:

I then proceeded to point out that it’s been 33 months since Brian died, 18 months since we filed the tax return, and 12+ months since we sent the original Form 14039 to the IRS. Again, can’t they use common sense and wrap this up?

The answer was, no.

Contrast that with the prompt issuance of a tax refund to the identity thief over a year ago.

Jason’s client ID theft problem was almost certainly the result of a glaring problem that has been known in the agency for years involving the use of social security numbers of recently-dead taxpayers published by the government by identity thieves.  The IRS is only now taking steps to fight it, while billions of tax dollars continue to go out to the thieves annually.  Meanwhile, they’ve found time to institute an expensive and futile preparer regulation scheme and power-grab.  They have their priorities, after all.

One thing voters of all parties can look forward to this week is the Friday expiration of the term of Doug Shulman, The Worst IRS Commissioner Ever.

 

Richard Morrison,   Chart of the Day: Trends in Business Income (Tax Policy Blog)

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Election Day Primer: Comparing the Obama and Romney Tax Plans

TaxProf,  Johnson: Tax Reform and the Presidential Election

Kay Bell, Voters get their say Nov. 6 on 30 tax-related state ballot initiatives

Joseph Thorndike,  Muzzling CRS is a Bad Idea — Even for Republicans (Tax.com)

Len Burman,  Which presidents spend the most? You might be surprised. (TaxVox)  For some reason he stops in 2001.

Paul Neiffer,  Get Ready For The New Medicare Tax Increase on Earned Income

Anthony Nitti,  Victims of Superstorm Sandy May Be Able To Exclude Assistance Payments From Taxable Income

Jack Townsend notes an Article on Erosion of Swiss Secrecy

Peter Reilly,  Unfair Tax Court Decisions On Life Insurance Are Tip Of Unclaimed Property Iceberg

Missouri Tax Guy,  Advantages of Filing a Tax Return Extension

Robert D. Flach,  TOP TEN LIST ADDENDUM.  This is so true:

More than half of the balance due notices that are sent out by the Internal Revenue Service and state tax agencies are incorrect.  If you receive such a notice send it to your tax professional ASAP.

I would love to see an accounting of how much revenue the government steals from taxpayers who write checks because they are afraid of the revenue agencies, or because the amounts are known to be wrong, but the taxpayer doesn’t think they are worth the fight.

 

Bad News you can Use:  Bad News for German Poker Players (Russ Fox)

 

Richman, Dumdum man.  The story you are about to read is true.  Then names have been left the same to protect the humor.  CBSlocal from Chicago reports:

He wasn’t too smart about paying federal income taxes, and now Rimando Dumdum man is going to prison. 

WBBM’s Bernie Tafoya reports the 44-year-old Morton Grove tax preparer, who came to the U.S. from the Philippines in 1989, owned a company called “Richman Tax Solutions.”

Apparently it’s easier for a camel to pass through the eye of a needle than for a Richman to get a tax return right.  But all things are possible:

According to his plea agreement, he helped clients illegally trim an average of $1,400 from their tax bills. In all, between his clients’ returns, and his own tax fraud, Dumdum cheated the federal government out of $232,000 in all.

However, prosecutors said he likely helped clients evade $3.5 million in taxes, citing an audit showing his company falsified 99 percent of the tax returns it filed.

The way he looks out for the 99%, he should be a favorite of the Occupy people.  I wonder if the 1% of his customers who didn’t get phony returns feels cheated somehow.

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Tax Roundup, 8/9/12: IRS scolded for carelessly issuing ID numbers. Plus stupid vs. criminal, hitting bottom and digging.

Thursday, August 9th, 2012 by Joe Kristan

IRS Commissioner Douglas Shulman

IRS discouraged fraud detection in ID program (Huffington Post):

The Internal Revenue Service has been looking the other way instead of rooting out fraud when people apply for taxpayer identification numbers, Treasury Department investigators said Wednesday, exposing a shortfall with both financial and national security implications.

A member of Congress who sits on the House’s tax-writing committee responded to the report by calling on IRS Commissioner Douglas Shulman to resign, claiming the IRS is helping illegal immigrants defraud the government.

He wants the Commissioner to resign for that?  Considering that the Commissioner oversees the mailing of $5 billion annually to thieves, that he has terrorized and financially ruined otherwise law abiding Americans for footfault paperwork violations, and that he has, with questionable authority, imposed an expensive and futile preparer regulation scheme, this new outrage needs to take a number.

More coverage from the Wall Street Journal, Linda Beale and the TaxProf; read the TIGTA report here and a TIGTA press release here.

Instapundit on state film tax credits:

REPEAL THE HOLLYWOOD TAX CUTS!  (LOCAL EDITION):  La. film tax break program needs limits, budget group says.   “Louisiana has spent more than $1 billion over the past decade to attract movie productions to the state, but hasn’t received much in return besides the prestige of hosting big-name Hollywood actors, according to a report released today.  The left-leaning Louisiana Budget Project suggests state lawmakers should put tighter limits on the generous film tax break program, lessening the credits offered and capping the amount of money it can cost the state each year.”  Actually, it should be abolished, as should similar programs in almost every other state.  And this is something state Tea Party groups might even make common cause with lefties on.

A sadder-but-wiser Iowa repealed its version of the film credits this year after it collapsed in scandal and disgrace and the State Auditor reported that 80% of the credits were issued improperly or lacked documentation.  But in defense of the program, two filmmakers are moving to Iowa for up to ten years thanks to the film tax credit!

It’s time to register for this year’s ISU Center for Agricultural law and Taxation Farm Tax Schools!  I will be on the Day 1 panel at all eight sessions, starting with the October 29 school in Mason City.

We’re vacationing in the mountains this year, kids. The Plot Thickens for Swiss Bankers Involved In U.S. Evasion: (Jack Townsend):

Swiss bankers whose names were delivered to the United States in April as part of the crackdown on US tax evaders face the risk of arrest while travelling in some European countries, not just on US soil.

Well, the Alps are nice…

Stupidity is no crime: Were Reid’s Remarks About Romney’s Returns Unlawful? (TaxGrrrl)

We’re just getting started!  Have We Reached the Nadir of Tax Policy Discourse? (Going Concern)

“Bipartisan” means they’re ganging up on us: Wind energy tax breaks are bipartisan in Iowa (Ames Tribune)

Kay Bell has a new Carnival of Taxes for State Fair week!

Tax Policy Blog:  Misunderstanding Tax Reform: The Case of The Olympic Tax Elimination Act

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Lawsuit challenges preparer regulation program

Tuesday, March 13th, 2012 by Joe Kristan

The libertarian public interest law firm Institute for Justice is suing the IRS today to shut down the preparer regulation program. From the IJ press release:

Congress never gave the IRS the authority to license tax preparers, and the IRS can

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Fizzle fo shizzle

Tuesday, February 28th, 2012 by Joe Kristan

What happened to the customers of a Murray, Kentucky Tax prep business is terrible. Still, they ignored some clear warning signs — like the name on the door. From wpsdlocal6.com:

MURRAY, Ky.

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Helping your friendly neighborhood preparer

Monday, February 27th, 2012 by Joe Kristan

Kay Bell has some good thoughts on how to deal with your tax preparer. I like this especially:

Be honest: Denial might be the biggest state in America, but it will kill you at tax time. And your tax pro will have to fight murderous impulses, too, if you lie about a tax situation. Yes, you as the taxpayer signing your 1040 are the person ultimately responsible for what’s on the forms and schedules, but your tax pro’s reputation is at stake, too, not to mention the time spent on a return that will cause problems because you didn’t provide accurate information.

I’d add one thing: don’t be cagey with your tax pro. I’ve seen taxpayers try to guess what they “should” tell us to get the “best” answer to a question. That makes as much sense as trying to manipulate your doctor into giving the “right” diagnosis.

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It doesn’t work in California, so let’s do it everywhere!

Thursday, February 16th, 2012 by Joe Kristan

Russ Fox notes how California’s regulation of tax preparers — a program that preceded the current IRS effort — has somehow failed to prevent regulated California preparers from engaging in tax crime. Not even the mandatory California CPE did the trick.
That didn’t stop the IRS from this puffery in announcing its piece of the President’s budget proposals:

Return Preparer Initiative
The FY 2013 budget request includes $35 million to strengthen return preparer compliance. One of the most important initiatives that the IRS has undertaken in recent years is the Return Preparer Initiative, the foundation of which is mandatory registration for all paid tax return preparers. In addition, the IRS is developing requirements to establish mandatory competency testing and continuing education for preparers to ensure that taxpayers are hiring preparers who have a minimum level of competency and adhere to professional standards. This initiative is core to the IRS

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Bringing preparers up to IRS standards

Monday, February 13th, 2012 by Joe Kristan

The IRS reminds unenrolled preparers that they need to start getting 15 hours of CPE per year to keep their return preparer privileges. This token CPE requirement is part of Commissioner Shulman’s brazen power grab tireless efforts to ensure the integrity of the tax preparation process.
In other news:

Thomas W. Richardson was sentenced Thursday by U.S. District Judge Jane J. Boyle in Dallas to 105 months in prison and ordered to pay $30,649 in restitution, following his guilty plea in August 2011 to one count of theft of government property and one count of aggravated identity theft, the Justice Department announced today. Judge Boyle ordered that Richardson surrender to the Bureau of Prisons on March 6, 2012. According to an order filed that set conditions for his release, Richardson is a resident of Mansfield, Tex.
In handing down the sentence, Judge Boyle commented that Richardson was a former IRS employee who used his inside knowledge of IRS operations to commit his crime.
According to the factual resume filed in the case, Richardson admitted that within a two-day period, April 15, 2006 to April 17, 2006, he filed or caused to be filed 29 fraudulent 2005 individual income tax returns. Each federal income tax return claimed a refund of between $215,801 and $473,832. Richardson admitted that the refunds claimed by all 29 tax returns totaled $7,922,657.

I’m sure none of that would have happened if he had a PTIN and 15 hours of CPE.
Related: Preparer regulation: prepare for a mess.

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The real things to watch out for in a tax preparer

Tuesday, January 10th, 2012 by Joe Kristan

Russ Fox notes that the IRS has given some advice on choosing preparers. The IRS advice is sound, yet, as Russ senses, something is missing. So here are the other things to keep in mind when choosing a tax preparer:
5. Preparers rarely need to know your “sign.”
4. “I do Wesley Snipes’ work” may not be the best recommendation.
3. A good preparer won’t need your bank account information to claim his rightful inheritance as the son of the former President of Nigeria.
2. It’s a not good when the preparer’s office is one of the “Occupy” tents.
1. If your preparer is named David Goodner, Warren Buffett or Barack Obama, consider shopping elsewhere.

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Preparer regulation: justified by its ‘mere existence’?

Monday, January 9th, 2012 by Joe Kristan

Robert D. Flach, a New Jersey tax preparer and blogger, is a supporter of the IRS preparer regulation initiative. I asked him how he would be able to tell whether the effort was a success. He responds here:

It will be difficult to truly measure the success of the regulation concept until the issuance of the RTRP designation is fully phased in

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You can’t squeeze $1.3 million into a $2,000 Roth IRA contribution. Not even in Kansas City.

Thursday, July 7th, 2011 by Joe Kristan

A tax plan hatched by a Kansas City-area tax advisor met disaster in Tax Court this week. The plan was the braincraft of A. Blair Stover, a former Grant Thornton tax practitioner. Mr. Stover has since come under unpleasant government scrutiny for overly-imaginative tax planning.
If everything worked out, it would have moved about $1.3 million from a traditional IRA, where it would have been taxable when withdrawn, to a permanently tax-free Roth IRA.
The plan was simple, yet absurd. When the smoke cleared, it worked like this: the taxpayer set up a new Roth IRA with a $2,000 contribution. He then had the Roth IRA and his existing traditional IRA set up new corporations. The Roth IRA-owned corporation got the $2,000 Roth contribution, while the Traditional IRA corporation got the $1.3 million in Traditional IRA assets. The Traditional IRA corporation then merged into the Roth IRA corporation. Suddenly the Roth IRA magically owned $1.3 million in assets, rather than $2,000. What could go wrong?
Mr. Paschall, the taxpayer, paid accounting firm Grant Thornton $120,000 to set up this transaction. GT’s Mr. Stover took care of the paperwork details. The taxpayer probably took comfort in this from the GT engagement letter:

The engagement letter contemplated a fee of $120,000 and contained a clause providing that Grant Thornton would represent and defend Mr. Paschall or any related entity at no additional cost in case of audit by the Internal Revenue Service (IRS). The engagement letter also contained an indemnity clause providing that Grant Thornton would reimburse and indemnify the Paschalls and any related entity for any civil negligence or fraud penalty assessed against them by Federal or State authorities.

Unfortunately for the taxpayer, Mr. Stover’s tax planning came under IRS scrutiny. The Tax Court explains:

In either 2003 or 2004 Mr. Paschall received a letter stating that Grant Thornton was turning over the names of people who had engaged in Roth restructures to the IRS. Mr. Stover at this time advised Mr. Paschall that the Roth restructure was legal but that he “might want to disclose on [his] income tax returns the structure”. Mr. Paschall thereafter attached to Telesis’ and his personal tax returns Forms 8886, Reportable Transaction Disclosure Statement.

When the taxpayer set up his Roth IRA, the annual limit for contribuitons was $2,000. The tax law applies a 6% annual penalty for excess contributions until the excess contribution and earnings are eliminated. The IRS said the $1.3 million moved into the Roth IRA was an excess contribution; over five years, that added up to $425,513 in taxes, plus another $105,000 or so in penalties.
The taxpayer naturally objected. The taxpayer first argued that the statute of limitations had expired on the tax, because he had filed timely 1040s more than three years before the assessment. The court ruled that the three-year statute never started running because he had never filed Form 5329, the form for reporting excess IRA contributions.
As for the substance of the transaction, the Tax Court said:

The substance of what happened in the instant case is that approximately $1.3 million began the year in Mr. Paschall’s traditional IRA and was transferred to his Roth IRA by the end of the year with no taxes being paid. Mr. Paschall did not attempt to provide a nontax business, financial, or investment purpose for what he did, and this Court cannot ascertain one. Instead, Mr. Paschall, incited by and at the urging of Mr. Stover, used corporate formations, transfers, and mergers in an attempt to avoid taxes and disguise excess contributions to his Roth IRA.

In upholding penalties against the taxpayer, Judge Wherry said the taxpayer should have known better:

Mr. Paschall should have realized that the deal was too good to be true. See LaVerne v. Commissioner, supra at 652-653. Mr. Paschall is a highly educated and successful businessman. He explained to this Court that because he grew up in the Depression, he was conservative with his investments and worried “about having enough money” to last through retirement. Yet he paid $120,000 for a transaction that he “did not fully understand”.
Mr. Paschall had doubts, repeatedly asking whether the Roth restructure was legal. Despite these doubts, he never asked for an opinion letter or sought the advice of an independent adviser, including Mr. Jaeger, who was preparing his tax returns at the time he met Mr. Stover. This was even after he received a letter warning him that there might be problems with the Roth restructure and that his name was being turned over to the IRS.

The cost of this do-it-yourself Roth IRA conversion was a lot more than it would have been to wait until 2010 to do a legal taxable conversion of his traditional IRA. It would be interesting to know how Grant Thrornton’s indemnification will hold up.
The Moral? Just the obvious:
- If it sounds too good to be true, it probably is.
- If somebody wants to sell you a tax plan, run it by a tax advisor who isn’t getting a cut of the deal.
Cite: Paschall, 137 T.C. No 2.
Same result: Swanson, T.C. Memo 2011-156
Related:
Kansas City attorney gets unwanted review of his tax work
Fool’s gold and chicken shelter

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Tax tip: Don’t leave $3.4 million of income off your 1040

Wednesday, June 15th, 2011 by Joe Kristan

A private equity player hired a tax preparer to do his 2006 return. He picked up his return showing $29.2 million of adjusted gross income on October 15, the final extended due date. Unfortuantely the preparers left a $3.4 million gain off of the return, even though they had his 1099 for it. In due time the IRS computer matching caught the omission, and the IRS hit the taxpayer with a $100,000 penalty for leaving off the gain.
The Tax Court said hiring a preparer didn’t get him off the hook:

Mr. Woodsum terminated the swap ahead of its set termination date because his watchful eye noted that it was not performing satisfactorily as an investment. That is, when his own receiving of income was in question, Mr. Woodsum was evidently alert and careful. But when he was signing his tax return and reporting his tax liability, his routine was so casual that a half million-dollar understatement of that liability could slip between the cracks. We cannot hold that this understatement was attributable to reasonable cause and good faith.

The case reminds us that the law holds the taxpayer accountable for what’s on the return, paid preparer or no. It also reminds us that it can be dangerous to wait to the last minute to file. A complicated return picked up on October 15 is a mistake waiting to happen.
Meanwhile, I suspect that the preparer’s malpractice carrier will be involved shortly, if it isn’t already.
More coverage:
TaxProf
Linda Beale
Russ Fox
Peter Pappas
Cite: Woodsum, 136 T.C. No. 29

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Incorporated Pocketbooks, Personal Holding Companies and outsourcing tax work

Friday, June 10th, 2011 by Joe Kristan

20110610-1.jpgThe Personal Holding Company Tax arose during the Depression, along with the Accumulated Earnings Tax, to force corporations to disgorge their accumulated cash to goose a staggering economy (sound familiar?). Like farm subsidies, another Depression program, these taxes still are around 70 years after the Depression ended. Over time, the justification shifted from stimulating the economy to preventing the shifting of income to an “incorporated pocketbook.”
The Tax Court this week reminds us that the PHC tax still has teeth. A corporation filing a consolidated return misapplied an obscure portion of the PHC tax rules and understated the PHC tax. The corporation used an in-house professional to do its returns; the court ruled that reliance on an in-house preparer doesn’t provide “reasonable cause” for botching taxes. As a result, the taxpayer also had to pay a 20% penalty.
There are probably thousands of C corporations out there subject to the 15% PHC tax that don’t know about it (the tax doesn’t apply to S corporations, but they have something similar that applies to former C corporations). The tax can apply to C corporations where five or fewer shareholders (relatives may be counted together) own over 50% of the corporation’s stock. Some warning signs:
- A corporation other than a bank that has a big portion of its income as interest or dividends.
- A corporation that has sold its business and now just has investment assets.
- A corporation that owns substantial rental real estate on a net-lease basis, incurring minimal expenses other than interest, depreciation, rent and property taxes.
If the corporation is closely-held, the tax can apply separately to subsidiaries in a consolidated return, even if the group as a whole has active business income. If this sounds like it might be you, talk to your tax advisor. And if you want a shot at avoiding penalties, make sure it’s an outside advisor.
Cite: Seven W. Enterprises, 136 T.C. No. 26.
Link: Instructions to IRS Schedule PH, Form 1120.
Pocketbook Flickr image courtesy SheriW under Creative Commons license.

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One less tax preparer in Kansas City

Tuesday, March 29th, 2011 by Joe Kristan

The Justice Department reports that it has shut down a peddler of tax delusions in Kansas City. Gerald A. Poynter II has been permanently enjoined by a federal judge from preparing returns and promoting tax scams. From the Department of Justice Press Release:

The court found that Poynter, who uses the business name

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Tax scheme operator gets man-sized sentence

Friday, March 18th, 2011 by Joe Kristan

When Irvin Hannis Catlett Jr. gets out of federal prison, he’ll be about 81 years old. Will the 210 months — 17 1/2 years — cause him to lose his taste for the tax prep business?
Mr. Catlett did amazing thing for his clients’ tax returns, according to a Department of Justice Press Release:

According to testimony at the nine day trial, Catlett operated Tax Resolutions Inc. located in Laurel, Md. He falsely held out Motors Holding Company Inc., Motors Holding Company II through VI Inc. and Rentown Inc. to his clients as operating businesses involved in automobile leasing and sales. Catlett knew however that these entities were not engaged in automobile leasing and sales, nor in any other legitimate, profit-making business. From 1999 to 2009, Catlett worked with others to sell to clients purported

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