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Clients liable in tax preparer's fraud scheme

When we take our taxes in to have them prepared by a professional, we trust that the professional’s advice will lead us in the right direction and get the best tax rates while complying fully with the law. Unfortunately in some cases it does not turn out this way, and taxpayers can end up in trouble if their trusted tax preparer takes improper deductions.

This is the situation that more than 3,000 people find themselves in upon the conviction of a tax preparer for taking more than $3 million in improper deductions for her clients. The tax preparer allegedly filled out tax returns with deductions for student loans that her clients did not take out, giving them much larger than anticipated tax returns. Interestingly, the tax preparer is not accused of pocketing any of the extra money from the returns, but instead forwarding it directly to her clients.

These types of cases arise more often than many California taxpayers realize, since tax preparers will often stretch the rules to help find savings for their clients. If the IRS disagrees with the deduction or believes that it was taken in bad faith, the both the client and the tax preparer could be liable for the wrongdoing.

In this case it is not clear whether the clients were aware that the tax preparer was taking a deduction that they were not qualified to take. The only indication that they may have known was the fact that that particular tax preparer had a large number of clients and a busy workload, indicating that word of mouth recommendations in the community were guiding people towards the unusually large deduction.

Source: NBC Chicago, “Tax Preparer Convicted of IRS Fraud,” Phil Rogers, Jan. 9, 2013. 

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