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Federal Criminal Prosecutions Against Income Tax Preparers: Some Lessons

Kish Law LLC

We have been following some recent developments in federal criminal prosecutions brought against people who operate  businesses that prepare federal and state income tax returns for their clients.  First,  the U.S. Court of Appeals for the Eleventh Circuit yesterday affirmed a conviction and lengthy sentence imposed on an Atlanta-based tax preparer who had apparently stolen the identities of her own clients and used that information to file bogus requests for tax refunds.  The case is United States v. Ford, and can be accessed here.  Second, I recently finished a case where I was able to convince the federal judge to impose a somewhat lower sentence on another tax preparer because of some upcoming changes in the Federal Sentencing Guidelines.  An earlier post about this sentencing tactic is here.  Finally, I have been representing other tax preparers who are battling with the IRS over issues concerning the operation of their businesses.

In the recent Ford case in the Court of Appeals, the Defendant was convicted after a trial.  During the investigation of the case, and Atlanta-based TV station got wind that Ms. Ford was supposedly engaging in some kind of fraud, so they sent in an undercover reporter wearing a secret camera.  The camera caught Ms. Ford saying and doing some things that were very harmful, and the TV station then aired the typical “gotcha” story, replete with the seemingly angry reporter who was “shocked” that crime happens.  Before trial, Ms. Ford’s attorney argued that putting an incendiary TV show in front of the jury was excessively prejudicial.  The Court of Appeals rejected  this argument, mostly because the prosecutors wisely agreed to take out just about everything from the TV story except the part where Ms. Ford was talking with the undercover reporter.  One lesson for attorneys who represent people accused of fraudulent activities is to always be aware that in this modern media-frenzy culture there always might be a TV story or something on social media you need to be prepared for when defending the case.

As I mentioned in my earlier post on using changes to the Federal Sentencing Guidelines as a method for trying to get a lower sentence, the concept of “loss” and the number of “victims” are two crucial factors that go into the sentencing range that every federal judge faces when starting the process of figuring out the correct sentence for a person convicted of a crime involving fraud.  In the Ford case from yesterday, the defense team argued that the sentencing judge made mistakes when calculating the amount of loss and whether certain people were victims.  While the Court of Appeals rejected these arguments, it is important to remember to object to rulings in such areas so that the Defendant at least has the chance of appealing to a higher court when the sentence is longer than anticipated.  We unfortunately sometimes have clients come to us after another lawyer represented them at the sentencing hearing and failed to remember that it is important to object when the Judge makes a decision that could lead to a higher range under the Sentencing Guidelines.

The two matters mentioned above involve some folks who apparently engaged in some fraudulent conduct while preparing tax returns.  However, thousands of legitimate tax preparers help taxpayers work through the insanely arcane and complex ritual that is required for filing a tax return in this country.  We all know about the big companies that sell software that supposedly allows an individual to plug in a few numbers and then file their taxes.  However, many people feel more comfortable going to a trusted local small business for this process.  My recent work has shown me that the IRS is often exceedingly hard on these small tax preparers, sometimes using even the smallest mistake as grounds for shutting them down or making them pay penalties. I want all of my clients to adhere strictly to the rules of whatever business they operate, but the IRS can sometimes be an especially difficult agency to deal with when problems arise, as they do in every business in this country.

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