As the tax filing deadline nears, IRS agents are making examples of what they see as overzealous tax preparers and are warning the public to check their tax returns for questionable deductions their preparer might have made.
Investigators with the IRS criminal investigations division say they are seeing an increase in the prosecution of tax preparers who stretch tax laws in an attempt to squeeze out more cash in their clients' tax returns. And some tax preparers go too far, said IRS Special Agent Ted Elder.
"The motivation behind most tax preparers on cheating on your taxes is money," Elder said, pointing out that tax preparers seek a higher tax return for their client because they take a percentage as their fee, or promise a higher return for more money.
"Any promise that they can get more refunds than other people, red flags should go up," Elder said.
According to the IRS, it loses an estimated $10 billion each year in tax revenue from abusive tax shelters for large corporations and high-income individuals. Between 2001 and 2005 the IRS has seen more than a 43 percent increase in prosecutions for tax crimes by the Justice Department's Tax Division.
Recently the owners of two longstanding Utah tax-preparing businesses were indicted on charges of aiding in the preparation of false tax returns.
On Wednesday, a federal grand jury handed down an indictment against a Vernal tax preparer who has run his in-home business since 1987. Allen Kent Harward, 57, is charged with 10 counts of assisting in the preparation of false returns.
According to the indictment, there was evidence that Harward falsified itemized deductions, such as business expenses, and intentionally did not include income derived from a business or rental. He also included personal expenses as business expenses on his client's returns and also falsified farming deductions.
If convicted, Harward faces up to five years in federal prison for each count. He has been issued a summons to appear in court.
Last month a father-son team of tax preparers in Bountiful were indicted on several counts of preparing false returns. According to indictments, Lynne K. Mercer and his son, Lance Mercer, used various methods to reduce their clients' tax liability by creating false tax deductions, claiming personal expenses as business expenses and deducting expenses more than once on the same tax return. That business has been operating since 1973.
In the past year, federal prosecutors have charged several Utah attorneys, certified public accountants and "constitutionalist" tax protesters for filing fraudulent claims.
"While most return preparers provide excellent service to their clients, a few unscrupulous tax preparers file false and fraudulent returns to defraud the government, the taxpaying public and their own clients. Taxpayers should choose carefully when hiring a tax preparer," said Jay Wesley Eddy, special agent in charge for the IRS criminal investigation division for Nevada and Utah.
Elder said people need to protect themselves because ultimately each person is responsible for the accuracy of his or her tax returns.
Unlike other professions, Elder said tax preparers are not certified like accountants and that anyone can open a tax preparation business.
"It's a bit of a growing problem. There has been an increase in the prosecution of tax preparers," Elder said. "We've found there is a need for ethics for everyone involved in fraud in the tax preparation business."
E-mail: gfattah@desnews.com