Discussion:Tax Cheats

Comments? Feel free to use examples other than your own, for obvious reasons. What you have heard in attending your CPE classes, association meetings, cocktail conversations, etc.

Oh, also any comments about whether you think it would ba appropriate to turn in a fraudulent tax preparer.

(The wife understands that as a MFJ, she's on the hook, too. In many cases, however, she feels that her exposure is less than his and thus worth the bluff.)

For example, I once represented an HVAC contractor who had IRS problems regarding the trust fund taxes for his employees (imagine that). As part of his negotiation, he offered up info on a supplier who he felt was cheating on his taxes. He described in detail why he thought the guy was a cheat (huge house, boats, diamonds dripping out his a** (I think he was speaking figuratively, but who knows), boasted of not paying taxes, etc.). The IRS guy took all the info down and asked what my client expected in return for the info, my client just said "a little leeway in paying the taxes I know I owe". Who knows whether the IRS investigated the bejeweled derriere supplier. But I was surprised they didn't shut my client down as he continued to file 941s with no deposits for the next 3 years. When he stopped paying me my bill, he stopped being my client.

what do you mean as part of his negotiation?

Was it with you or was it with the IRS? I didn't know you can turn people in to the IRS for a plea bargain :P

Publication 733

For clients that are cheating, I would advise them to get back on track and let them know "what goes around comes around to bite you in due time".

If it's a former client, a tip to the IRS won't hurt. They are no longer your client and you don't owe them anything. I have read that some people will turn them in for vengeance lol.

Prospects that you refused b/c the way he wanted is criminal, should be reported.

Aren't we all indirect civil workers? We have a duty to the government for proper reporting so the Govt Agencies can be operative in providing social services and security. Our duty to the tax payer is not about what we can hide illegally for the tax payer but to help them reduce their tax liability that they are legally entitled to.

We must keep in mind that people are not entitled to the benefits.

Although I am very new to the field, during a social event I have heard of a few guys talking about what I call a "Society Dead Beat".

This taxpayor negotiates salary on a cash basis with little taxable income so him and his family can keep

- gov't housing - medicare - ebt - low utility rates

His cash portion of the salary was reletively high based on the following assumption of mine:

He owns a used Lexus, Acura, and Toyota Camry. All of them from a shady deal where the selling giave it as a gift (I am pretty sure Cash exchange was involved).

Owns businesses indirectly (owned by relatives by name).

Owns a mansion type property in another country.

And have a extroardinary gambling habit. According to one of the people at the bar, he can lose $3000 gambling in no time.

Shouldn't cheaters like that be brought to justice and pay back the taxes / benefits he stole from another family that might actually needed such thing?!!?!

This is suspicion, not knowledge. You don't *know* that the money comes from an illicit source, nor do you *know* he isn't claiming all of his taxable income on his tax return.

What you *do* know is his job doesn't pay well, he collects benefits, and yet he has many trappings of wealth. Your strongest suspicions are therefore that he is a benefits cheat; this is reported to whichever benefits department he is collecting from.

The law in the UK (where I work) is that you have to report any suspicious activity to the UK NCIS. I had one potential client whose lie resulted in a six-figure refund. The potential client asked me to prepare his returns "but not sign them" if signing would bother me. The plan included several authentic documents (not forged) to back-up his fraudulent claim. I delicately turned him down and then reported his full plan to the IRS and the NCIS.

I'm looking forward to my reward!

I have never had anyone else that I was 100% positive was lying. I have a lot of clients ask me, "so what would happen if I just didn't tell them about xxx?" I tell them the honest truth - their risk of getting caught is often minute; but the consequences if it does happen is (usually) huge. People don't like the sword of Damocles over their head, so they opt for the truth.

In our roles as advisors, we learn about a lot of skeleton's in our client's closets. The best we can do is advise them of the proper course of action and disengage if they choose not to follow our advice.

If you do feel a moral obligation to turn them in, you should probably advise them of such before you let them tell you their life story.

...my two cents

That being said, GLM, what if it were not a client, but just someone you observed?

My beef is that I pointed the law out to him...immigration, taxation, etc. and he decidely let me go....he found an accountant in the US who can make things "disappear"....

So what do any of us do? Do what is in your heart....sometimes when reality strikes, they see there is noone left to defend them....

I, too, don't like paying higher taxes because someone else is gaming the system. Our tax code is so complex that it invites abuse, not to mention the noncompliance due to ignorance. As a taxpayer, give me a simple system, with no gray areas and no exceptions anyday. Of course, that'd mean I'd have to find a new line of work.

Discussion Drift Alert:

I am curious if any revenue agents monitor or post to this board. Maybe I'm being paranoid, but if I was an RA about to conduct an audit, I might peruse the board to see if I could identify the CPA/Attorney/EA that I'm working with...maybe get a little insight into practices, etc. It'd be a thousand to one shot...but who knows.

I don't think you need to help somebody cheat but turning them in is whole different story. Remember we work for the client not the IRS, DOR or any government agency.

As for clients, we can't turn them in, it's unethical and I think illegal, however, we can turn down clients who ask you to cheat for them.

Several days after I mailed the 1099s, I received a phone call from a woman asking why she received the 1099 and what was to be done with it. I went on to explain the hows and whys. This woman was not happy one bit. Her 1099 was for almost 25K. She wanted no part of having to pay taxes. Needless to say, she hung up on me after calling me some names mored suited to her profession.

Three weeks after her phone call, I stopped by my client's office to get some paperwork. The owner handed me a 9 x 12 envelope that was delivered to his office. This letter was addressed to the IRS. I opened it and discovered that it was a CORRECTED 1096 (with my forged signature) and a CORRECTED 1099-MISC. The 1099 was for the woman I spoke with weeks prior and the amount was corrected from 25K to ZERO.

I was stunned. It took me five minutes and a cigarette to conclude that this woman went through the trouble of researching the issue and she filled out an amended 1096 and 1099 to avoid claiming the income. Turns out she wasn't smart enough... she only put one first class stamp on the oversized 9 x 12 envelope and it was returned to my clients office for INSUFFICIENT POSTAGE!!!  ;)

Although my anger reached a new plateau, at my clients urging I did not contact the IRS, the FBI, or any other agency that would have hung her by the yardarm to suffer a slow and painful death (I have anger issues.). Instead I waited untl April 16th to send her a certified letter explaining that any CORRECTED she may received from me was fraudelant, that the amount of the 1099 was still 25K, and that the IRS was monitoring the my 'account' and hers.  ;)

Over here in the UK all tax professionals must (and do report) to SOCA (http://www.soca.gov.uk/) - the Serious Organised Crime Agency - if we suspect (not know - just suspect) that anyone is living off the proceeds of what would a crime under English law.

So if we suspect that someone is evading something like State income taxes or Sales/Use taxes we MUST report that individual because the money they are living off is partly the proceeds of crime (e.g. tax evasion).

If we fail to report then we - ourselves - could be imprisoned. The theory behind the law is to reduce money laundering, I do not know how well this works but that is beyond what I need to know.

My question at this point is what is the difference between the Form 211 and the Form 3949-A. Do you file both?

Curious - RGtax, did you get any clients by soliciting with your business cards?

The first year, after the first of these beautiful escorts came to my office to receive her return, I was paid in cash. After she left, I gleefully told my wife, "A hooker just paid ME".

I have no problem turning in tax cheats. They are the reason why we all are paying so much taxes. I worked with the IRS and local authorities on a preparer who was cheating. I made an agreement with both that they would not ask for my source as long as I provided them with all of the information that I had in my possession (from a client) that would assist in their investigation. The first thing I did was clear it with my client. I told the client the fraud should be reported and I wanted to use some of the documents he gave me. All of his personal information was redacted from the documents and I would not tell the taxing authorities who my source was. I also warned the client that he may be contacted by an investigator and questioned because this was a case where I was amending the return for the errors done by the fraud preparer. His original return was in the preparers files. (one of about 300 done fraudulently). He was not to worry and should answer all questions honestly. Also to call me if and when he was contacted. Needless to say both taxing authorities agreed to my terms..they needed the information I had. The client was never contacted during the investigation and the preparer was convicted and sentenced to two years on the state counts...don't know yet about the federal counts.

As far as confidentiality with the clients...the cheat is not your client so you owe them nothing. The confidentiality belongs to the client which is why I protected him.

I just got this from the IRS..haven't had a chance to read it but I'm sure it will answer your questions about being paid....yes they do have a program

Find out more in news release IR-2007-25. taxea

What is even annoying is one of my clients tell me one of those tax cheats told him that I (a CPA and EA) doesn't know how to prepare taxes, "the right way." Just today, 2 people called and they are coming back for their paperwork because they are not a happy with the refunds, eventhough I have finished preparing their returns.

Looked through their prior returns, and they were WRONGLY prepared, no, downright fraudulent!

Sometimes, I consider going to work for the IRS as an RA one day. Not to get back at anybody, but just to help enforce the law, nothing more and nothing less. I wouldn't even look at cheaters I have crossed parts with, to ensure I am not accused of being vindictive (in fact or in appearance).

I know somebody might ask why then do I want to work at IRS? Frankly, just want to use my thorough knowledge about all the lies, schemes, and scams that some of these Fraudulent Preparers are using to compete with professionals.

But then again, how much impact can a single agent make in the IRS?

Kevin, please any insight will be appreciated.

1. If they didn't pay you, they aren't clients. Good riddance.

2. If they did pay you, at least you got a fee before they walked out the door.

(You got paid and you didn't want them back next year anyway, right?. That's win-win in my book.)

You're right. I didn't lose a client because I haven't done any work technically for them.

And no, I didn't get paid.

The risk to our practices if it got out that we turned in a client/former client is a big one. There is a huge difference between illegal and questionable/arguable positions. And the backlash and lost clients could be tremendous.

I have actually struggled personally with this dilemma this past year. I had a long time client sell me a cafe and then basically screwed me over. Prior to our relationship going from client/friend to the only person I can truly say I hate, he told me that when running the cafe, I can run a lot of my personal expenses through the business. That he had done this all the time on his past returns. I looked at him and said, you do know that I am a CPA and cannot do that and that if I know that this was done on a return that I have prepared that I can get in trouble.

Long story short, I pulled his returns for the past 10 years and looked through the income statements he provided for me <he would bring me QB's Income and balance sheets prepared by his bookkeeper>. I seriously contemplated turning him in because that deal cost me a huuuuuuge amount of money and grief. And as much as I actually hate this guy, I can't do it. I did send a letter to him telling him he needed to correct the ones filed and that I was going to contact the IRS about it, but I couldn’t do it. Still want to, but can’t.

In a bigger firm , turning in a client would never happen if a vote was taken. The potential liability is too great and it is unprofessional. The partners would vote against it. Fixer and Stein are correct. 100 percent.

Our job is to resign, put in writing why and unfortunately that's it. If under subpoena, that's different.

There are clearly well qualified people who believe we should be tax police etc... but in my view that is a personal approach to a professional business. I always advise clients, when in doubt how would a bigger company handle the problem. Many times when 3 to 7 voices can be heard, a more reasonable and rationale decision is made.

I should also point out that the politicians hate taxes so much that they take their salary, generous healthcare, perks, and pensions out of the government till. Then, they get everyone they know hired, or connected in some way to the gravy train.

We are fighting against a lot of stuff when that client walks into the office. The client that can't stand to pay taxes is generally the same one that whines if the police take more than 5 minutes to respond to a call.

Not sure I understand your point to Fred. I think he was right to do nothing. He can't disclose based on your above reference, he is a CPA (and a JETS fan I found out Go JETS!!!). I also would bet Fred did NOT reference the law when he made this decision. He simply applied common sense business practice, evaluated his risk and made a prudent decision that happens to be supported by law.

Do you believe he should have done different?

And yes, Go Jets. The next 10 days will tell a good story.

With me -it would be the questions they might ask, their demands to get the return done without information or substantiation. If it smells funny, it probably is and these are the clients I fire or do not accept. I once - about 3 years later- saw a news headline about a potential client I had not accepted. He was arrested for fraud. Boy, did I feel good about not working with him, but never did I have enough info to turn him in, only to be uncomfortable & think him uncooperative!

We all love to feel that somehow we've "won" against the system - for me its my car with 130k miles & my husband's with 210k! (we added a third so as to not tempt the auto gods!) Some people just have big egos that need extra massaging by affirmation of their superiority & it just isn't so.

3. Information to Successor Accountant About Tax Return Irregularities .005 Question—A member withdrew from an engagement on discovering irregularities in his client's tax return. May he reveal to the successor accountant why the relationship was terminated?

.006 Answer—Rule 301 [ET section 301.01] is not intended to help an unscrupulous client cover up illegal acts or otherwise hide information by changing CPAs. If the member is contacted by the successor he should, at a minimum, suggest that the successor ask the client to permit the member to discuss all matters freely with the successor. The successor is then on notice of some conflict. Because of the serious legal implications, the member should seek legal advice as to his status and obligations in the matter.

Snowbird, I did see that rule last night as well. When I read it now, it almost sounds like something I would expect to find in an attorney's code of ethics.

Too much time on my hands ... cold in the north and I am not in Florida yet ... so I did a little more research on the public responsibility of a CPA.

What does ‘public responsibility’ mean? May 2003

"A.A. Sommer, Jr., placed the responsibility of a professional in perspective for me one evening in 1972 just after he became an SEC commissioner. He gave a speech on the SEC and accounting issues, and I stayed afterwards to ask his advice about whether to pursue a career in law or in accounting. His response was: 'The law is a noble profession. It’s my profession. The essence of law as a profession is to place the private interests of your clients above your own. There’s only one more noble profession. That’s accounting, because the essence of being a CPA is to place the public interest above any private interest.' ”

I've been studying to become a CFE, and one of the things that is stressed is that CFEs gather the evidence but do not make judgment on the person being investigated. Judgment comes from the jury and judge. Until a person has been proven guilty, CFEs are bound to a duty NOT to release information to outside parties, even if the CFE believes the person is guilty. I guess that places CFEs more on the side of the attorneys than on CPAs.

Case in point: my dad has a "friend" who told me he used to claim his dog as a dependent and never got audited. I've known he has always told some whoppers in his day. I figured he was pulling my leg as I never know what to believe. Now his story is he gets audited and fights them tooth and nail. He prevails and gets a huge refund or so he claims.

A few years back, he asks for my help with his return as he is sick and so is his wife who usually does it. I review his previous returns only to find out that he's nothing more than just someone who just talks. He wasn't audited, he got a letter and it was a simple mistake. That was his "victory." As far as his dog, knowing him the way I do, I highly doubt it. As the expression goes, "Big hat, no cattle."

Last year, I had reservations about a new client. While I prepared the return based on the the interview and information I had to the best of my ability, I still was wondering about some of the documentation or lack thereof. My solution: I didn't send them an engagement letter this year and when they called (after April 15th), they said they had filed their own extension. At that point, I was too sick to be bothered and referred them to someone else.

Tom

Of course, the same rules would not (should not) obtain in public companies, necessarily.

Now, in a case like Enron, Enron itself did not need a CFE, since of course, the Big Enchaldas were in fact the evildoers. In other words, they knew damn well what they were doing!

Of course, the Govt. prosecutors might have made good use of CFEs after the fact.

As you know, the CFE is like an investigator, really. Just the facts. That can be frustrating if justice is not done, but at least you are performing a valuable service of uncovering those facts (or trying to).

Yes, CFEs are investigators. I was just a little surprised about what is not allowed as a CFE while I was going through the sample tax questions. One of the things I would like to focus on is helping my clients set up good controls so they don't need a fraud investigator in the first place.

So which is it, America?