Moral dilemma - to cheat of not to cheat (with the help of a tax preparer)
Mr Death and Taxes
single person making around $32K a year, he is getting about $3k back.
No big deag, unless you look at his return. It states he gave almost
$4k in cash contributions, $496 in non-cash contributions, about $4000
in misc business expesses (mostly vehicle related deductions), $967
dry cleaing, etc.. Also his state and local taxes was actually about
$1200, but was put down as almost $5000.
He did the same last year and go away with it. He did the same this
year and got his federal refund in 10 days.
We know others that go to the same tax preparer, and the office
obviously uses the same techinique for most.
Correct me if I'm wrong, but the up side is you might get to keep all
that refund. The downside (ignoring the moral dilemma) is you might
have to pay some back with some penalties.
Whats the statue of limitations on bad returns. Why shouldn't I go?
Paul Thomas
Well, it's fraud. And you know it, especially now. So, you can be an
accomplice to fraud, or report it, or just ignore it and get as far away as
possible.
Fraud does not have a statute of limitations, which means they can come
after you for as many years as they'd like. For practical reasons they
generally don't go back more than 10 years. And one day you'll answer the
door and a man (or a few) with a badge and a gun (Criminal Investigation)
will be there to ask you about your return preparer and their tactics.
You'll cooperate or face penalties, interest and of course, the proper tax.
In a "preparer project" (they may have a different name these days) the
IRS audits every return prepared by that preparer looking for a pattern of
behavior that leads to criminal charges, and jail time.
Do you, and your son, and any friends you know that use this preparer,
really want to risk that chance?
--
Paul A. Thomas, CPA
Athens, Georgia
tax...@negia.net
http://www.pat-cpa.com
Frank Keiser
section 6501 of the Internal Revenue Code.
In general, normal assessment period three years from date (or due date if
later) when the return is filed.
Six years from date (or due date if later) when the return is filed if the
taxpayer understates his gross income by more than 25%.
Till hell freezes over if the taxpayer commits fraud.
Excerpts follow:
Sec. 6501. Limitations on assessment and collection
(a) General rule
Except as otherwise provided in this section, the amount of any tax imposed
by this title shall be assessed within 3 years after the return was filed
(whether or not such return was filed on or after the date prescribed) or,
if the tax is payable by stamp, at any time after such tax became due and
before the expiration of 3 years after the date on which any part of such
tax was paid, and no proceeding in court without assessment for the
collection of such tax shall be begun after the expiration of such period.
For purposes of this chapter, the term ''return'' means the return required
to be filed by the taxpayer (and does not include a return of any person
from whom the taxpayer has received an item of income, gain, loss,
deduction, or credit).
(b) Time return deemed filed
(1) Early return
For purposes of this section, a return of tax imposed by this title, except
tax imposed by chapter 3, 21, or 24, filed before the last day prescribed by
law or by regulations promulgated pursuant to law for the filing thereof,
shall be considered as filed on such last day.
(2) Return of certain employment taxes and tax imposed by chapter 3
For purposes of this section, if a return of tax imposed by chapter 3, 21,
or 24 for any period ending with or within a calendar year is filed before
April 15 of the succeeding calendar year, such return shall be considered
filed on April 15 of such calendar year.
(3) Return executed by Secretary
Notwithstanding the provisions of paragraph (2) of section 6020(b), the
execution of a return by the Secretary pursuant to the authority conferred
by such section shall not start the running of the period of limitations on
assessment and collection.
.
(c) Exceptions
(1) False return
In the case of a false or fraudulent return with the intent to evade tax,
the tax may be assessed, or a proceeding in court for collection of such tax
may be begun without assessment, at any time.
(2) Willful attempt to evade tax
In case of a willful attempt in any manner to defeat or evade tax imposed by
this title (other than tax imposed by subtitle A or B), the tax may be
assessed, or a proceeding in court for the collection of such tax may be
begun without assessment, at any time.
(3) No return In the case of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be
begun without assessment, at any time.
.
(e) Substantial omission of items
Except as otherwise provided in subsection (c) -
(1) Income taxes
In the case of any tax imposed by subtitle A -
(A) General rule
If the taxpayer omits from gross income an amount properly includible
therein which is in excess of 25 percent of the amount of gross income
stated in the return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment, at any time
within 6 years after the return was filed. For purposes of this subparagraph
-
(i) In the case of a trade or business, the term ''gross income'' means the
total of the amounts received or accrued from the sale of goods or services
(if such amounts are required to be shown on the return) prior to diminution
by the cost of such sales or services; and
(ii) In determining the amount omitted from gross income, there shall not be
taken into account any amount which is omitted from gross income stated in
the return if such amount is disclosed in the return, or in a statement
attached to the return, in a manner adequate to apprise the Secretary of the
nature and amount of such item.
.
.
Mr Death and Taxes
worksheets (which were unavailable) and without a sound understanding
of the tax laws, its not certain we're talking fruad. Still, I could
not help being concerned.
From the IRS text so kindly supplied, its seems to be fraud if you
intentionaly under report income. Deductions, seem to be a different
animal.
On Wed, 13 Feb 2002 02:32:06 -0000, "Paul Thomas" <tax...@negia.net>
wrote:
Helen P. OPlanick EA
>worksheets (which were unavailable) and without a sound understanding
>of the tax laws, its not certain we're talking fruad. Still, I could
>not help being concerned.
Oh, come on. It was clearly stated that the deductions were overstated. Dry
cleaning is not even a deduction, unless the taxpayer wears uniforms and there
was no mention of them.
The best thing - call the CI dept of the IRS and turn this creep in. Get him
or her off the streets.
Helen, EA in PA
Director, NAEA; Member of The Tax Gang
President, PA Society of Enrolled Agents
1040EZ and 1040A tax prep at www.1040.com/1040pro
Randy H
"Mr Death and Taxes" <tax...@taxmen.com> wrote in message
news:k3ij6ukb1sj0krkik...@4ax.com...
> My son recently had his taxes done by a local tax preaparer. As a
> single person making around $32K a year, he is getting about $3k back.
> No big deag, unless you look at his return. It states he gave almost
> $4k in cash contributions,
If he made the contributions, that fine. If the didn't, that's fraud.
> $496 in non-cash contributions,
If he made the contributions, that fine. If the didn't, that's fraud.
> about $4000
> in misc business expesses (mostly vehicle related deductions),
If they are valid, fine. If not, then fraud again.
> $967
> dry cleaing, etc..
Could be valid, most likely not.
> Also his state and local taxes was actually about
> $1200, but was put down as almost $5000.
Clearly fraud.
>
> He did the same last year and go away with it.
He hasn't gotten away with anything, the wheels of justice move slowly.
> He did the same this
> year and got his federal refund in 10 days.
>
Standard operating procedure. It means nothing.
> We know others that go to the same tax preparer, and the office
> obviously uses the same techinique for most.
>
I would hardly call fraud a "technique".
> Correct me if I'm wrong, but the up side is you might get to keep all
> that refund.
Similar to robbing a liquor store. There is a chance you will get away with
it.
> The downside (ignoring the moral dilemma) is you might
> have to pay some back with some penalties.
>
Or go to jail, be ruined financially, etc.
> Whats the statue of limitations on bad returns.
The end of time.
> Why shouldn't I go?
1. It's illegal.
2. It's immoral.
3. It's stupid.
Just to name a few.
Randy H
"Mr Death and Taxes" <tax...@taxmen.com> wrote in message
news:ql9k6uk27fk14cmpa...@4ax.com...
> I appreciate both reply's. Of course, without going over the
> worksheets (which were unavailable) and without a sound understanding
> of the tax laws, its not certain we're talking fruad. Still, I could
> not help being concerned.
>
Sounds very different than what you stated in your original post. Which is
true? Do you know the deductions are bogus or not? Your statement about
his state tax made it clear you knew the deductions were not valid.
> From the IRS text so kindly supplied, its seems to be fraud if you
> intentionaly under report income. Deductions, seem to be a different
> animal.
>
Things aren't always what they seem. This is one of those cases. You know
the IRS can trace your message if they really want to, don't you?
Criswell The Psychic Weatherman
> My son recently had his taxes done by a local tax preaparer. As a
> single person making around $32K a year, he is getting about $3k back.
> No big deag, unless you look at his return. It states he gave almost
> $4k in cash contributions,
Did he?
> $496 in non-cash contributions,
Did he?
> about $4000
> in misc business expesses (mostly vehicle related deductions),
Did he really have them?
> $967
> dry cleaing, etc..
What kind of uniform? What kind of job?
> Also his state and local taxes was actually about
> $1200, but was put down as almost $5000.
Where did this difference come from?
> He did the same last year and go away with it. He did the same this
> year and got his federal refund in 10 days.
So what? Getting a refund has nothing to do with being audited.
It takes 3 years before a return gets examined. Partly because the IRS is
slow, partly because in 3 years they can determine if it's just one year
or a pattern. In your son's case, there's definitely a pattern,
and one that you, your son, and his preparer all know.
> We know others that go to the same tax preparer, and the office
> obviously uses the same techinique for most.
Technique? Do you mean fraud? Well, that's certainly not going
to get your son off the hook, since he signed the return too.
> Correct me if I'm wrong, but the up side is you might get to keep all
> that refund. The downside (ignoring the moral dilemma) is you might
> have to pay some back with some penalties.
Don't bet on keeping it. Don't bet on the IRS missing it. Penalties,
Interest, Fines. Remember, that by signing the fraudulent return,
your son is an accomplice to fraud, and well, that line
can ultimately end up in jail.
> Whats the statue of limitations on bad returns. Why shouldn't I go?
The statute of limitations on fraud is that there is no statute of
limitations.
Why shouldn't you go? Do you want to be an accessory and an accomplice
to fraud? If the IRS determines that this one preparer is the source of
multiple fraudulent returns, the IRS can subpeona his database and make
it tough on every single one of his clients. Do you want to go there?
--
"My friends, we are all interested in the future,
for that is where you and I are going to spend the rest of our lives."
Criswell The Psychic Weatherman
sse...@mindless.com
Dan Evans
> > $967
> > dry cleaing, etc..
>
> Could be valid, most likely not.
I can't imagine how dry cleaning could be deductible.
> > Also his state and local taxes was actually about
> > $1200, but was put down as almost $5000.
>
> Clearly fraud.
And very stupid, because these are numbers that the IRS should be able
to verify.
The IRS shares information with states, so they should be able to tell
how much was paid in state income tax. And most real estate taxes are
paid through mortgage escrows, and the IRS gets copies of the mortgage
statements.
So a big difference between the numbers the IRS has and the numbers
reported could easily trigger an audit.
> > He did the same last year and go away with it.
>
> He hasn't gotten away with anything, the wheels of justice move slowly.
That's an important point to remember.
Most returns aren't really reviewed for at least a year, and it seems
to take about two years to start an audit.
So the son could be hearing from the IRS sometime later this year, or
early next year, about his 2000 return.
Dan Evans
Wendy Marsden, CPA
> Correct me if I'm wrong, but the up side is you might get to keep all
> that refund. The downside (ignoring the moral dilemma) is you might
> have to pay some back with some penalties.
>
> Why shouldn't I go?
You *can't* ignore the moral dilemma. Most people are good,
hard-working, honest people trying to pull their own weight. The
people who think that "everyone cheats" are fooling themselves. Most
people don't. Why should *they* be exempt from the rules when better
men than they are have to pay?
Now, I'm not so naive as to think that we don't all have our price,
but is the price of YOUR honesty so low?
Regarding the specific problem of your son, he's going to be throwing
off DIFF bells and whistles and pull an audit. His contributions are
too high, his taxes are too high, his employee business expenses are
too high: the audits for last year haven't come through yet. He'll
get one, or if not him, then someone else this preparer does and
they'll start LOOKING for this preparer's returns.
Honesty is its own reward. Being able to sleep at night is its own
reward. Being able to look yourself in the mirror and say, "I'm glad
I'm not a scumbag" is its own reward. You might want to mention these
things to your kid, but don't worry about whether everyone else gets
punished: be glad you're better than they are. It's worth the tax
money.
Oh, one more reason not to go to a dishonest preparer: if he'll lie
under oath, what makes you think he won't cheat YOU, too?
Wendy Marsden, CPA & EA in MA
Randy H
"Dan Evans" <d...@evans-legal.com> wrote in message
news:6d9b11e5.02021...@posting.google.com...
> "Randy H" <randyusene...@yahoo.com> wrote in message
news:<a4dsg5$1eg3ol$1...@ID-57355.news.dfncis.de>...
> > "Mr Death and Taxes" <tax...@taxmen.com> wrote in message
> > news:k3ij6ukb1sj0krkik...@4ax.com...
>
> > > $967
> > > dry cleaing, etc..
> >
> > Could be valid, most likely not.
>
> I can't imagine how dry cleaning could be deductible.
>
I would deduct the cost of dry cleaning as upkeep for uniforms that qualify
as a miscellaneous itemized deduction.
D. Stussy
>I appreciate both reply's. Of course, without going over the
>worksheets (which were unavailable) and without a sound understanding
>of the tax laws, its not certain we're talking fruad. Still, I could
>not help being concerned.
>
>From the IRS text so kindly supplied, its seems to be fraud if you
>intentionaly under report income. Deductions, seem to be a different
>animal.
No, they aren't. However, most of the sophisticated tax fraud that goes on
deals with income.
The "low income" tax fraud that goes on normally deals with deductions or
credits. Look at EIC: Something like 2-5% of all EIC claims are just simply
fraudulent (not just erroneous).
I've also had or seen audits (during my IRS days) where a taxpayer admitted
that he/she made up the names of the claimed dependents (before the SSN
requirement). I also saw one return where the dependents were not made up and
were [correctly] identified as "dog" and "aquarium" (fish) - and those pets DID
exist. The "made-up names" case was accepted for fraud (civil penalties only).
The "pets" case wasn't even submitted because no one at my IRS office could
keep from laughing long enough to write up the referral.
Paul A. Thomas
Dan Evans <d...@evans-legal.com> wrote
> "Randy H" wrote
> > > $967 dry cleaing, etc..
> >
> > Could be valid, most likely not.
>
> I can't imagine how dry cleaning could be deductible.
When traveling away form home on business dry cleaning is a deductible
expense.
Criswell The Psychic Weatherman
> I appreciate both reply's. Of course, without going over the
> worksheets (which were unavailable)
I'd like to know why they were unavailable. Unless the
calculations are obvious, your son should have been given
a copy of them as well.
> and without a sound understanding
> of the tax laws, its not certain we're talking fruad. Still, I could
> not help being concerned.
>
> From the IRS text so kindly supplied, its seems to be fraud if you
> intentionaly under report income. Deductions, seem to be a different
> animal.
Surprize. Deductions out of range with income are red flags for audits.
--
Paul A. Thomas
> intentionaly under report income. Deductions, seem to be a different
> animal.
Under report TAXABLE income. This is done in one of two ways, or in
combination, under report incomes or overstate deductions, expenses or
credits. Like claiming charitable deductions when you clearly had none, or
taking the child care credit when your kid stayed at grandma's, or
overstating your business expenses (or claiming you have a business when you
clearly don't). "Deductions" work in concert with income to derive at
taxable income, and the substantial under reporting of taxable income can be
fraud.
Frank
he risks conviction, audits, and being labelled (correctly) a crook.
Why not devote the time and energy you folks are spending worrying
about this to furthering his career? You'll make more money in the
long run, and you don't have to worry every April 15th.
Robert Thompson - OhioTaxMan
Though not indicated in the OP, dry cleaning of a uniform of
a charity would be deductible.
My dad, the scoutmaster, would deduct the cost of cleaning
his uniform, though infrequent the occasion for dry cleaning
was. It is a valid charitable deduction in that case. The
same would be true for any other uniformed charity / Girl
Scouts, Boy Scouts, Camp Fire, Salvation Army, .... not a
complete list
--
Ohio Tax Man - Robert Thompson
Westerville (Columbus) Ohio