We've represented a number of people who prepare other people's taxes for a living in criminal cases. These can be a relatively high priority for federal law enforcement – they can see someone who is preparing another person's taxes and putting down false information as a more appropriate target for a criminal case than someone who is just filing their own returns.
How Bad the Facts Are Makes the Difference
Generally, when tax preparers are prosecuted, the charge we see most frequently is filing a false return, or aiding and abetting someone else in filing a false return. This can be a little tricky for the government – the federal prosecutors normally have to show that the tax preparer knew that the information on the tax return was false.
So, if, for example, the preparer put the same specific information on a number of people's returns in a very specific amount – say every person who the preparer did a return for claimed exactly $7,382 in charitable deductions – then the government would have a stronger case than if there was simply one false statement on one person's return.
Of the people who we've represented who have been under investigation, generally, the harder to believe the information on the returns, the more likely a prosecution is.
The Government's Investigation of a Tax Preparer
These cases are most often investigated by agents from the IRS's Criminal Investigations Division.
The government's approach to the investigation and prosecution of a tax preparer is generally to interview the former clients of the preparer very early. Sometimes a person will learn there's an investigation into him or her from former clients. The government wants to lock in early in the investigation what the tax preparer's former clients will say about how tax preparation worked with the preparer, and whether the statements on the return were false.
Because one significant defense many preparers under investigation or who have been charged use is that they merely passed along information provided by their client, the government also tries to get the tax preparer's clients to talk to them early in the investigation about how the tax preparer collects information from his or her clients.
How a Tax Preparer Gets Paid Matters
We've also seen that the way tax preparer is paid can matter a lot to whether he or she will face a criminal investigation.
If a tax preparer takes a portion of any refund, that can look suspicious – the tax preparer then has an incentive to make sure there's a refund.
Similarly, if the preparer takes a very low fee and does a high volume of returns, that can look suspicious to the government. They sometimes think that the preparer is finding big refunds just to bring more work in the door.
How These Cases Work Out
We've found that sometimes a criminal prosecution can be avoided when there's an investigation into a tax preparer. Much of it depends on luck, but there are concrete steps that can be taken during an investigation to change the odds that a person will be charged.
Much of it has to do with simply doing what lawyers do in an investigation. A lot of it can be determined based on whether a tax preparer has talked to the federal law enforcement agents who showed up at his or her doorstep.