Federal Court Bars Philadelphia Tax Firm and Ownerfrom Claiming First-Time-Homebuyer Tax Credit for Customers

WASHINGTON – A federal court has barred a Philadelphia tax preparation firm and its owner from preparing federal tax returns claiming first-time-homebuyer tax credits and tax deductions for certain expenses, the Justice Department announced today. The court’s preliminary injunction order against Friday James of Landsdowne, Pa., who does business as Frika Tax Services, will remain in effect while the government’s lawsuit seeking a permanent injunction proceeds in court.

Following a court hearing at which the government presented evidence against James, including testimony from several of his customers, the court found that James “negligently or willfully understated tax liability on many of the federal income tax returns he prepared for his clients.” The court found that James claimed the first-time-homebuyer credit for customers who did not qualify for the credit and claimed deductions for business and miscellaneous expenses that were “erroneous, unrealistic or unreasonable.”

The court also stated that, absent an injunction, many of James’s customers would be likely to “underpay their tax liabilities and bear financial harm by having to pay overdue taxes, interest, and possible penalties.” The court required James to provide a copy of the injunction order to all persons for whom he has prepared any federal income tax returns.

Return preparer fraud is one of the Internal Revenue Service’s “Dirty Dozen” tax scams for 2011. In the past decade, the Justice Department’s Tax Division has obtained injunctions against hundreds of tax fraud promoters and unscrupulous tax return preparers. Information about these cases is available on the Justice Department website.