Kathy W. Smith Pleads Guilty and Sentenced in U.S. Federal Cour
The United States Attorney's Office announced that during a federal court session in Missoula on July 7, 2010, before U.S. District Judge Donald W. Molloy, KATHY W. SMITH, a 59-year-old resident of Mississippi, pled guilty and was sentenced on 26 counts of preparing false tax returns for others.
SMITH was sentenced to a term of:
Probation: 5 years
Special Assessment: $2,600
In an Offer of Proof filed by Assistant U.S. Attorney Kris McLean, the government stated it would have proved at trial the following:
SMITH d/b/a A Fastax Company, was a self-employed tax return preparer who operated out of her home in Hamilton between 2002 and 2006. She represented herself as a former CPA who had worked for the IRS. Taxpayers contacted SMITH due to her reputation for large refunds, despite high fees. She prepared returns placing false information regarding unreimbursed employee business expenses on the Schedules A, resulting in large refunds for her clients.
None of the taxpayers provided SMITH any information to justify the expenses that SMITH reported on their returns and most said they provided SMITH with no records at all. SMITH did not review completed returns with her clients. In fact, when the taxpayers were audited by the IRS, they discovered the copy SMITH gave each of them did not match the return filed with the IRS. Several taxpayers attempted to contact SMITH upon notice of an audit and were told she was very ill or dead.
On June 10, 2008, when questioned at her home in Pelahatchie, Mississippi, SMITH claimed she obtained all the information she used in preparing returns from the taxpayers. Additionally, she claimed her personal and business records and the data on her computer were destroyed during a storm.
SMITH prepared twenty-six false tax returns for taxpayers for tax years 2002-2006. The tax loss associated with the SMITH's conduct amounted to $156,707.59.
Additional evidence of willfulness:
Taxpayers would have testified that they did not: (1) incur the expenses or deductions SMITH placed on their returns; (2) instruct SMITH to place the false items on their returns, or (3) know that SMITH had placed false items on their returns.
SMITH had completed two years of college, at least one accounting course, and yearly tax preparation seminars put on by the IRS.
SMITH systematically included false unreimbursed employee business expenses on her clients' returns.
SMITH seldom reviewed any portion of the prepared returns with her clients and generally told clients only what the amount of their refund would be.
In several instances, SMITH gave her clients' copies of their returns, but after the client departed, SMITH further inflated the clients' business expenses and obtained a larger refund for the client. SMITH was able to retain the difference in the refund amounts between the two returns without the clients' knowledge.
SMITH represented herself to her clients as a CPA and a former IRS employee,. Neither of these claims was true.
SMITH told investigators that she gave her clients checklists on which she had them state their expense and income information. SMITH stated that she did not retain copies of these checklists. SMITH's clients stated that SMITH did not provide them with any such checklists.
Because there is no parole in the federal system, the "truth in sentencing" guidelines mandate that SMITH will likely serve all of the time imposed by the court. In the federal system, SMITH does have the opportunity to earn a sentence reduction for "good behavior." However, this reduction will not exceed 15% of the overall sentence.
The investigation was conducted by the Criminal Investigation Division of the Internal Revenue Service.
A copy of the Offer of Proof can be obtained by contacting Sally Frank at (406) 247-4638.