News and Press Releases

Preparer Overstated Deductions and Claimed Fictitious Business Losses

May 23, 2007

RONALD M. PAUL, 50, of Seattle, Washington, pleaded guilty today in U.S. District Court in Seattle to aiding or assisting in the preparation or presentation of materially false personal income tax returns. PAUL operated “The Tax Clinic,” a tax preparation business out of his Seattle home. In 2003, PAUL prepared returns on behalf of clients in which he overstated charitable contributions and employee expenses and falsified business losses thereby allowing his clients to receive significant refunds. The overstatements and false entries resulted in a tax loss to the government of more than $100,000. PAUL is scheduled to be sentenced by U.S. District Judge Marsha J. Pechman on September 7, 2007..

According to the plea agreement, PAUL met with 32 clients in early 2003 to prepare their 2002 federal tax returns. Each of the taxpayers provided PAUL with their personal financial information to assist in preparing the returns. In each case, PAUL ignored the offered information and overstated charitable donations and business expenses by thousands of dollars. In addition, PAUL claimed fraudulent business losses on many of the returns. The clients had never invested in the businesses and, in some cases, had never even heard of the businesses. PAUL did not review the returns with his clients before requesting their signature and submitting them. The overstated contributions and expenses, together with the falsified business losses, led to PAUL’s clients receiving refunds they would not have otherwise been entitled to. An accurate accounting of each clients true contributions, expenses and losses would have resulted in either a tax liability or a significantly reduced refund.

The preparation fee PAUL charged to his clients was based on the refund amount generated using his overstated deductions and falsified business losses. For the 2002 tax year alone, the IRS estimates it lost $100,447 in tax revenue. PAUL has agreed to pay the government restitution of $472,344 (less any amounts already paid by the liable tax payers) for false tax returns he prepared on behalf of clients for tax years 1999 through 2003.

Kenneth J. Hines, IRS Criminal Investigation Special Agent in Charge for Seattle stated, “Today’s guilty plea should send a clear message to all tax professionals. The law does not distinguish between individual tax return preparers, Certified Public Accountants or Tax Attorneys. All of these professionals are held to the same standards. While most of the individuals in these professions do an honest job for their clients, this is not always the case. This guilty plea should stand as a warning to the public when entrusting your financial wellbeing to a tax professional.”

The case was investigated by the Internal Revenue Service Criminal Investigations (IRS-CI) and is being prosecuted by Assistant United States Attorney James Oesterle.

For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110.

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