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According to a civil complaint the United States filed in 2014, a Chicago-based tax return preparer prepared returns that falsely claimed that recipients of discrimination awards related to a class-action lawsuit could claim large deductions on their federal tax returns and that falsely inflated the amount of wages that city of Chicago employees claimed were withheld from their paychecks. Now a federal court has completely barred this tax return preparer from preparing tax returns for others.
Victor M. Crown promoted two false and fraudulent schemes through which he claimed that his customers could obtain significant federal income tax refunds, the complaint alleged. In the first scheme, as set out in the complaint, Crown falsely inflated the amount of income tax that was withheld from his customers’ paychecks because the city of Chicago purportedly calculated an incorrect withholding amount. Taxpayers may not claim a withholding credit larger than the amount that was actually withheld from their wages. The second scheme is founded on the 1969 class-action lawsuit Shakman v. Democratic Organization of Cook County, et al., No. 69-cv-2145 (N.D. Ill.), according to the United States’ complaint. Shakman was a discrimination case against the city of Chicago that alleged that the city improperly used political patronage when hiring and promoting public officials. As part of an agreed Shakman settlement order, the city set up a $12 million fund to compensate claimants for violations of the federal district court’s orders. Claims were submitted to the court-appointed monitor, who was responsible for evaluating the claims and, if justified, assigning a monetary award amount. According to the United States’ complaint against Crown, Crown asserted that his customers who were Shakman award recipients were entitled to claim net operating loss deductions for the difference between their claim and the amount they actually received in their award. The federal tax law does not permit a deduction in the amount of a denied discrimination claim.
In explaining its reasons for enjoining Crown, the court noted that the scope of Crown’s misconduct involved “at least 2,900 fraudulent tax returns,” as well as his “failure to accept responsibility and cease his operations.” The court’s injunction order forbids Crown from preparing tax returns for others and from making false statements about securing any tax benefit by virtue of receiving or not receiving an award in the Shakman litigation. It also requires Crown to give the United States a list of all his tax-preparation customers since 2010.
Return preparer fraud is one of the Internal Revenue Service’s (IRS) Dirty Dozen Tax Scams for 2016. The IRS has some tips on its website for choosing a tax preparer and has launched a free directory of federal tax preparers. In the past decade, the Justice Department’s Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers and tax scheme promoters. Information about these cases is available on the Justice Department’s website. An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page. If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.