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Monday, March 20, 2017

Justice Department Seeks To Shut Down Kansas City Tax Return Preparer And Business

Defendants Allegedly Prepare Fraudulent Tax Returns in Order To Understate Customers’ Tax Or Overstate Their Refunds

 

A tax return preparer and his preparation business in the Kansas City, Kansas area prepare fraudulent tax returns for their customers, according to a new civil lawsuit filed by the Justice Department today. The suit, filed in federal court in Kansas City, Kansas, asks the court to permanently bar Everett Bias and the company he owns and operates called Integrity Solutions Tax Consultants Inc. (ISTC) from preparing federal tax returns for others. The government also asks the court to order Bias and ISTC to turn over the names of customers for whom they have prepared federal tax returns since 2012.

 

The complaint alleges that the defendants unlawfully understate their customers’ income tax liabilities and overstate these customers’ refunds. According to the complaint, Bias and ISTC unlawfully prepare federal tax returns that lower their customers’ federal tax liabilities by using S corporations. This type of corporation passes corporate income, losses, deductions, and credits to its shareholders for federal tax purposes. Shareholders report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. According to the government’s complaint, Bias and ITSC misreport S Corporation items on their customers’ personal income tax returns by:

 

• Failing to report customers’ pass-through income as taxable income on the customers’ personal income tax returns;

• Falsely lowering the income of customers’ S corporations and then reporting that false lowered income amount on the customers’ personal income tax returns;

• Improperly double-deducting customers’ personal expenses, such as mortgage interest and real estate taxes, on customers’ corporate and personal returns; and

Preparing and filing tax returns for fictitious S corporation businesses in order to improperly deduct customers’ personal expenses as business expenses.

 

According to the complaint, Bias and ISTC also allegedly fabricate itemized deductions on their customers’ personal tax returns, such as unreimbursed employee business expenses and medical/dental expenses, to fraudulently reduce their customers’ taxable income. Furthermore, the government alleges that Bias and ISTC similarly assert that some customers operate a business as a sole proprietorship, which is required to report its profit or loss on a Schedule C (Form 1040, Schedule C, “Profit or Loss from Business”) to the income tax return. According to the complaint, Bias and ISTC allegedly fabricate the income and expenses of the fictitious business to show a loss, which falsely lowers their customers’ taxable income.

 

According to the complaint, the Internal Revenue Service (IRS) has examined 200 tax returns prepared by Bias and ISTC and calculated a tax loss to the government of at least $828,506. The complaint alleged that out of these 200 tax returns, the IRS examined 130 personal tax returns. The IRS found that the defendants understated their customers’ liabilities or overstated their refund on 117 of the 130 personal tax returns (90 percent), according to the complaint.

 

Return preparer fraud is one of the IRS’s Dirty Dozen Tax Scams for 2017 and taxpayers seeking a return preparer should remain vigilant. The IRS has some tips on their website for choosing a return preparer and has launched a free directory of federal tax preparers.

 

In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers. 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.

17-290
Topic: 
Tax
Updated March 20, 2017