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TAX
NEWS
Why You Need an Honest
Tax
Preparer
A tax preparer's intentional
inclusion of
false itemized deductions on Schedule A means that the
statute of
limitations never ends.
The normal rule is
that the
IRS only has three years after a tax return
is filed to assess additional tax. Once the three
years have
passed, the IRS can't come back and audit the return.
There are
exceptions to this rule, however. For example, a
substantial
understatement of gross income (more than 25% of the amount
of gross
income stated in the filed return) extends the statute of
limitations
to six years.
Under some circumstances, there is no statute of
limitations. If
a false or fraudulent return is filed with the intent to
evade tax,
then there is no time limitation on audit or
assessment.
What if you give your tax preparer accurate information, but
he invents
false deductions and puts them on your Schedule A, and then
you sign
and file the return without realizing what has
happened? The US
Tax Court recently answered that question, holding that even
if the
taxpayer did not intend to evade any tax, if his tax preparer used
false information with the intent of evading tax, the
statute of
limitations never ends. Vincent
Allen, 128 T.C. No. 4 (2007)
In that case, Gregory Goosby prepared Mr. Allen's tax
returns.
Mr. Allen gave Mr. Goosby his W-2's, 401(k) statements,
mortgage
interest statement and property tax statement for the years
1999 and
2000. Mr. Goosby fabricated charitable contributions,
meals and
entertainment expenses and pager and computer expenses and
added them
as itemized deductions on Mr. Allen's Schedule A's for those
years. Mr. Allen signed and filed the returns by the
due dates,
and received copies of them from Goosby.
In March, 2005, almost five years after filing his 1999
return, and
almost four years after filing the 2000 return, the IRS
issued
deficiency notices to Mr. Allen, disallowing a number of the
itemized
deductions for those years. Mr. Allen petitioned the
US Tax
Court, and the IRS stipulated that Mr. Allen did not have
any intent to
evade tax when he signed and filed his 1999 and 2000
returns. Mr.
Allen agreed that the returns contained false deductions,
and that Mr.
Goosby had included the deductions with intent to evade tax.
The Tax Court reasoned that every taxpayer is obligated to
review his
returns for items that are obviously false or incorrect and
"cannot
hide behind an agent's fraudulent preparation of his
returns." It
held that because Mr. Allen received copies of the returns,
and did not
file amended returns for those years correcting the errors,
he should
be required to pay the tax due and should not have the
benefit of any
statute of limitations.
Apparently, it had been Mr. Goosby's practice to prepare
fraudulent tax
returns. In 2006 he was indicted, tried and convicted
of 30
violations of willfully aiding and assisting other clients
in the
preparation of false and fraudulent income tax
returns. By
allowing the IRS an indefinite amount of time to assess
deficiencies in
cases like these, the Tax Court gives the IRS ample
opportunity to
examine all of the other returns prepared by Mr. Goosby
without any
deadlines.
This case illustrates how important it is to have an honest
tax
preparer that you can trust to protect you from a lifetime
of looking
over your shoulder.
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Copyright 2007-2014
C. S.
Cooper Law Firm, Ltd. All rights reserved.